How to revamp housing in recessed economy, by experts
There is widespread anxiety as Nigeria has entered another recession amid the coronavirus pandemic. The worst hit by the declining economic trend had been the housing industry, which was nursing injuries from government policies in the last four years.
This year, particularly, the entire real estate sector performance slowed down, according to the National Bureau of Statistics (NBS) data.
Following the latest development and coupled with limited spending, ability by governments, private sector and households, access to affordable homeownership in the country, may experience further slump below the pervading 25 per cent.
Nigeria’s economy slipped into crisis after its Gross Domestic Product (GDP) contracted for the second consecutive quarter.
There has been depletion in gross domestic product and cut in oil production, which is a major revenue source to government, to approximately 1.4 million barrels.
The government’s pronouncement of a tough financial period is hinged on performance of the economy in Quarter 3 2020, which reflected residual effects of the restrictions to movement and economic activities implemented across the country in early quarter two. Thus, in the nation’s quarter three, 2020, the GDP contracted for the second time by -3.62 per cent.
The Statistician General of Nigeria, Yemi Kale, said cumulative GDP, for the first nine months of 2020 therefore stood at -2.48 per cent.
Growth in real estate nosedived to -21.99 in the second quarter of 2020 making it the lowest since 2016. Monetary/economic activities in the property sector in quarter two, was -18.15 per cent lower than -3.84 growth recorded in corresponding quarter of 2019, while on quarter to quarter basis, real estate performance declined by -2.71 per cent in the period under review.
Specifically, production activities in the commercial real estate segment was on a a slight decline in quarter two, 2020 as projects were halted with very low transactions due CoVID-19 restriction protocols. Overall, the property market contributed 5.30 per cent to the economy in quarter two of 2020 lower than 6.43 per cent recorded in 2019.
Already, the housing indusrty has been in crisis with many living in un-habitable homes and slums. The search for a breakthrough by individuals and private sector players who look forward to government’s intervention in mitigating shortfalls put at over 20 million has remained a long walk to freedom.
Issues around high mortgage regime, high cost of building materials and labour, access to land, property rights, and cost of loans impede efforts at reducing deficits by operators.
The president, Nigerian Institution of Estate Surveyors and Valuers, (NIESV), Sir Emmanuel Wike, said that for the economy to have recessed, it implies that things aren’t progressing.
He stressed that the development will hurt the housing sector because people won’t have the purchasing power to embark on any construction activity.
“There will be no funds for people to carry out real estate investment as it is capital intensive. For those who are already developing buildings, what it means is that if the recession lingers, people might not be able to have the money for rent and there would be a lot of void in the sector. People, who are paying for three bedrooms flat/bungalow before, may cut down to two-bedroom which could be cheaper than what they are paying before.”
Wike said most of the properties where the government could collect taxes and revenues would be void. For instance, he stated that if a property is not let out, government couldn’t get its revenue from a landlord that rent with withholding tax.
He suggested that the government should re-invest in the key sectors of the economy such as real estate by giving tax holidays for real estate investment, investing into agriculture, tourism and other sectors of the economy.
Government, he said, needs to pursue some critical policies that would encourage investment in the economy to grow as well as push the economy out of recession.
He warned that if government failed to toe such path, the recession may continue for a long while and that could lead to economic depression.
According to him, professionals in the housing sector should come to a round table and discuss issues that could help the federal government weather the storm and suggest new policy as the recessed economy would affect everyone.
A past president, Nigerian Institute of Town Planners (NITP), Luka Achi said the recessed economy would reduce affordability by the people who could pay for housing
He also stated that decisions by housing investors and developers, regarding what to use the little available fund for, will shrink investment in housing.
Achi said, “There may be slow delivery of affordable housing except where structures have reached an advance stage and it is critical. The longer the recession stays, the longer it has a long-term effects on final delivery of houses.
“It is also possible because of the low cash flow, there will be scarcity of funds and people may sell their land cheaper or lease at cheaper rate than before and some landlords might lower their rents.”
Achi implored the federal government to encourage the use of local materials in the recession period, especially in the choice of type of roofing for low income housing, redesigning the sizes of rooms to reduce the materials for bogus buildings, the use of cement and laterite mix.
“If government is serious on housing production, it will look into areas of policies, support for housing sector in terms of site and services schemes, look into the areas of housing design changes, the allocation of land for people, especially in the area of distances between where people live, work and play,” he said.
The former president, Nigerian Institution of Structural Engineers, Dr. Victor Oyenuga, noted that there could be housing booms when the federal and state governments offer new opportunities in the construction industry.
However, he said when the government isn’t building new houses in a recession, there may not be contracts for professionals as existing jobs may even be put in limbo.
“Building projects are long-term investment and if there isn’t hope of getting investment recouped in a short term, then the best thing investors will do is to look for other ways of investment until the situation in housing gets better. People may have to retain the funds they have because if they spend it on construction and the building is up to carcass level for roofing, it’s still not productive until it is finished, and looking good that it can be occupied”, he said.