Experts predict further dip in real estate market

A combination of heightened uncertainty and eroding affordability is expected to cut into demand and contribute to a weaker real estate market in 2019, and 2018 harsh economic realities made the sector to underperform in terms of yield and returns, according to industry experts.

While the economy remains weak, demographic fundamentals remain strong, lack of clear policy in 2018 impacted negatively on prospective homeowners access to mortgage financing in the market.

Notably, mortgage interest rates are also on the rise, further reducing buying capacity. As the activities of the Nigeria Mortgage Refinancing Company (NMRC) are yet to be felt in the market, the high interest rate are expected to further stabilise in 2019, which may worsen borrowers ability to qualify for financing.

According to the National Bureau of Statistics (NBS) third quarter (Q3) figures, Nigeria’s annual inflation rate increased to 11.28 per cent in September, 0.05per cent higher than the recorded rate of 11.23per cent in August, and the second monthly rise after 18 consecutive months of a steady decline from January 2017, when it reached a 12-year high of 18.7per cent.

Unfortunately, it is expected that headline inflation will continue its climb upwards as a result of spending for the 2019 elections; the Central Bank of Nigeria (CBN) closed off Q3 at NGN 305.85 / USD at the CBN window, a depreciation of 85 kobo from the rate recorded at the end of Q2.

The International Monetary Fund (IMF), in its October edition of the World Economic Outlook report, reduced its 2018 economic forecast for Nigeria from 2.1per cent to 1.9per cent whilst in the same month the WB reduced its 2018 economic growth forecast for Nigeria from 3.1per cent to 2.7per cent. The IMF also adjusted its projected inflation rate for 2019 from 12.4per cent to 13.5per cent. Other economic figures indicate that Nigeria’s external reserves declined to $44.30 bn at the end of September, the lowest in six months.

“A possible implication is that a constant depletion of the nation’s reserves may lead to further depreciation of the naira against the dollar, further impacting on the real estate sector which is heavily reliant on the capital markets,” according to International Real Estate Partners (IREP), third quarter Commercial Market Outlook.

Specifically, on the performance of the markets in 2018, there were divergent opinions by the professionals. Some say, the rate of sales for both new and existing properties are nose-diving; others noted that the sector has generally been fairly stable.

IREP Chief Executive Officer, Mrs. Erejuwa Gbadebo said: “Investor appetite and confidence remains weak, and records show that because buyers who can afford to buy real estate are being extremely cautious with their investment spending, there is little money in circulation for major capital projects.”

For Mr. Chudi Ubosi, an estate surveyor and valuer, “residential has been stable with rents in many areas experiencing no increases. The general attitude has been at renewal, to keep the present tenant if it means reducing rents or throwing in sweeteners to encourage them to stay.

“Fresh residential lettings have been slow and this is as a result of the economy as well as many landlords still not coming to terms with the harsh economic realities.”

In fact, the Chairman, Royal Institution of Chartered Surveyors (RICS), Nigeria Chapter, Mr. Gbenga Ismail said, “residential is still in high demand but sales are very low retail and office suffered significant value reductions.”

He heaped the blame on the non -performance of the economy, “the economy is the single factor. It slowed down and lack of liquidity.  Investment in the treasury is as serious issue affecting investment.”

Ubosi, the principal partner, Ubosi Eleh and Company corroborated Ismail’s view that retail has also been slow. But added: “Rents are not on the increase and have been more of the time stable. Landlords and agents are devising new means of keeping tenants to reduce void in their premises.”

However, IREP in its report said that despite stiff competition from small retail centres, the larger malls continue to reconfigure themselves to provide consumers with every recreational, entertainment, educational, fitness and shopping they would need; a recent example being the integration of cinemas at Circle Mall in Lekki.

“New small retail centres however, continue to spring up, especially along the Lekki corridor, with a high demand for the ground and first floor; often taken up even before completion. Existing centres are also experiencing increased occupancy rates and though welcome, this has added significantly to the congestion in surrounding areas adding to the fear of decline; clearly a trend to watch.”

Gbadebo disclosed that the conditions in the office segment remained relatively stable; construction work on prime commercial properties is ongoing, although for some, activity has stalled. “The commercial office space is gaining a new entry with the proposed Dangote Building on Alfred Rewane Road, Ikoyi, whilst the iconic IMB Plaza renovation, set to deliver over 8,000 m2 of space in 2019, continues apace.

“Asking rents in Ikoyi and Victoria Island remain constant at $700 and $600 respectively, with prospective tenants who require larger spaces, having the added advantage of reasonable concessions in rent. Q3 also saw the 12,000 m2 Kingsway Tower development put up for investment sale.”

The experts agreed that the industrial sector has been very badly hit in 2018 with many premises coming into the market either for sale or lease without any takers in sight.

“The illiquidity in the market is causing stress in this sector as investors pull back on expansion plans. Currently, rentals remain largely stable and there have been no significant entries into the market,” Gbadebo added.

Expectations are also high on the Nigeria’s forthcoming elections. IREP said: “Whilst oil prices rose, Nigeria is dealing with heightened uncertainty in the 2019 elections. Many investors / decision makers are adopting a “wait and see” strategy and some foreign investors have withdrawn their funds in order to mitigate against any political risks that might lead to a loss of investments.

“These reactions are predicated by the somewhat un-healthy relationship that has developed over the years between Nigerian politics and its economy; many policies adopted during one political tenure have a detrimental effect on those taken in previous tenures.

“Projects are stalling at the feasibility stage and the stock market is already feeling the sting of pre-election frenzy with stock prices plummeting due to pressure selling by shareholders.But most worrisome is the continued fall in oil prices. The total contribution of the oil sector to real Gross Domestic product (GDP) is fast declining whilst the non-oil sector’s contribution is rising.”

Ubosi submitted, “The outlook in 2019 does not look good. “As it is, oil prices are falling with dire implications for the nation’s income. Politics and elections are round the corner, with the do or die mentality that Nigerian politicians bring to the table, it will scare away investments and in the long run slow down the economy.”