Time to invest in property now as demand remains weak despite 40% price drop

For people with strong investment appetite, the property market is the best destination at the moment, as demand is almost flat in spite of a drastic reduction in prices estimated at 40 percent.

It is now a buyer’s market, more so as some expats, unable to cope with the challenges posed by the new forex regime and the uncertainty in the economy, are leaving the country, just as many locals  are relocating and offering their properties at bargain prices.

Across various segments of the property market, including residential, commercial, retail and office space, demand has been very low and this explains the vacancy factor in the market,  which the Financial Derivatives Company (FDC), in its latest economic review, estimates at 72 percent as at June 2016.

Bismarck Rewane, the  FDC’s  CEO, attributed the low demand and consequent vacancy factor to the 0.36 percent  and 1.5 percent contraction in the GDP by Q1 and Q2 2016 respectively, low consumer confidence and spending power,  growing unemployment , rising inflation now at 16.5 percent, among others.

Though Rewane sees demand for housing shrinking further due to lower disposable income and a move from prime areas to more affordable locations,  he projects that “from Q4 2016 onwards, we expect a pickup in activities as the economy gradually recovers, mainly through demand  by expatriates”.

Due largely to the tragedy in the international oil market which saw oil price tumble from over $100 per barrel by Q1 2015 to below $50 per barrel now, along with the devaluation of the local currency, the Nigerian economy has been struggling , leaving both the country and its people in a tough predicament.

Government’s macro-economic and monetary policies aimed at saving the naira and also stemming exchange rate  volatility, have reduced the disposable income of most Nigerians and forced them to re-order their priorities, in which case buying  houses or changing address is least considered.

Market watchers reveal that the high end neighbourhoods of Ikoyi, Victoria Island and Lekki in Lagos; Asokoro, Maitama and Wuse 2 in Abuja, and Trans-Amadi and Old GRA in Port Harcourt, are the worst hit by the present state of the economy.

“In Ikoyi, Lagos, a tenant recently submitted a request to his landlord for a 50 percent discount in his rent”, a market watcher who did not want to be named disclosed to BusinessDay, adding that some estates were offering from 30 percent to 40 percent rent discounts in order to stimulate demand.

He also cited an instance of Banana Island in Ikoyi, Lagos, where a house put up for sale at above N100 million is now on the market for N60 million, yet a buyer has not been found.

“The high end market is the most affected because the money isn’t there; the same thing is happening in the rental market”,  James Megbele, an estate manager affirms, stressing that “some properties have dropped by as much as 40 percent in rents; we have a property at Oniru which was in the market before now for $85,000 per annum, but the landlord is ready to accept $45,000 if he sees a tenant ready to pay.

Megbele observed that prime properties in Bourdillon, Gerard and Kingsway Road, all in Ikoyi, Lagos, were at a point selling for $350,000 per square metre, which matched Banana Island rates, but have dropped because people who bought at the time did so to build three or four blocks of 24 flats each but these are no longer selling or letting, hence the emptiness seen everywhere in this location.

He is of the view that what the market has seen from the first quarter of this year was a price correction, pointing out that Grade A office space now goes for $800 to $850 per square metre, down from $1,000 and $1,100 per square metre by the last quarter of 2015.

Femi Akintunde, MD/CEO, AMFacilities Limited, sees all these developments as reflections of the state of the economy, noting that when an economy is in a recession, as Nigeria is at the moment, people tend to hold on to cash  for fear of the unknown.

“A lot of people had committed to real estate projects development before now, either by bank loan or self-funding. In either case, many can no longer continue with such projects. Some people are now calling back their investment in off-plan sales. People are defaulting on mortgage loan repayment, projects can no longer continue because sources of income have been affected.

“Disposable income and its power have been eroded by inflation which is now 16.5 percent and economic power has also been eroded”, he told BusinessDay in an interview.

He further observed that, “much more seriously is the fact that people are now losing their jobs by the day. The productive capacity of the manufacturing sector has significantly reduced. There is less money now in oil and gas; the banks have no money to trade again and so they are laying off workers, just like manufacturing and oil and gas industries, and all these are sources of demand for housing”.

CHUKA UROKO