2022: Despite inflation, unfriendly policies, real estate sector shows resilience
Delivery of affordable housing suffered setbacks, say experts
Notwithstanding the poor performance of the economy in the outgoing year, the real estate industry has show resilience amid high inflationary trend, flooding and other unfriendly policies that almost crippled investment.
The Guardian gathered that the recorded gains could be attributed to ability of the industry to withstand socio-economic shocks, being private sector led and carefulness by operatives in financial transaction management.
A more worrisome development within the year was the high rate of insecurity and low value of the naira, which forced many investors to become risk averse as developers reviewed prices while others suspended construction.
Nigeria’s inflation rate surged to 21.47 per cent in November 2022, up from 20.47 per cent recorded in the previous month. This affected the costs of building materials such as reinforcement, sand, roofing sheet, tiles, cement and granite, whose prices rose by over 80 per cent.
Over 60 per cent of the total cost of housing construction is spent on materials, which are mostly imported, while the remaining 40 per cent is spent on labour. Many estate managers and developers did not enjoy the best of times in the sector as they experienced slowed transactions due to other issues like cost of acquiring land/title, scarcity of skilled labour, fluctuating foreign exchange, logistics problems, and supply bottlenecks that affected projections.
These impacted the price of rentals in major cities like Lagos, Abuja, Ogun, Ibadan, Port Harcourt and Kano, with homeowners and property managers increasing rent by 80 per cent in almost all locations across the country. The average price of one-bedroom flats for rent in a highbrow location in Lagos rose to about N900, 000 yearly. Rentals for three bedrooms start from N1.9 million to over N4 million.
The National Housing Programme (NHP) of the Federal Government although on course, could not make much impact in bridging existing housing deficit due to paucity of funds and outstanding liabilities of about N191.75 billion as revealed by the government.
Despite the challenges, the nation’s construction and real estate sectors contributed N20 trillion to the Gross Domestic Product (GDP) as attested to in a recent report by the National Bureau of Statistics (NBS). The report showed that the construction and real estate sectors contributed the amount in the first three quarters of 2022 while construction services earned N12.9tr, real estate contributed N7tr to the GDP.
It further indicated that construction contributed 9.5 per cent to nominal GDP in the third quarter of 2022. This was higher than the 9.26 per cent it contributed a year earlier and higher than the 7.95 per cent contributed in the second quarter of 2022.
The industry also grew by 18.92 per cent year-on-year in the third quarter of 2022. On a Quarter-on-Quarter basis, the sector growth rate was placed at 16.38 per cent. The contribution to nominal GDP in Q3, 2022 stood at 4.96 per cent, relative to 5.27 per cent recorded in the third quarter of 2021 and higher than the 4.95 per cent reported in the second quarter of 2022.
Industry experts say the scorecard for the industry is, however, relative. They noted that the recorded gains could be attributed to ability of real estate to withstand socio-economic shocks witnessed within the year.
The Executive Director, Housing Development Advocacy Network, Mr. Festus Adebayo, said the sector performed well in the year, adding that the major challenge to housing in the year was the impact of flooding that rendered many Nigerians homeless and triggered international sympathy.
He affirmed that in the first quarter of the year, the sector performed better than the last quarter of 2021 while in the second quarter, the contribution also increased, stressing that the last report from the National Bureau of Statistics, affirmed that the performance of the sector has increased despite the inflation pressures, which led to high cost of building materials. However, Adebayo said what has suffered in the sector, is the delivery of affordable housing.
“This has become an issue that is difficult for private developers to build low cost or social housing without the intervention of government. Inflation has brought the sector to the reality that it is only the government that can build social housing. The residential market, from the middle to high income has done very well. In the commercial segment, those who cannot build their own houses are looking for where to do businesses, “ he said.
Although, Adebayo said the performance of the sector has not been satisfactory, he revealed that in other countries the contribution of housing sector/mortgage sector is more than what is witnessed in Nigeria. He explained that interest rate is a big barrier to the growth of housing industry in Nigeria.
“ Presently, the housing sector has not contributed up to 10 per cent to the Gross Domestic Product. It is still a little above five points. I will be satisfied when the Nigerian housing/construction and mortgage sectors are able to contribute more. The contribution of the sector in Ghana is still higher than that of Nigeria but l can tell you that we are improving.”
“ You don’t have double digit interest rate and expect that the industry will not face some challenges. More efforts must be made by state governors to give access to land. It becomes cumbersome for investors to invest in the sector when access to land and title perfection is difficult. To get building approvals, some state governors have turned it into a source of generating revenue. Government must have strong political will to address these issues because with housing the economy of Nigeria can be turned around.”
On National Housing Programme, he tasked the Federal Ministry of Works and Housing to lead by example, noting that the Ministry is still building for people who already have houses whereas their focus should be to build for Nigerians who cannot afford homes.
He said: “ If the National Housing Programme (NHP) two-bedroom flat is sold to the public at N7. 5 million, who are they building for? I think the National Housing Programme should target those who are at the low and middle echelon of the society. Who among civil servants can afford the N7.5m in Taraba, Sokoto, Kano and Ekiti States? The same NHP got lands free of charge, we need to know what the Federal Government paid on the land. The same national housing programme has budgetary allocation yet they said there is no money to complete the project. What have they done with the money received that benefited Nigerians.”
He emphasised that if there is any reason the Federal Government should get involved in direct construction of housing, it should be for social housing.
“ The business of the Federal Ministry of Works and Housing should be creating enabling environment, policies and programmes that will make private sector invest in housing. Building houses is like competing with private developers,” he added.
The former Chairman, Faculty of Estate Agency and Marketing, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr. Sam Eboigbe, said the performance of the sector regarding whether it showed resilience in the outgoing year is relative and depends on the angle of perception.
He said: “There are some areas enjoying wonderful turnover from investment while others are actually regretting. In the hinterland parts of Lagos like Surulere and Yaba areas, as an investor, you are smiling because whatever project you have, you cannot have sales voids because people are always looking for houses in those areas.”
“But there are some areas now on the Island where you put housing units in the market, they are there for long until you have to effect a reduction in prices, you won’t be able to make headway.
“In Banana lsland, it is unthinkable that we should be talking about over N1 million per square metres for land. Who would have imagined three or four years ago that land value in Banana lsland, Lagos, will be that high. If you have land in Banana lsland, people want to buy it. So, as an investor in that location it means you will be smiling while others are complaining.”
On office market, Eboigbe said since the outbreak of COVID-19 Pandemic, where the culture of remote work has been embraced by many people, some have given up on letting office spaces. This, he said, still creates some void in that market.
“Some people have realised the need to collapse offices to ensure that they don’t pay so much money. And so everybody tries to minimise exposure financially,” Eboigbe added.
The President, Real Estate Developers Association of Nigeria (REDAN), Dr. Aliyu Wamakko, confirmed that the sector performed well despite the economic meltdown from 2020, adding that the sector contributed about 6.4 per cent to the GDP.
He said operatives look forward to the government to stop unfriendly policies in housing construction, create enabling environment for the private sector and better opportunities to thrive.
Wamakko said policies of the next government should be different because in housing construction, there are no incubation periods rather it is an upfront generation of employment for the country.
According to him, the sector can help to rejuvenate the Nigerian economy and make it vibrant by constructing houses, emphasizing that in each houses built, 25 jobs can be created. He further want the Federal Government to redirect budgetary fund for housing construction into real estate private sector at single digit interest so that the developers can pay interests, taxes, build houses and create employment.
“I believed the sector is doing fine. The only challenge we are having is the issue of money laundering into the real estate, which is a big problem. We are working with the Independent Corrupt Practices and Other Related Offences Commission (ICPC), and Special Control Unit Against Money Laundering (SCUML), an arm of Economic and Financial Crimes Commission (EFCC), to eliminate that and get a better real estate sector in Nigeria. Mostly, the real estate is private sector driven and operatives are more careful in the aspect of financial transactions than what is obtainable in government circle. The decorum in the industry contributed to its success,” he said.