Why Nigeria’s real estate sector grew by most in 6yrs
Nigeria’s real estate sector posted 3.85 percent growth in the second quarter of 2021, representing its highest growth in six years, thanks to the full re-opening of the economy and increased investment interest.
The 3.85 percent growth is the sector’s highest second-quarter growth since the 4.95 percent growth in Q2’2014, as an analysis of data released by the National Bureau of Statistics (NBS) shows.
However, a breakdown of the NBS data reveals that the sector’s contribution in the review period was slightly lower by 0.6 percentage points. From contributing 5.34 percent in Q2’2020, the sector contributed 5.28 percent in the same quarter of this year.
Compared with the corresponding quarter of 2020, when the sector contracted by 21.99 percent, the 3.85 percent Q2’2021 growth is higher by 25.84 percentage points. It is also 2.08 percentage points higher relative to Q1’2021.
“This shows investors’ confidence in the Nigeria Real Estate Sector as a subsector of the economy, which thrives despite the current inflation and devaluation of the naira,” Freeman Osonuga, Real Estate Investor, Advisor and Best-Selling Author, says.
Despite the slowdown in the economy, which reduced household income and crimped consumer purchasing power, the real estate sector has seen increased investment interest with individual and institutional investors raising capital and deploying the same into the sector.
“The fact that there is economic slowdown does not mean that is how the market is going to be forever. There will be changes and forceful improvements that will improve project attractiveness.
“We are not really concerned about where we are right now. We believe that we are investing at the right time; when people are not investing is the right time to invest because that is when you get a better deal for your development,” Obi Nwogugu, former principal at African Capital Alliance (ACA) explains to BusinessDay.
A broader perspective to the increase in investment interest in real estate, leading to the growth the sector has seen, is in what Paul Onwuanibe, CEO, Landmark Group, calls “people issue or strong demography.”
Onwuanibe explains, “Nigeria has a large number of people who are very aspirational; the same thing with Lagos. I understand that the median age in Nigeria is 19 years while the average age is 27. So, we have about 75 million people between the ages of 16 and 27.
“This tells any investor that the future is bright because all these people have to live, work, eat and play; go to school and hospital somewhere and real estate envelopes all these; provision has to be made for them. Eventually, the real estate market, with the right government enablement and right financial dynamics, will always prevail.”
The increase in economic activities in the property market could be confirmed from the performance of the construction sector in the second quarter of 2021. Year-on-year, Nigeria’s construction sector grew by 3.70 percent, higher by 35.46 percentage points from the -31.77 percent recorded in the comparable quarter of 2020.
A further analysis of the NBS data shows that the 3.85 percent growth reported in Q2’ 2021 is the fourth positive GDP value the sector has recorded in the last five years. The first positive value was reported in Q1’ 2019, the second was in the fourth quarter of 2020 when the sector exited an almost two-year recession, and the third was the first quarter of 2021.
While the COVID-19 challenges brought more woes to the Nigerian economy, it also presented some sectors with the opportunity to grow even while in a pandemic. The real estate sector is one of those sectors.
A survey by BusinessDay reveals that some of the industry players in Nigeria’s property market made more money during the pandemic than pre-pandemic, as the uncertainty that came with the outbreak of the coronavirus forced investors to channel their funds to the sector to hedge against the impact of the pandemic.
“People would still have demand for housing, even though there is a recession or a pandemic and if there is a lockdown. This holds an opportunity for investors,” a Lagos-based real estate research analyst, affirms.
According to Wale Ayilara, CEO, Landwey Properties, a lot of real estate developers made more money during the pandemic than they had ever done. “We made more money during the pandemic than ever before. I guess the case is the same for others, maybe they are not just talking,” Ayilara says.
As yields on the less risky government Treasury Bills (T-Bills) crashed to near-zero percent in 2020, investors’ appetite for the more tangible real estate market increased, according to analysts.
Although the interest rate environment has increased in 2021 compared with the previous year (at 7% in August after hitting almost 10% in May), the country’s double-digit inflation rate that put the real return on investment in negative makes real estate with higher return a top choice for investors.
“Over the years, real estate has proven to be the bedrock of investment which helps investors to edge their funds against devaluation,” Osonuga states.