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As real estate shrinks, construction sector grows Nigeria’s GDP

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Construction and related industries are together responsible for more than 10 per cent of Nigeria’s Gross Domestic Product (GDP) in the first quarter of 2020, according to a report released by National Bureau of Statistics.

Construction sector grew by 1.69 per cent in Q1 2020 from 1.31per cent in Q4 2019 and 3.18per cent in Q1 2019. Its contribution to total real GDP was 4.08 per cent in the first quarter of 2020, marginally lower from its contribution of 4.09per cent in the same quarter of the previous year.

The real growth rate of the construction sector in the first quarter of 2020 was recorded at 1.69 per cent (year on year), lower by –1.49per cent points from the rate recorded a year prior. Relative to the preceding quarter, there was an increase of 0.38 per cent points. Quarter on quarter, the sector grew by 1.74per cent in real terms, higher (by 0.38per cent points) than the 1.36per cent it recorded in first quarter 2019 but lower than the 20.45per cent recorded in Q4 2019.

The construction sector grew by 44.26 per cent in nominal terms (year on year) in 2020 first quarter, dropping –22.73per cent points compared to the rate of 66.99 per cent recorded in the same quarter of 2019.

Similarly, cement under the manufacturing sector grew by 1.67 per cent in Q1 2020 from 1.13 per cent in Q4 2019 and 2.81per cent in Q1 2019. Basic metal, Iron and Steel also grew by 1.19 per cent in Q1 2020 from 1.12 per cent in Q4 2019 and 1.49 per cent in Q1 2019.

However, the real estate sector contracted by -4.75 per cent in Q1 2020 from -3.45 per cent in Q4 2019 and 0.93 per cent in Q1 2019. In nominal terms, real estate services in the first quarter of 2020 grew by 1.12 per cent, lower by –9.15 per cent points than the growth rate reported for the same period in 2019 and lower by –1.39 per cent points compared to the preceding quarter.

Industry experts attribute the performance to the Federal Government’s inattention on the construction of roads, bridges, railways, and airports.

“This special focus contributed to the positive growth achieved by the construction sector. On the hand, the real estate sector has been left largely to the private sector without considerable participation by the government,” according to Dr. Yemi Adelakun, Managing Director, Nigeria Integrated Social Housing (NISH) Affordable Housing Limited.

Adelakun said the private sector participation, driven mainly by the profit motive, had also been focused on the high and medium segment of the real estate sector thereby neglecting the low-income affordable housing sector, which represents 60 to 70 per cent of the housing market.

He also linked the underperformance of the real estate sector to the low level of effective demand for housing. “Those who are in need of housing do not have access to housing finance or mortgage at an affordable rate. The mortgage system has been grossly inadequate to meet the needs. Similarly, the cost of construction finance is very high and unsustainable,” Adelakun said.

Another reason, he noted, is the high prices of the houses due to high cost of production and high-profit margin imposed by the developers. “Majority of housing materials is still imported. Through an innovative approach, government intervention, local production of building materials and economies of scale, prices of housing can become affordable for the generality of Nigerians.

“Government processes of obtaining necessary building approvals and land titles are contributory to the poor performance of the sector. Lack of access to government land is also a major hindrance as developers have to procure land from other sources at exorbitant prices.

“It is rather unfortunate that the government neglected real estate sector that has great potential for economic growth with resulting multiplier effect on other areas of development including job creation, health and wellbeing, manufacturing and environmental development.”

The Chairman, Board of Trustees, Real Estate Developers Association of Nigeria (REDAN), Prince Oluseyi Lufadeju explained that the real estate sector had been bedevilled by sluggish growth, insufficient liquidity and dwindling purchasing power while the construction sector remains the highest contributor to economic growth.

“The real estate sector has not recovered and the coronavirus pandemic has worsened the prospects of growth in the remaining months of 2020. A lot of reforms are in the pipeline requiring legislative action which, if carried out, will strengthen the output of the sector,” he said.

Lufadeju advised that the government should facilitate the real estate sector to step up its performance in providing decent and affordable housing for the majority of our citizens, renew and upgrade the various slums as well as squatter settlements surrounding our major cities, strengthen the financial engineering of estate development loans and mortgage lending and refinancing.

Adelakun said, the government should develop a marshall plan for delivering large-scale and cost-effective affordable housing sector through innovative strategies.

He disclosed that the strategy should include housing revolving fund, provision of land at little or no cost, building technology, off-takers finance at the single-digit interest rate, locally produced building materials, capacity building for professionals and artisans, ease of procuring necessary approvals and land titles, infrastructure, Public, Private and People Partnership (4P).


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