After the gloom and inertia that defined the real estate sector in 2020 due to the negative impact of COVID-19, the sector entered 2021 with ambitious steps that moved it quickly in the direction of recovery and growth.
But both the recovery and growth, in spite of everything, were slowed mid-way by macro-economic issues, notably inflation and interest rate. There was also the challenge of greed and regulatory lapses by government agencies that led to building collapse incidents in some parts of the country.
Besides renewed investment in the sector by yield-hungry investors, the sector also witnessed increased construction activities as most projects that were put on hold following COVID-19 lockdown and physical distancing rules of the previous year were restarted.
Experts were unanimous in their agreement that the quantum leap the sector made in terms of growth in the second quarter of this year was as a result of the new investments and increased activities in the sector following full re-opening of the economy post-pandemic.
Figures from the National Bureau of Statistics (NBS) second-quarter 2021 GDP report show that whereas the economy expanded by 5.01 percent, described as the strongest growth since the last quarter of 2014, the real estate sector recorded 3.85 percent.
This was the sector’s highest recorded growth since the 4.95 percent growth it posted in Q2’2014 as could be seen from an analysis of the data released by the NBS.
Similarly, whereas the economy recorded 4 percent year-on-year (YoY) growth in the third quarter of 2021, the real estate sector expanded by 10 percent YoY within the same period, and sustained a positive quarterly YoY growth trend from the first quarter of the year.
A combination of economic realities and experiences from COVID-19 movement restrictions reflected in social and physical distancing rules meant that, more than ever before, homeownership was critical and that impacted investment decisions that favoured residential buildings.
Demand for this segment of real estate, especially pocket-friendly, small-size family units, went up significantly, pushing developers to rethink and reimagine their products portfolio and offerings.
Besides private equity and institutional investments in the sector, there were also several public and private sector partnership initiatives that delivered housing to the market. Such partnerships included the Lagos State government and Echostone, which aims to deliver 100,000 housing units. 252 of those units have been completed and commissioned by the state governor.
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Within the year under review, the Real Estate Developers Association of Nigeria (REDAN) signed a memorandum of understanding (MoU) with Shelter Afrique to build 12,000 housing units.
According to Aliyu Wammako, the president of the association who described 2021 as a prosperous year, Family Homes Funds (FHF) is providing long-term housing loans for low-income individuals.
The story was not, however, the same for the commercial office space market which, arguably, was the worst hit by the Covid lockdowns and social distancing rules. Transaction activity, particularly for new leases, dropped in the first half of 2021 to the worst levels the market has recorded since the 2016 recession.
Only 191 square meters of space was signed in a single transaction within the period, representing a 86 percent decline in the new leases signed in H2:2020. Foot traffic at office buildings fell under 30 percent within this period, according to an H1: 2021 office market viewpoint by Broll Properties Nigeria.
Gbenga Olaniyan, CEO, Estate Links, confirms to BusinessDay that due to COVID-19 A-Grade office space market was struggling, citing Citing The Wings Towers on Ozumba Mbadiwe Street in Victoria Island and Heritage Place on Kingsway Road in Ikoyi.
“In 2015, The Wings Towers was renting for $1,000 per square metre. Pre-Covid, it was on the market for $800 per square metre. But in July 2021, the rent dropped further to $600 per square metre. The story is the same for Heritage Place,” he explains.
Overall, the sector did well and this was also due to what Paul Onwuanibe, CEO, Landmark Group, calls “people issue or strong demography.” Investor-confidence in the Nigerian economy was also another major driver, according to Freeman Osonuga, real estate investor and advisor.
However, experts have said the sector could have done better and seen stronger growth if inflation and interest rate had not hit the rooftop as they did; impacting both locally produced and imported building materials.
Increasingly, housing is becoming unaffordable as the combined impact of galloping inflation and high-interest rate has made the cost of construction unimaginable.
The price of cement within the year jumped from N2,600 per 50kg bag to N4,000 and N4,500, depending on brand and location. This, according to Kunle Adeyemi, means, “the dream of an average Nigerian to own a home is now very slim. For us as developers, it is a huge challenge because we already have the prices of houses that are still being built. At the current cement price, you cannot deliver at your price.”
Over 70 percent of construction materials, especially those for finishing, are imported and that is why estate developers are under intense pressure as the exchange rate of the naira to the US dollar rises to almost N500/$1 now. That has affected, significantly, activities in the sector and, by extension, the growth of the sector.
“A lot of materials that are used in the construction industry are imported or have foreign components and, given the way the naira exchanges with the dollar, building materials have become more expensive,” Oladipo Agida, CEO, Dradrock Real Estate, explains to BusinessDay.
The high exchange rate is also the reason some big projects like the Idale Housing Estate, Badagry, a joint venture between Lagos and Echostone, are having further delivery issues, according to the state’s commissioner for housing, Moruf Akinderu-Fatai. It has raised the cost of construction considerably.
