Investor Risks
Risk Matrix Explained
Investing in the types of Real Estate or Infrastructure projects presented on Realty Africa can be very rewarding but also involves a number of risks.
As part of the Due Diligence as performed on each project, the project specific risks are thoroughly analysed (see Overview of the Due Diligence Process for more information on the vetting process). These risks are clearly summarized in the Realty Africa Risk Matrix.
Investing in projects in Africa also include general risks which are applicable to each project. These risks are summarized below.
Part of the full analysis is to identify the major risks specific for the project. The risk analysis focusses on all risk elements like:
- Macro considerations like sector risks and country risks
- Company specific like track record and management risk
- Business risks like location, complexity and development risk
- And financial risks like leverage and repayment risk
These risks are clearly shown in an easy to read risk matrix for the convenience of the investor. This makes it very easy to get a quick and comprehensive overview of the risks for the experiences as well as the less seasoned investors.
Macro considerations
The macro considerations look at an alternative angle of the project. at the considerations take into account the city location of the project, the country and sector perspective.
For instance, the risk related to a change in government regulations or other potential political influence which is a relevant risk for the regional countries.
It also looks at the sector risks. Is the area already crowded with hotel accommodations or are many similar projects being developed at the moment. Questions are investigated like, Is there already a surplus of housing or are there many commercial properties that are empty?
Also considered is whether there are comparable projects to see how successful those projects are and at the future plans for the area to see if the project fists these plans.
Business risks
Business risks looks at the risks specific to the type business that is offered by the project. You can imagine that a housing project entails a different business risk than a hotel development. Business risks include the complexity of the building and building process as well as on site risks that might exist. These onside risks include the accessibility of the land, the availability of resources like water and electricity as well as sewage.
Another type of business risks includes assessing if the proposed project fits the location. A housing project for instance in the middle of an industrial area does not always make sense. Also it might be more risky to create a sound business case for developments in rural areas compared to urban areas.
For longer term projects which include operations, an important risk is the operational risk. Central question to ask is, what is the expectancy of occupancy rates compared to similar businesses in the area.
General Risks
Your Capital is at Risk
If you invest in a project through the platform, it is possible that you will lose part of your invested capital. Your investment is securitized and you have recourse on the underlying asset. Also your Invested Amount is actively managed by Realty Africa. Not all funds are disbursed to the project developer at once. At the end of each pre-defined stage, a surveyor will go on side to check on the building progress, before the next amount of money is disbursed. This helps to minimize the misuse of funds. However in case a foreclosure is necessary, it is possible that none or not all invested funds are recoverd. This Capital at Risk is not guaranteed by Realty Africa or by any of the service providers of Realty Africa, and you should not invest more money through the platform than you can afford to lose without altering your standard of living.
Investments are Illiquid
The securities you purchase through the platform are not listed on any exchange, and there will be no active secondary market in which you can sell those securities. This means that you can only expect an exit at the pre-defined end date of the investment. The tenor of each investment can be different. Please read the offered information carefully.
Tax Treatment
Each time you invest in an project campaign, you must satisfy yourself prior to making any commitment that you understand and accept the tax consequences to you of making that particular investment in particular the foreign tax treatment of interest proceeds in your home country.
Performance and Diversification
All projects offer an interest which is the projected future results. By their nature, projected results are not guarantees of future results or performance and Risk as shown in the Realty Africa Risk Matrix could cause actual results to be different from those offered in the campaign. Investing in unlisted Real Estate or Infrastructure projects, such as the projects presented on Realty Africa, should only be done as part of a diversified portfolio. This means that you should invest diversified in many such projects in order to mitigate the risk that individual investments fail or cannot be realised. In addition, you should not invest more money in this asset class than you can afford to lose without altering your standard of living.
Currency Exchange Rates Fluctuate
Investments through Realty Africa are denominated in the local currency of the foreign country where the project takes place, but most investors live in countries that use other currencies. The exchange rates between your local currency and those foreign currencies will fluctuate over the life of your investment. This means that even if the project is successful and the value of your investment is realised in terms of the foreign currency, you may not be able to realise the full value of your interest return in terms of your local currency, and you may lose some or all of your investment due solely to exchange rate fluctuations. This currency risk commences after a sucessfull funding campaign. Realty Africa offers the most important currencies as your investment currency of choice. Only at the inception of the project are your funds converted to the project currency.