Experts cautiously optimistic of housing sector in 2015
DESPITE the apparent uncertainties surrounding the economic health of the housing sector, it is expected that investment in commercial and residential real estate in Nigeria will continue to grow and attract more foreign investors.
The second half of 2014 saw a long-awaited improvement in almost all of the indicators regarding the health or otherwise of the Nigerian commercial and residential property market, with one of the most encouraging signs being the growth of malls in major cities and re-emergence of mortgage loans as a viable way for many people to finance their home purchases. For instance, Lagos blazed the trail through its Lagos Homes Ownership Scheme while the Federal authorities launched its Nigeria Mortgage Refinancing Company (NMRC).
Some market observers reckon that investors, who have long been snapping up property through the mortgage scheme will deepen the sector and situation regarding mortgage loans in Nigeria will continue to improve as the general economic recovery gathers momentum while independent developers may step down investments due to the increase in building material prices, especially cement, which has skyrocketed to about N2, 000 per 50 kilogramme bag.
But few experts also disagreed, saying that real estate market may continue to slide this year. They say, real estate market has grim news for those looking to buy or sell property, if the government maintains its stance on property taxation, exchange rate and devaluation of the Naira. According to them, the current economic climate, especially high interest rates are not helping to stimulate the housing market.
All of these developments are expected to provide a mixed bag of positive and negative fortune in the real estate market in Nigeria during 2015, when high interest rates are expected to continue, housing development figures are likely to continue falling and foreign investors, both institutional and individual, may be showing an increasing interest in the market.
The forecast by the experts is coming on the heels of a major report by Knight Frank that Nigeria is one of the African countries that will attract foreign investors in its real estate portfolio. The Global Cities report revealed that the Super Cities Real estate markets in the Global Cities are enjoying a renaissance, and a new economic paradigm of creativity is about to spur demand.
“Consequently, we expect investors to target Africa’s mature markets of Kenya, South Africa, Botswana, and Nigeria. Nairobi in particular has grown rapidly as a regional centre due to oil discoveries, the rise of the telecoms industry, and many global firms deciding that a regional base in east Africa is necessary to truly operate a pan- African business. Cape Town, Johannesburg and Lagos are also strategic hubs, and Dubai services a growing flow of African investment capital.”
Specifically, some of the experts, who looked into the past year and the performance of the sector, however, urged the government to take the bull by the horn and address the industry, which has been described as potential catalyst to revamp the economy and impact positively on the nation’s Gross Domestic Product.
For Akin Olawore, the Principal Partner, Akin Olawore and Company, the real estate sector in 2014 witnessed the birth of a couple of ambitious projects, especially in the area of commercial developments and mass housing residential that included the Agungi Mall and the Monastery Road Mall, Sangotedo both on the Lekki Epe Expressway, amongst others.
“There was measured improvement in the retail, residential and grade C and D commercial spaces, mostly due to the entrepreneurial voyages of the middle class. This class continues to swell with the returning diasporas a number of whom decided to take advantage of service delivery gaps in the various industries. Similarly, the year witnessed renewed surge of foreign service providers forming joint ventures with locals to have a bite at the local service market.
“The year also witnessed good rental increase in the super luxury property class in choice locations such Ikoyi, Banana Island and others, but on the whole there was stability.
“2015 with the reduction in oil price, adjustment of the various government budgets downwards, inflationary trends on luxury / imported items which are usually patronised by the middle class; will witness a reduction in cash in circulation, an initial economic inertia.
“However, for there may be challenges for projects that are funded locally but those funded with foreign assistance may not feel the shock especially if they are able to import the materials required”, said Olawore.
Besides, he said there is likely to be a movement in the rental space as middle income and low income neighbourhoods are likely to have increased demand, which will push up housing prices while the current neighborhoods for lower upper class may suffer diminution in demand due to the cash squeeze and swell up the demand at the lower ends.
The austerity scenario, he said, may however help to readjust property prices for older existing buildings as they become due for rental renewal.
“It may be expected that middle class property sales may soar due to increased value of foreign currency and increase in available cash to Nigerians in diaspora in the West due to the positive play-out of the falling oil prices in their economies.
“Production cost and gasoline prices have come down in those economies and it may be expected that Nigerians may channel the surplus to property purchase in Nigeria”, Olawore concluded.
His counterpart and former President, Nigerian Institution of Estate Surveyors and Valuers, Mr. Bode Adediji predicts that the sector will witness its worst performance in recent times due to the combination of internal and external factors. “Election in Nigeria overshadows all other initiatives, religious, social and economy. The entire country has apparently come to a standstill because of political campaigns. Critical economic issues have been pushed to the back burner.
“Secondly, the fall of the price of crude oil leading to the reduction to the foreign earners of Nigeria will affect all sectors of the economy. In totality, the supply of real estate is going to be at the lowest level while its demand will drastically nose-dive. The devaluation of the Naira will impact on the purchasing power of all Nigerians. With these factors, the hope of the real estate industry in the short run is not bright at all.
“Nigeria’s general predisposition to build luxury flats on the expectation that it will be taken up by expatriates. In this situation of political uncertainty, we will be having more people emigrating from the country than expatriate migrating to the country for medium or long time stay. There are many politicians wanting to sell their property, for the time in so many decades, there are no body willing to buy. Quite a number of people, who have occupied medium income neighbourhoods, are now migrating to where their dwindling income can afford.”
The President, Nigerian Institute of Building (NIOB), Mr. Tunde Lasabi, maintained that the year 2015 is indeed peculiar for the professionals in built environment.
According to Lasabi, the political campaign, haven kicked off means that all activities have to stop, which means that most government contracts will not be enjoying the attention it deserves financially as there is absolute concentration on politics.
“The concomitant result is the possible increase in white elephant projects. This becomes more apparent especially if a new government comes into power. Besides, the noticeable derived effect is downsizing of staffers, which means that many workers will have to be laid off. This does not portend a good development for the industry”, he observed.
Secondly, he believes that the devaluation of the Naira has an un-salutary effect on the industry, most especially in the area of procurement of building materials. Prices tend to jump up thereby increasing the cost of production. Government had been making effort in the area of producing mass housing for the people but we should not forget the informal sector too. This tends to limit the propensity of private individuals to own their properties. Labour and materials cost become high, usually beyond the reach of the people.
The dwindling price of oil, he said, poses a terrible danger to the economy. “In-as-much as Nigeria operates a mono economy, over dependence on oil affects our national psyche. Capital expenditure goes into construction because it is a way of developing the national asset of the country. When the price of oil goes down, government tends to concentrate more on the recurrent expenditure than the capital expenditure. The net effect is that there would be retrenchment and the construction sector is usually hard hit.”
Collaborating Lasabi views, President, Nigeria Institute of Town Planners (NITP), Dr. Femi Olomola said: “I’m not optimistic about the housing sector. The capital market has substantially crashed. In the last two months, shares of banks have been unstable. These are institutions that can borrow developers’ money to finance housing developments. Then, you check, the bandwagon effect of the price of crude oil, it is affecting everybody, and foreign investors are mopping their finances.
“With the elections setting in, the entire nation has been at a standstill. Investors and developers are waiting for the outcome and estate development within the economy cannot be an exemption.
“We need a more responsive planning environment for our members. In the case of layout and planning approvals, to get a layout approved is a cumbersome process. The building approvals should be tidied up. All these affect housing sector. You want to develop, you wait for two to three months, and it does not help investment planning.
In his views, President of Association of Town Planning Consultants of Nigeria (ATOPCON), Mr. Moses Ogunleye, said the biggest stakeholders in the sector is the government, who he urged to put in place more pragmatic emphasis on social housing that would cater for medium and low income earners, particularly, the low income earners, whom he said forms the largest size of those who are in need of functional and homes.
According to him governments at various levels can do site and services, rework the mortgage sector, reinvigorate the Housing Loan Board, and thereby make the conditions to getting loan friendly. He added that, the other area is for the government to construct sustainable infrastructure without which, efforts to creating more houses in new communities would be futile, he said.
He said one of the challenges, which the group faced last year, was the issue engaging foreign professionals without complying with the law that stipulates their practice here. Ogunleye said ATOPCON would stand against this trend this year. “We would stand to resist preference of foreign professionals over the local experts. The challenge with this is that although the law is there, we try to circumvent it. For instance, you cannot go and hire an engineer or an architect from England to design a housing or city in Nigeria without having a Nigerian consultant in your team.”