• Monday, May 20, 2024
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The impact of COVID-19 on the real estate sector

Real Estate

Real estate essentially refers to property that consists of land and or buildings in which resides some value of economic worth. The categories include residential, commercial or industrial depending on usage. It is a critical sector that caters to one of the most essential human needs – shelter, as well as being one of the largest employers of labour.

It is an extensive value chain of products and services that span – land acquisition, building materials production and distribution, building/construction workers and professionals, realtors and facilities managers, financial services and more.

Historically, the six decades of Real Estate Development in Nigeria has been a tale of abysmal shortage of supply to meet the huge demand her large population offers. According to the World Bank, Nigeria has an estimated population of 186million, with the “earning” age group 15 – 55 accounting for about 70 percent, and is projected to double over the next two decades. This has left the country with an estimated housing deficit of about 17million units at the moment. Ironically only about 100,000 units are reportedly being delivered by the industry annually. This is not only grossly inadequate, but in fact ends up increasing the gap, as the rate of population growth is far disproportionately higher than housing solutions being delivered.

Recently, indigenous developers have made visible and aggressive efforts to bridge this ever-increasing gap of housing deficit. Government budgetary allocations to the Housing Sector and direct private construction effort have both proven to be grossly inadequate in offering any impactful succor. The Managing Director of the country’s premier mortgage institution, Federal Mortgage Bank of Nigeria puts the deficit at about 20million and growing.


Ironically, it was in this state of finding the way forward in this critical but troubled sector that the COVID-19 pandemic arrived with its disruptive force, compounding the challenges.

Like every other sector of the economy, real estate activities grounded to halt especially at the total lockdown stage of government directed response to the pandemic. Construction work stopped as staff and management of organizations were forced to stay at home. Site visit activities, letting, lease, sales and marketing efforts equally suffered the same fate.

As society enters the gradual ease of lockdown and the slow painful restart of the economy, several industry experts and watchers are still assessing the damage to the sector and what the emerging picture portends.

Proshare, a respected financial Information organisation opines that the industry had not fully recovered from the 2015-2016 recession, and that it indeed contracted at an average of -4.48 in the last 4years. This is prior to the extant Covid-19 turmoil.


However, there seems to be a widely held belief that Real Estate is a latently resilient sector that is capable of weathering the storm eventually. At the moment though, there is a lot of uncertainty and hesitation in the economy, which the sector shares – this has stalled several investment decisions.

The “new normal” of practicing social distancing, working and shopping from home has reduced the demand for office and commercial space. Even industrial spaces, like warehouses’ have been redundant because of the halt in import and international trade.

There is a noticeable dwindling in consumers’ income precipitated by job losses, pay cuts and the restriction on the larger population, who live on daily earnings to go out and work.


Properties and facilities employed in the events, entertainment and hospitality industry is perhaps the most hit by the pandemic – hotels, restaurants, events hall, gyms, games and recreational centres, nightclubs and the likes – considered to be high risk zones for the spread of the pandemic, have been under lock and key, and will probably be the last sector of the economy to regain its ‘freedom’ from the involuntary quarantine. This otherwise lucrative and round the clock activity environment has not been able to do any business and earn income from their spaces.

Landlords and asset owners are likely to face a major challenge as well. Many may have to tackle the difficulty of regenerating revenue from defaulting sitting tenants and of course face lower offers from intending tenants with reduced disposable income, which may force the value of rent to go down.

Similarly affected are new investors and developers. The several months of disruption will certainly reflect on project delivery schedules and by implication, financial projections. They have to wait longer to let, lease or sell houses and other facilities.

The building materials subsector has also taken a big blow. Trading was zero for months as was import business. Even at this period of gradual return to commercial activities, the exchange rate has become less friendly, the naira has been devalued and this will speak to the cost of stock replacement.

Lenders – Financial and mortgage institutions as well as private funders are being forced to renegotiate and restructure their facilities. Technically, borrowers are in a force majeure situation. The apex banking institution, the Central Bank of Nigeria, recently gave teeth to this, directing 22 banks to restructure a whopping 35,000 loans to individuals and organizations whose ability to meet their obligation has been affected by the pandemic. The CBN Deputy Governor, Financial System, Aisha Ahmad confirmed that this represents 41.92 percent of the total (banking) industry loan portfolio.

Aspiring homeowners also have to weather this phenomenon. Many have had their savings depleted or disrupted due to pay cut and outright job loss. In fact, a Forbes study, reports an 80 percent decline in purchase of homes in the sector – a gloomy reality in light of Proshare’s report that home ownership rate is 25 percent in Nigeria compared to Kenya’s 75 percent and South Africa’s 56 percent.

However, as experts have said, the real estate sector is considered very resilient. Notwithstanding temporary and periodic recessions in the economies of the nations of the world, properties tend to appreciate in value over time especially for deep pocket investors who can stake it out.


Investors who are liquid at the moment are at great advantage to acquire properties from owners and managers who are in financial distress at hugely discounted value. Some asset owners and landlords with more pressing cash needs may be induced to make distress sales.

People in diaspora may also seize the opportunity and take advantage of the current exchange rate, which now offers more value against the Naira, to purchase land and properties.

The changing work patterns has proven that a good number of enterprises can run remotely, via technology without all staff assembling in a single office location. As such, there is the likelihood of an increase in demand for serviced offices and co-work spaces where one can go and pay for a few hours, days or as needed to get work done in comfort. To own or manage such facilities looks promising.

Realtors who are able to adopt and deploy technology, will continue to engage consumers and target the market even on a larger scale. Unlike the traditional site visits, virtual tours and e-brochures can become key in their marketing efforts to let, lease or sell.

In conclusion, the government will need to do everything possible to arrest the recession occasioned by the pandemic by finding ways to reflate the economy. The value of the Naira needs to be addressed. Employment generation requires a holistic and strategic approach. Ease of doing business must become our national holy grail to encourage local and foreign direct investment. Regulatory interventions should be pursued to protect tenants from arbitrary rent and lease rates increase, as landlords and Estate Managers may want to pass on the rising costs.

Agriculture, textile and manufacturing have enjoyed significant interventions from the government; it is time the real estate gets some meaningful attention that will shelter citizens from these trying times.