Housing glut in time of deficits, recession
There is a lull in businesses activities in the country and the real estate sector is not an exception. Operators in the sector are recording low sales just like their counterparts in other sectors. In major cities, including Abuja and Lagos, unoccupied buildings have become common sight. Although the Federal Government said the nation suffers a housing deficit of 17billion, but the Federal Capital Territory (FCT) and Lagos are painting a picture of a country having a glut in the housing sector, given the number of empty houses in the two cities.
In Abuja, aside Asokoro and Maitama, unoccupied houses dot satellite towns due to economic downturn. Many houses now bear banners with the inscription ‘to let’ all over the city. And these are state-of-the-art architectural masterpieces that passers-by would long to occupy. It is the same story in Lagos, especially around Lekki, Opebi and Festac Town areas. Even high-density areas such as Alimosho and Ikorodu are not spared the empty houses syndrome.
The serene ambience of these houses, especially those located in Abuja, leaves no one in doubt that they are exclusively for the affluent.
The Ministers’ Hill in Maitama, Asokoro and some parts of Wuse 11 proudly exhibit houses with superlative horticulture and beautifully designed high fences. Security guards, popularly known as maiguard, are seen every morning watering flowers and grasses. Most of these houses are duplexes with Boys’ Quarters, spacious enough to pass for another two-bedroom bungalow. However, all of them have one thing in common: they are empty.
Some estates are also experiencing this problem, as they contend with houses that are. The houses are unoccupied because not many people can afford the high rent.
Housing experts have attributed the development to the global economic situation, which has inevitably hit the real estate sector severely.
Architect Ogwola Inalegwu Dominic said of the issue: “The reality of the effect of the downturn of the economy on the real estate is that the sector is running at a very slow pace now. Real Estate covers other sectors of the economy such as; health-care, dwellings for families and warehousing. A critical look will suggest to you that all these areas I mentioned are not doing well because the real estate sector is down. The middle and low-income earners, who feed mostly on construction companies, are suffering. It is a multiplier effect. Even the multinationals in the sector are retrenching workers.
“Investors are also afraid, as nobody wants to put his money in a place he is not sure of. I have properties to sell for the past six months, but nobody is pricing them’’.
He blamed the high prices of houses in Abuja on over concentration of infrastructure in certain sections of the city.
“What we have is over concentration of infrastructure in Maitama and Asokoro. Garki, Lugbe and Kubwa are now fast becoming high earners’ areas and these are places originally meant for low-income earners. So, where do low-income earners go?
In the view of former president, Nigerian Institute of Quantity Survey (NIQS) Akin Olawore, the real estate sector in usually the first hit during economic recession.
“This is because people don’t have money to pay their rent, or go into new leases. Breaking it down, you will discover that in the commercial sector, a lot of commercial buildings that have just come into the market are lying idle because foreign investors that are the primary targets of such properties are not coming. A number of them are idle and few people are leasing. That shows that the void is increasing, though it has been like that since three years back, because of the volume of spaces that are being dumped in the market. You’ll find some of them reducing their space and rent. So, it is really affecting real estate business. On the other side, people are defaulting. They just can’t find the money to pay now, so the default rate has also gone up.”
On the possibilities of property owner being forced to reduce prices, he said the market has to correct itself.
“The market is of demand and supply, and purely a business decision. So, when you need money and this is what you have, then you have to look at what the market can offer at that point, it is not as if you are selling. And even if you are selling, you also consider what you will use the money to do.
“Under the current situation, the number of houses being built will drop, because if the ones in the market are not going, why invest again? Taking such a step becomes a stunt investment, as the money is tied down, when it could be used for some other worthwhile thing.
“Unfortunately, I don’t think the fault is from the current government, I think it is a cumulative issue. The country is just coming to grips with some of the challenges and bad decisions we created for ourselves. We all need to come together, take what is available and create a running market around every house. Having vacant houses lying everywhere is not helping the economy. For instance, it is when I give you money to buy and you in turn buy from somebody else that money starts to go round to make more money. Nigerians need to start adjusting to make our economy bounce back. We don’t have foreign exchange now, and we have been depending so much on that.
Architect Olamide Ayomipo corroborated Olawore, as he explained that businesses in the country have been hard hit by the general economic downturn.
Said he: “Business activities have reduced because of the financial situation on ground. I think it is every sector that is affected. And people tend to prioritise in the midst of financial hardship, so they will most likely consider food and clothing before shelter. When things like this happen, people want to survive first before they can then think of completing the house they started.
“If you look around, you will see many houses for lease. Things are expensive now, and people are not taking up leases. If landlords have their way, they would factor in the inflation rate in their rent, if it expires within this period. But given the situation of things, they also have to reduce the price at which houses are leased or sold; otherwise we will keep off-loading many houses into the market, without buyers. We are hoping that this will end soon because business has been dull. Those who borrowed from banks to build houses are not finding it funny at all. The number of people making enquiries has reduced, which tells a lot about the market.”
Second Vice President of the Nigerian Institute of Building (NIOB), Kunle Awobolu, said it is an irony that in a society, where there is shortage of accommodation and deficit in housing, some comfortable, attractive and functional buildings are unoccupied.
“It is unfortunate because these are mostly new buildings,” he said. “One of the reasons is that the rent may be beyond the reach of an average tenant. In Abuja, for instance, we have so many buildings that are unoccupied. One cannot but wonder why the owners wouldn’t reduce the price of the buildings. This is because if a building were left unoccupied for long, sooner or later, there would be need for maintenance. So, if the money used in constructing the building were borrowed from the bank, interest would also be mounting. The owner would have no choice than to reduce the rate per square metre or reduce the rent out-rightly.”
Continuing, he said, “But we have discovered in recent times that certain Nigerians, having accumulated ill-gotten wealth, invest the monies into real estate or construction. So, they are not bothered whether the buildings are generating return on investment immediately or not. However, anyone that borrows money from bank would have no choice but to redeem the rent.”
Noting that something similar is happening in highbrow areas of Lagos State, he said the situation is baffling.
“There is also a reasoning that areas such as Maitama in Abuja are for people that have arrived. So, if you are not in that class or don’t belong in the upper echelon of society, then you can’t live in those areas. It is a pronouncement of class. The landlords refuse to lower the rent so as not to attract people that don’t belong in that class,” he said.
In his view, the real state sector is challenged in Nigeria because of the dwindling value of the naira, especially with the increasing cost of building materials and ban on some imported items.
Said he: “Many things are imported. Doors are imported, as well as ceramics. Also, construction companies have downsized. So, activity in the industry is slow, except one is involved in construction of low cost, residential buildings and not heavy construction work.”
On the quality of locally manufactured building materials, which government is championing to substitute imported alternatives, he said Nigerian builders assume that the items are the best of quality, especially after passing certification tests from the Standard Organisation of Nigeria (SON) and other standardisation bodies in the country.
“We need to emphasise that SON should carry out tests on these products at the point of production so as to guarantee their quality,” he said.
He noted that the activities of estate developers have contributed immensely in reducing Nigeria’s housing deficit, as well as assure good returns for investors, as the NIOB is concerned about the quality of buildings being sold to Nigerians.
“We want government to look into the issue of quality because sometimes, investors may not be builders. The investors prioritise profit beyond standards.
“For instance, if on a plot of land of 36’18’ square metres, one is erecting a three or four storey building with maybe three bedroom flats, this will amount to creating congestion and population density in the environment. The occupants would end up parking on the road, which amounts to mounting pressure on government facilities.”