17,8 mm Band 63 Schriften zur Immobilienökonomie Sub-Saharan Africa is, to many western real estate investors, a region which is Hrsg.: Prof. Dr. Karl-Werner Schulte defined by poverty, unrest and complete lack of good governance, and thus a Prof. Dr. Stephan Bone-Winkel very risky investment destination. Although this perception may be true for some Prof. Dr. Wolfgang Schäfers countries in the region, it is overly exaggerated for other countries. Certainly, property markets in the region are at their nascent stages and still shrouded with opacity, but over the last two decades of institutional reforms, some noteworthy progress has been recorded. Considering the infancy and opacity of the market, pursuit of real estate investment in the region still requires clear understanding of the institutional environment. This book uses agency theory perspective to examine the challenges facing real estate investors in the region. Using real estate investment activities of selected corporate investors in Tanzania, the book shows how opportunistic tendencies result into sub-optimal investments and how the problem can be addressed using institutional Moses M. Kusiluka Moses M. Kusiluka remedies. This book is one of the pioneering works which attempts to use agency theory to Agency Conflicts examine agency conflict mitigation practice in real estate investment activities in a setting which is characterised by informality and market opacity. The book is quite relevant for real estate researchers, investors and professionals. International in Real Estate real estate investors should equally find this book a useful guide in recruiting and dealing with local partners, agents and business managers. Investment in Sub-Saharan Africa Exploration of Selected Investors in Tanzania Agency Conflicts in Real Estate Estate Agency Conflicts in Real and the Effectiveness of Investment in Sub-Saharan Africa in Sub-Saharan Investment Institutional Remedies ISBN 978-3-89984-317-0 Ein Unternehmen der Gruppe Rudolf Müller www.immobilienmanager.de Moses M. Kusiluka Agency Conflicts in Real Estate Investment in Sub- Saharan Africa Exploration of Selected Investors in Tanzania and the Effectiveness of Institutional Remedies Bibliografische Information der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.d-nb.de abrufbar. ISBN 978-3-89984-317-0 © Immobilien Manager Verlag IMV GmbH & Co. KG, Köln 2012 Ein Unternehmen der Gruppe Rudolf Müller Alle Rechte vorbehalten Umschlaggestaltung: Rainer Geyer, Köln Druck: SDK Systemdruck Köln GmbH, Köln Printed in Germany Das vorliegende Buch wurde auf umweltfreundlichem Papier aus chlorfrei gebleichtem Zellstoff gedruckt. I dedicate this work to a very special friend and a wonderful guardian, my late grandmother – Tudetsiwe Preface I Preface Sub-Saharan Africa is one of the marginalised real estate investment markets. Investors in the Western countries consider the market to be very risky. In many cases such fear is exaggerated compared to the reality on the ground. It is worth noting that, many countries in the region have, over the last two decades, been undertaking major structural adjustments which have significantly improved the investment environment in the region. Among the positive impacts of the reforms include some significant increase in real estate investment allocations by corporate investors especially pension funds, noticeable participation of retail investors in the real estate market and gradual entry of foreign real estate investors. Poor flow of accurate information and paucity of research and publications focusing on the region are some of the main reasons for the persistence of the distorted image of the region. This book is an attempt to address the dearth of comprehensive real estate research literature in the region and presents a research work investigating the practice of agency conflicts mitigation in real estate investment activities. The study, upon which this book is based, uses investment activities of selected corporate and foreign real estate investors in Tanzania, to investigate the practice of agency conflicts mitigation. The research involved examining various forms, catalysts and mitigating techniques of opportunistic tendencies arising in the real estate investment activities of the selected investors. The study also entailed identifying and comparing various institutional constraints of human behaviour, which were then tested for their effectiveness in constraining agents’ opportunistic tendencies. The study reveals prevalence of various forms and catalysts of agency problems in real estate investment activities, suggesting ineffectiveness of various formal institutional remedies of agency problems. The situation is noted to be largely aggravated by the nascence of the prevailing formal institutions and property market opacity. However, the study also reveals that, in the absence of strong formal institutions, informal institutions and other human behaviour drivers play a considerable role in constraining opportunistic behaviour in agency contracting. This observation reinforces the argument for inclusion of informal institution attributes in agency theory modeling and in devising society-specific remedies of agency problems. II Preface The findings of the study further underscore the importance of blending formal and informal institutions in order to have more effective and society-specific remedies of agency problems. To address property market opacity, the book underlines the importance of strengthening corporate governance, education, research and property market institutions. This book is one of the pioneering works testing out agency theory using real estate investment activities taking place in a market setting which is dominated by informality, market opacity and nascent corporate governance institutions. This piece of work is also unique for its significant deviation from the common focus of real estate researchers in the Sub-Saharan Africa region. Most of the existing research literature in the region has focused on issues of land rights, land conflicts, land acquisition, informal settlements, affordable housing and property taxation. It is our hope that this book will stimulate thinking, debate and research on the subject. The author has been awarded a Doctor of Philosophy (PhD) degree by Ardhi University in Dar es Salaam, Tanzania. Apart from its academic importance, this book is also very useful to real estate investors, professionals and policy makers. Real estate investors in the Western countries should equally find this book a useful guide when contemplating the mode of market entry and in recruiting and dealing with local partners, agents, managers and employees. Prof. Dr. Karl-Werner Schulte Prof. Dr. Stephan Bone-Winkel Prof. Dr. Wolfgang Schäfers IRE|BS International Real Estate Business School University of Regensburg Foreword III Foreword I would like to thank each and everyone who in one way or the other contributed to the successful completion of this work. I am immensely grateful to my two supervisors, Prof. Dr. Karl-Werner Schulte and Dr. Medard Lucas Geho, whose guidance led to fruition of this piece of work. I am particularly wordless to Prof. Schulte for going beyond the role of a supervisor and introducing me to the world of real estate scholars. He encouraged and supported me to travel the world, participate in many scientific conferences, and meet many professors I needed for my study. Knowing him, both as a professor and as a person, has been quite rewarding. I would also like to thank the Deutscher Akademischer Austausch Dienst (DAAD) for the financial support. It is also impossible for me not to specifically thank the professors, doctoral students and secretaries at IRE|BS International Real Estate Business School for their support during my more than 3 years stay at the University of Regensburg. I am similarly grateful for the support I got from my colleagues in the School of Real Estate Studies (SRES) at Ardhi University. In a special way I would like to thank Dr. Cletus Ndjovu, the Head of the Department of Land Management and Valuation, Dr. Charles Lucian, the Head of the Department of Real Estate Finance and Investment, Dr. Samwel Waigaima, the current SRES Dean, and Dr. Agnes Mwasumbi the former Dean, for their invaluable support during the different stages of my study. I am immensely grateful to my wife, Sophia, not only for putting up with me but also for constantly checking up on me to make sure that I was always busy working on my study. I also thank her for reading, re-reading and correcting the entire book. I am similarly very grateful for the invaluable support and encouragement I got from my brothers Prof. Lughano Kusiluka and Ayoub Kusiluka and their very caring families. Thank you. Moses Mpogole Kusiluka Regensburg, August 2012 IV Table of Contents Table of Contents List of Tables .................................................................................................................. X List of Figures ................................................................................................................ XI Abbreviations ............................................................................................................... XII 1 Introduction .............................................................................................. 1 1.1 Background to the