Sub-Saharan Africa is showing some encouraging signs such as huge improvements in governance. Transparency is still a major concern, however, so investors will need high-quality local advice, as Ian Cundell reports

Sub-Saharan Africa is probably the last location property investors think of when trying to decide where to allocate resources. Despite the continent being an abundant source of many of the world's most valuable natural resources, it is telling that, unlike their western counterparts, African news aggregation websites rarely have real estate sections.But that is not to say that there is no investment market, and it might be that the first signs of sub-Saharan Africa transforming itself from a backwater to a genuine emerging market are emerging.According to analysis from Knight Frank, although there are wide variations between countries, "the political stability of the continent appears to be improving and its economies are generally growing steadily". Africa recorded GDP growth of above 5% in each of the past three years, helping to encourage improved levels of foreign direct investment. This, in turn, has helped the development of the continent's commercial and residential property markets, which are gradually evolving as they adapt to changes in occupier demand. Many African cities are experiencing improved demand for office space, most notably in those countries whose economies benefit from growing oil and energy sectors, say Knight Frank. While growth has generally been highest in oil-rich countries, such as Angola and Nigeria, other countries have also recorded solid growth. Zimbabwe remains the principal exception because of political instability and out-of-control hyperinflation. Banking and government occupiers are, perhaps unsurprisingly, key sources of demand for office space. In many cities, development activity has shifted away from traditional central business districts to emerging business districts able to offer more secure and modern office accommodation.

Retail markets are developing across the continent. Although much retail activity continues to be focused on traditional street trading and markets, new modern shopping centres are being developed in many countries, catering to the needs of the growing middle classes. Demand for high-quality residential accommodation varies between countries, and is generally driven by expatriate communities and, in some cases, by the increasing wealth generated by the oil industry.Stephen Wyatt of Knight Frank's Gaborone, Botswana, office puts it succinctly: "The opportunities are here."And signs that they are to be exploited are emerging. For example, the property investments division of Standard Bank plans an African property fund with a portfolio valued at $1bn in the next three years as part of its expansion into Africa and other emerging markets.

Stewart Shaw-Taylor, the global head of the division, says that Standard Bank believes there is investor appetite for such a fund, but that it has to find the right product to attract investors, adding that it would be a private closed-end fund aimed at international investors rather than institutional investors.Shaw-Taylor says the unit will move into countries where the bank has a strong presence and where economic growth and the property market cycle are promising.Botswana is a good example of a stable market with emerging potential. Knight Frank's Wyatt says: "The economy has improved dramatically over the past 12 months," adding "The market is very small but there is certainly a property investment market in the office and retail sectors."He cites a recent deal worth around Pula300m (€31.3m) showing a net yield of around 9% and says that yields have compressed from 11-12% recently.Most interest is from South African funds familiar with the area and, says Wyatt: "From the occupiers' point of view there is little stock and this is driving rents, so we are starting to see a lot of development."As with any property market the health of the business cycle is crucial. The Botswana economy is largely driven by the diamond market which, according to Wyatt, has seen sales drop over the past couple of months, thanks largely to the problems in the US economy. However, he believes that most African markets are performing well.The key aspect of Botswana is that it is a stable democracy with high standards of governance and, in particular, well-developed property law based largely on that of the UK.

This contracts sharply with some other countries - Mozambique, for example - where it can be difficult for investors to be certain what they are buying.There is evidence elsewhere on the continent that good governance habits are taking root. Earlier this year Nigeria ceded the Bakassi peninsula to Cameroon after lengthy negotiations in a deal described by the UN Secretary General as "a triumph for the rule of law".Meanwhile in Tanzania - long associated with a very African style of socialism - the first mortgage company has been established with a view to simplifying the process of home ownership. The company also works directly with residential developers to ensure their customers have the ability to easily get quality properties, allowing them to move in quickly, while paying for the home over a 15-year period. The arrival of a nascent mortgage market is the direct result of financial reforms enacted in 2007, with further reforms under a draft Unit of Titles Bill planned to begin the process of land registration and create a proper system of title deeds. To date an estimated 75% of Tanzania's properties have never been surveyed. It is far too early to describe Africa as a fully emerging market - there remain perfectly reasonable doubts about the quality of governance and transparency - but is is clear that opportunities are beginning to emerge. Probably the South African funds will be the primary leader of investment but, as with the other emerging markets, those institutions interested in placing some of their ‘risk' finance in African real estate should ensure they have high-quality local advice. At a time when large UK house builders have halted construction, Knight Frank's Wyatt notes that Gaborone "has a lot of cranes".