A cursory look at the luxury segment of the residential real estate market in Nigeria’s major cities of Abuja, Lagos and Port Harcourt leaves one with the impression and conviction that many of these buildings are vacant because they cannot find buyers or tenants.
In Lagos, the country’s commercial nerve centre where over 60 percent of construction activities and market transactions take place, a good number of residential buildings in places like Ikoyi and Victoria Island are vacant for reasons misconstrued to be supply glut and affordability issues.
But experts in this market have different views and reasons to offer. They explain that the empty buildings in Ikoyi and Victoria Island are not true reflections of the market situation. According to them, those empty buildings are vacant because they have build quality issues.
“We need to recognise that luxury is not for everyone and, yes, we have a lot of vacant properties but the question is, what type of properties? If you check, they are not good quality properties and are not built to the demand and expectations of the market,” Udo Okonjo, CEO, Fine and Country West Africa, explained.
Okonjo who spoke at a Webinar on Luxury Real Estate Market Outlook 2022 hosted by Fine and Country in Lagos recently, noted that good quality projects have strong demand and are, therefore, reserved.
“Some people have property in Victoria Garden City (VGC) and also in Lakowe, which means that the concept of lifestyle is what we should start looking at where it’s not just about the city centre, Ikoyi for example,” she explained further.
Besides build quality, the construction life cycle of a luxury residential building, especially the high rise, is also a major reason that triggers speculations on whether the building is empty or not. It takes a long time to build a luxury residential facility and Okonjo estimates this at four to seven years.
Nigeria is adjudged one of the most expensive property markets in the world and that is simply because the highbrow locations in the country are haven for luxury developments that command high values.
In these locations, especially Ikoyi and Victoria Island, what is on offer in the luxury segment is clearly a rise in tall buildings that have created what is now know as dollar economy where the return around naira is much riskier to work with. For three to five years now, top developers have stayed in the dollar economy.
Okonjo noted, however, that there are some micro-segments within the luxury area where developers refer to themselves as affordable luxury. Most of them could be found in the naira space even though they are also tall buildings between eight and 12 floors.
“It’s instructive to know that the taller the building the more sophisticated the structure that is aspired which results in the cost of investment that reflects on pricing. The average price for residential space in the luxury segment ranges from $2,500 to $4,500 per square meters,” she said.
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“For the middle range, it is $2,850 to $3,500. When we talk about the exclusive spaces and penthouses, we mean those spaces that range from $4,500. It is important to recognise that most luxury developers are ready to work with their target audience. The typical timeline to work on this project is about four to seven years. The luxury space is actually for patient investors,” she added.
The emptiness in residential properties also exist in commercial office space, generally in Grade A offices. The investors here, who are not different from those in the residential segment include the multinationals, public, and public-private sectors operators who invest in commercial buildings. One of the characteristics of these investors is that they are patient and are very selective.
The emptiness in their properties is because they hold the properties for a long time until they see the right investors. “One of the things we see is investors who worry about their naira being stuck as a result of not being able to convert the naira to dollars but consider real estate as a safe place to invest,” Okonjo noted.
In this segment of the market, she said that flexibility is the name of the game, but many developers and landlords of these offices were inflexible. This has been made worse by the Covid-19 pandemic and the downsizing of offices. These give a clear sense in which landlords are being extremely practical by giving a lot of concessions and discounts. They will rather give concessions on others rather than give on price per square meter.
In his presentation at the event, Odunayo Ojo, the chief executive officer, UACN Property Development Company (UPDC), highlighted the pitfalls of Lagos State government’s proposed monthly rent scheme.
Across the world, he noted, “rent editing doesn’t work, especially in a free market. Lagos State has tried rent editing before in the 1990s, designating it in certain areas but nobody is hearing about it anymore even though there was an edit that was enacted,” he said, pointing out however that the rent scheme does not apply to the luxury market being talked about. .
Ojo noted that, in the luxury end, restrictions and rent editing are not healthy, adding that people who occupy these properties have the means and are ready to go into commercial negotiations and close the deal.
The recently signed Lagos State real estate regulatory law also featured at the webinar as the law foreshadows the future of real estate market transactions in Lagos as the market, over the years, has suffered in the hands of fraudulent agents and investors.
The law, to be implemented by the Lagos State Real Estate Regulatory Authority (LASRERA) is aimed to improve the landscape of the real estate industry for the benefit of the land, property owners, investors, and the public at large.
“We as a government ensure that the activities in the industry tally with the law. We understand why we have a lot of problems within the regulatory industry, especially in the real estate industry which we refer to as ‘Evergreen Opportunity’. Lagos has 3, 577 square kilometers of land and we have a lot of people standing for the little space we have,” Omobola Omotimirin, Head of Legal Unit, Lagos State Land Bureau, explained.
She disclosed that government wants to ensure that investors within the real estate industry could invest properly and meet the worth of their investments, adding that law and regulations were good but that government has to ensure that it provides the appropriate land policies to ensure there is interface between the government and the public-private sector.
Omotimirin disclosed further that Lagos has all its laws out there for people to access easily. “We have them online so that players and readers can understand. We have documents on market value if you want to invest in a property and you want to register for a title. We’ve plans for the small players, those who already own land before the Land Use Act of 1978,” she added.
She mentioned the Lagos State Land Registration Waw of 2015 which, she explained, has brought several innovations in the past as regards the registration of title, especially quality control, the standard of service to the members of the public, reduction of fake documentation, etc.
“We have our latest handbook which came out in 2021 on all we need to know about Lagos land registration and it’s available for free. We have done a lot and we have realised that we need to do more because it is 2022 and we have a wider outlook for what we expect,” she stated.
Lagos is, arguably, ahead of its peers in ease of registering property such that at the state’s land bureau, they are working to ensure that land registration is automated so that everyone can have access to it from the comfort of their homes.
It’s an integrated land automated system that gives access remotely to make it easy for everyone to access and register their interest without coming to the bureau to carry out their transaction. “We are currently at the pilot stage but that will be the real estate outlook for 2022,” Omotimirin assured.
