Luxury homes market dip as crackdown on developers stifles demand

Despite ongoing developments in the high-end locations, the demand for luxury housing is waning largely due to changes in government’s tax policies and fears of security agencies’ harassment over money laundering, as well as government crackdown on illegal developments in the country, Chinedum Uwaegbulam writes.

The Nigerian luxury real estate market has taken a beating lately due to several indices, which include stricter government regulations and economic factors.

Choice locations like Banana Island, Ikoyi, Victoria Island, Lekki in Lagos are the most sought-after areas for luxury real estate. These locations for modern high-rise apartments, opulent mansions, luxury condominiums, and upscale retailers are obviously the preferred choice for high net worth individuals and expatriates.

The Guardian gathered that developers’ over-exuberance and government crackdown on illegal developments and money laundering in the real estate sector combined to end the selling frenzy. This backlash necessitated high vacancy rates and dampened the market.

Currently, Nigeria’s housing markets are still under pressure from the shift to higher interest rates and inflation, as well as strong underlying demand, weak supply following the disruption to new building projects. But the fall of the naira, relative to the dollar has also made purchase of houses more affordable for those in the diaspora.

The shift in the luxury market has been more pronounced in Lagos, Abuja and Port Harcourt markets. Demand for high-end homes is also waning in large part due to changes in government’s tax policies and fears of security agencies’ harassment, among other issues. The demand by the Economic and Financial Crime Commission (EFCC) for estate surveyors and valuers to disclose large transactions has scared away investors.

“What could be dampening the market is the state of the economy and policy direction of the new administration. They are obviously coming to terms with the state of affairs of the nation,” according to the Chairman, Association of Capital Market Valuers (ACMV), Chudi Ubosi.

Ubosi said whatever will revive the property market will revive the high-end market. “The high-end market cannot be separated from the rest of the economy. And basically, what the economy needs is a stable, enabling environment for businesses to thrive. Once business thrives, all sectors of the economy will experience growth including housing – at all ends,” he said.

He said demand for luxury homes has remained stable for now. “Several reasons for this include, rising cost of acquisition of units, absence of mortgages, slow economy and rapidly depreciating local currency. The lack of a policy direction from the new administration is also a contributor.

“The luxury market still remains strong and a cursory look at the number of developments coming up in the high-end locations will attest to that. These developments are majorly multiple units in high rise blocks.”

He said the clampdown on developers after the collapse after the 21-storey building in Ikoyi, increased government monitoring of high-rise developments, adding that vertical developments are the only way to maximise potential and value of the site, as well as accommodate the market demand.

“Many potential buyers are more circumspect about who the developer for their project is, track record and contractor handling the project as a means to reduce their chances of falling into the hands of rogue developers and builders.”

A fellow of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr. Sam Eboigbe, noted that the performance of the economy is directly connected with increased activities in the real estate market generally and the luxury end of the market segment in particular.

“The overall economic climate, inflation rates, Gross Domestic Product growth, foreign exchange market are important factors. Others are escalating prices of building materials, land acquisition and titling,” he said.

Eboigbe stated that the current status of the luxury real estate market is an interesting phenomenon. “This is due to the fact that the locations of these high-end luxury listings with elegant, desirable, and upscale facilities still command unprecedented high values. What is glaring and a unique attribute of this particular market is the rising price in naira per square metre of the land within the immediate neighbourhood of these luxury homes,” he said.

Eboigbe revealed that the demand for luxury homes has heightened the quest of prospective buyers to take cautionary steps in embracing due diligence all the way before the consummation of deals. “The need to engage seasoned professionals has, therefore, become increasingly important without cutting corners.

“We have lately witnessed scenarios where team players in the sector with track record of experience have recorded increased patronage, while the new entrants with no proven history of tangible deliverables are putting in so much effort to up their game since it is a competitive market,” he said.

The former Chairman, NIESV’s Faculty of Estate Agency and Marketing, explained that during periods of robust economy and stability, the demand for high-end luxury properties will rise. “It is an economic principle that increased demand for a product without corresponding supply will lead to scarcity and, ultimately, price increase.

“Secondly, infrastructural development and transportation network, provision of the state-of-the-art infrastructure and transportation networks attract property values. Thirdly, a well secured neighbourhood offering good security services is a preferred choice for high-end buyers. Safety is key and a principal consideration for luxury home buyers.”

A Professor of Estate Management, University of Lagos, Austin Otegbelu, said the low demand in luxury homes is mainly caused by declining income, high exchange rates as the rents of most of them are in dollars.

“Property cycles and linked to economic cycles. Declining economic situation negatively affects demand for real estate; particularly high-end residential and commercial properties. The relevant agencies of government should work hard to make the economy bounce back as an improved economy will stimulate demand for property,” Otegbelu, who is the Chairman, NIESV board of trustees said.

He urged prospective tenants and purchasers to avoid being victims of illegal modifications in high rise buildings, by engaging the services of experienced and knowledgeable professionals like estate surveyors and valuers for professional advice.