For the 11th consecutive quarter through to Q3 2018, Nigeria real estate remained in contraction mode, although at a decreasing pace. Afrinvest, a financial services company, says the sector’s weak growth will persist in 2019 in spite of the optimism expressed by sector stakeholders.
“We believe the contraction the sector witnessed in 2018 will continue to moderate and growth will remain weak in 2019,” the Lagos-based firm said in its Nigerian Economy and Financial Market/ 2018 and 2019 Outlook report.
Although positive, resulting from trend and capital expenditure released for the 2018 budget cycle which was projected to buoy construction activities, impacting directly on the growth of the sector, the improved but slow rate of growth in other sub-sectors such as the hospitality, health, industrial and retail sectors may temper the overall expansion of the real estate sector.
Unlike other sectors of the economy, real estate remained in negative growth territory in 2018 long after the wider economy exited recession. Figures from the Nigerian Bureau of Statistics (NBS) however showed incremental improvement in the sector, but that improvement could not, in real terms, change the sector’s narrative.
According to figures from the bureau, Nigeria property market reported growth of -2.68 percent in Q3 2018 as against the -3.88 percent growth rate recorded for Q2 and -9.40 percent in Q1 2018.
Industry experts say the impact of the improvements in the wider economy was not much on the real estate sector which was challenged by oversupply, high vacancy rates coupled with the fact that large portion of the country’s population are outside the housing market and mortgage still remains too expensive for many people to access and afford
“As regards mortgage financing, plans to recapitalise the Federal Mortgage Bank of Nigeria (FMBN) to strengthen its capacity are underway; however, we opine that this would be insufficient to drive increased mortgage activities in the year. Thus, we expect the long-standing funding constraint to remain,” Afrinvest said.
Meanwhile, BusinessDay survey reveals that since 1977 when FMBN was established, it has so far disbursed N193.4 billion to 18,935 Nigerian workers. Mortgage rate in Nigeria is between 15-25 percent for commercial mortgage institutions, this makes it one of the highest rates in the world. The rate could also go higher, depending on the risk volume.
The Association of Housing Corporation of Nigeria (AHCN) says the inability of the Nigerian mortgage sector to drive home ownership is worrisome as more than 90 percent of new homes utilise funds from personal savings for incremental construction.
“Although mortgage financing is one of the most effective ways to reduce the housing deficit in Nigeria, the contribution of mortgage loans and advances to GDP remains low,” Afrinvest noted.
According to its Banking Survey in 2018, poor information flow was one reason for the slow adoption of mortgages, in addition to the existing high interest rates. On the other hand, the slow adoption of the Model Mortgage Foreclosure Law (a legal mechanism that allows the lender take possession and sell the property in the event of a default) by majority of states coupled with double digit inflation supported the high interest rate offered by institutions.
Industry experts explained that lack of information and advocacy are part of the challenges of the mortgage industry in Nigeria, as studies have shown that only one out of, maybe, 15 adults in the country understand what mortgage means.
On the problem of data and information, as they affect the real estate sector, BusinessDay survey shows that, the often quoted 17 million housing units deficit has remained unchanged for over a decade despite the fact that the average population growth rate of the country stands at about 3 percent per annum.
On the review of sub sectors in the property market Afrinvest said “increased activities across various sub-sectors of the industry – residential, retail, office, hospitality and industrial – rose slightly owing to improving consumer spending in these areas.”
BusinessDay analysis of a report by Jones Lang LaSalle (JLL), an American professional services and investment company with specialty in real estate, reveals that hospitality and retail sub-sectors in Lagos state improved while the commercial office space lagged.
This was fuelled by relative stability in exchange rate coupled with improved consumer purchasing power.
“Furthermore, we analysed the performance of the NMRC – a vehicle created to close the gap between the capital market and mortgage lenders by refinancing loans – to assess the depth of mortgage refinancing through the company,” Afrinvest explained.
Endurance Okafor
