COVID-19 triggers conversion of properties to rental apartments

Faced with the stark realities in the real estate sector, property developers are responding creatively to economic dynamics and fundamentals to ensure cash flow.

One of the strategies recently adopted by investors is the renting of apartments earlier put up for sale for easier up-takes.
They are taking advantage of prime locations in the city centres where there are large clusters of middle class workers.

Consequently, the market is witnessing appreciable conversion of houses to apartments across major cities in Nigeria.

The property market in the past years has been down with no serious activities as Nigerians become cash strapped. The advent of COVID-19 has also worsened the impact on real estate buyers.The effect is poor purchasing power of many Nigerians.

While this measure may not be the best for investors in terms of quick returns, experts consider it as a remedial approach considering the impact of rising inflation and imbalance in foreign exchange on homebuyers worsened by the corona virus pandemic.

A private developer, Emmanuel Onochie, who recently turned his buildings to rental apartments at Ajao Estate in Lagos, said the practice is growing at the city centres, business and industrial zones.

He mentioned Surulere, Ajao Estate, Amuwo Odofin, Anthony Village, Mende and Ikeja as well as Agbara, Arepo and Mowe in Ogun State as some of the notable places witnessing an upsurge of such conversions.

According to him, in the past years, the market has been at low ebb as Nigerians struggle to make ends meet due to the downturn in the economy.

The true situation, he said, is that developers suffer it most because capital projects are not the things people want to prioritise now.

“Generally, where there are a lot of acute shortages, the demand for accommodation is still high, people find it difficult to buy property.

“So we see this downturn as an opportunity to rake in what we can instead of waiting for outright buyers. In the future, we can still revert to our original plan”, he added.

The General Manager/Chief Executive Officer at NIC Properties Limited, Mr. Samuel Offiong Ukpong, said it is a cash flow issue and therefore not a bad idea.

He stressed, that in a case where a developer borrowed money for a project from fund providers, may be at an interest rate of 28 per cent and has not sold, the feasibility appraisal would be giving a negative indication.

According to him, if you have not sold, people who gave you the loan may take over the building.

“So, if you rent, the tendency of even servicing the loan may be there. Although, the intention may not have been to develop and rent because the stream of income that is coming is small compared with the output, instead of the building lying fallow.

Ukpong stressed that while rent is an annual income, the developer still owns the building and can sell it at the actual cost price eventually.

He, however, said the approach has a snag because the tenant that is staying in the place might destroy some of the facilities. So, by the time the developer wants to sell, he may have to carry out intensive improvement on the apartment, except the buyer is willing to buy as it is.

According to him, “there is no market; we just have three buyers out of 18 flats completed in Mowe.

“The purchasing powers of Nigerians is not strong and you know the currency has been devalued, it is a terrible thing.

“The people, who can venture in this kind of development and wait endlessly are people, who have easy money, mostly politicians.

But for those who struggle for their money and get into development, you have a situation where you have to develop good financial outlook of how you will be able to recoup that expenditure, these are the challenges we have in our development,” he added.