Impact of COVID-19 on Nigeria’s property market
The spread of the COVID-19 pandemic undermined the real estate sector throughout the world.
Containment measures involved total or partial shutdowns of construction sites in many countries, and the associated income and revenue losses for households and enterprises adversely affected the outlook for the different segments of the property market, depending on the timing and stringency of confinement and the severity of the public health crisis, which differed across countries.
As the effects of COVID-19 are felt around the world, real estate companies are being impacted in different ways, largely dependent on region and asset class. In the near term, real estate executives are concerned with preserving value and liquidity, keeping tenants and visitors safe, including increased cleaning measures, and complying with governmental agency requirements.
Following the transition to remote work systems due to the lockdown, it is expected that businesses will incorporate more remote working options for their employees and review their space requirements at the time of their lease renewals, both in the short-term and post-COVID. The confinement measure implemented to cob the spread of the virus affected businesses across the globe. Factories, offices, schools, and even religious buildings were forced to close, leaving only essential services to operate as the world battled to combat the Coronavirus.
In Nigeria, there may likely be demand chain disruptions in the property market, such as abandonments of projects and supply depression. Demand for properties, both residential and commercial, has been slow since the outbreak of the pandemic, while the contract of sale for many properties about to be concluded was put on hold by clients. Construction sites shut down because of the lockdown order and since the partial lifting of the lockdown, many are unable to resume due to price hikes in building materials and variation in the bills of quantities. The interstate lockdown has also increased building contract breaks. Health concerns and stay-at-home orders led to fewer buyers looking for homes and fewer sellers willing to list their properties or allow strangers to enter their homes during a pandemic.
Despite the steep downturn during the early March of 2020, home sales rebounded around November 2020. At the same time, the health crisis generated an economic toll causing a historic spike in the unemployment rate. Businesses were forced to shut down due to confinement measures as many companies had to let go of staff, some companies moved to smaller office spaces which rendered most of the commercial properties vacant. The pandemic also affected many families and left them even more fragile, as access to food and shelter left many people struggling to afford to meet their basic needs.
The economic impact of the pandemic has underscored the importance of the right to social security, which requires states to use a range of measures, such as unemployment benefits, cash transfers, and food assistance, to ensure people can afford to maintain an adequate standard of living. The Federal and Lagos State Governments also provided food assistance during the pandemic, with state government officials claiming food handouts reached around 500,000 people.
Money transfers, food, and other government assistance, however, have fallen far short of need. Records have shown that between April and May 2020 just over 2 percent of households had received money transfers since the start of the pandemic and 12 percent had received food assistance, whereas more than half had run out of food in the previous 30 days. However, due to the limited reach of government assistance, there was a spike in the insecurity rate across several regions in Nigeria. There were several cases of looting of government storage houses, theft within neighborhoods, protests against the lockdown mandate, and general unruliness of the poor in the society, etc. The confinement measures did not only force businesses to operate digitally but also affected the commercial sub-sector. The hospitality business was affected a great deal, tourism properties were put on halt due to the travel restrictions.
The Covid-19 effect portrays a negative sign that the relevant stakeholders need to address. There is the tendency of income losses as prospective buyers may end up renting and in some cases, rent default may begin to occur. The budgetary reduction on capital expenditure by the government will invariably reduce supply. Real estate practitioners will need to embrace the new normal world by investing in digital service delivery strategies and automation of their activities to reduce overhead costs, keep business afloat and be part of the new normal working style. Property developers will have to understand the new dynamics and study the market for absorption rate of their products. As businesses are now operating digitally, the work from home experience has shown that businesses can operate with a sizeable necessary office space especially in the service sector. Meetings hold online and reduced physical discussions are required resulting in reduced demand for office space. Jones Lang Lasalle (2020) affirmed that the ‘new normal’ world has emerged as the businesses cannot go back to the pre-Covid-19 pandemic because of the people’s resilient adaptation to the style of working from home. The job cuts and closure of some businesses will increase vacant spaces in the market with a consequential reduction in rent.
Furthermore, in the long run, the property market will experience its share of low demand for office space, rental price crashes, property gluts in highbrow areas, and probably a recession. Mostly, the demand for residential properties with comfortable spaces that will enhance working from home will be in high demand because the home will also double as a workspace.
Idike is a Lagos-based estate surveyor and valuer.