Ayo Ibaru is the Chief Operating Officer and Director, Research Estate Research at Northcourt Real Estate, a Nigerian real estate firm that provides services like real estate research, advisory and analysis. We spoke with him recently on navigating the country’s real estate sector with the impact of the COVID-19 pandemic.
The pandemic, when it started, caused some panic and raised questions on the state of the market and how to hedge, but as it has progressed, some opportunities and market corrections that had been predicted from the last recession have become apparent.
Many aspects of the real estate sector have been severely affected by the pandemic. The hospitality subsector has been the worst affected, especially hotel that depend on international travel. Operations are down by 98%-99% and videoconferencing tools have been shown to be viable alternatives to business travel. Some firms are evolving their business models to cope, and have included laundry services, food delivery, personal massages and wellness to their services, but without strong bailouts and government interventions for the aviation and hospitality industries, they will struggle to get back on their feet.
The retail industry will struggle, until the economy return to some level of normalcy, because people are now more circumspect with spending. Warehousing, logistics and manufacturing industries are seeing some growth, since more spending is going towards delivery services. The residential industry has been undergoing change, as developers have begun to take research and data more seriously, and put more work into residential development projects before implementation. Developers are beginning to advertise 1-bedroom studios, and other such smaller types of apartments, while those advertising 3- and 4-bedroom housing have a strong customer base or a captive market that they are sure of sales from.
Land has always been resilient asset, and is sure to remain so. This presents an opportunity for land banking, because at the end of the pandemic, real estate developers and construction firms will begin to look to the future, and land will be needed to restart the economy and start new projects and initiatives. With the $5.513bn dollar loan requested by the presidency for was for agricultural and healthcare investments, the healthcare sector is poised to grow in the third and fourth quarters of the year with redevelopment and construction projects, as multinationals are already looking to invest in pharmaceutical subsector.
On the average, the real estate market is experiencing a decline like every other industry at this time. However, there are ongoing projects that are profitable and conversations where investors are agreeing to deploy capital into the sector.
Opportunities in the real estate industry will depend on what aspect of the sector is addressed. It is becoming clear to governments and players in the industry that there is a need for greater efficiency, and to leverage technology as much as possible, despite the industry being known to be slow to adopt new technology, such as using drone footage for viewings, digitalizing the process of checking land titles, etc. There are also better opportunities for data and research driven projects, with foreign investors and development finance institutions now placing emphasis on data, research, statistics, investment direction analysis and forecasting. There are also opportunities for retail and land purchasing, but the timing is important, as it is unwise to make any investments now without solid research. Investment projects are also being developed, but potential investors must get as much information and knowledge-based advice as possible to get above market returns for their investments, and should seek a firm with a track record of credibly dispensing reliable investment advice.
For the industry to accommodate Nigerian millennials, as many 64 million people who are employed but cannot afford to buy their homes, there is a need for policies that ensure that people at different stages can buy their own homes, and they must also study land investment opportunities, get sound advice and not be afraid to start small.
Ayo emphasizes that it is not possible to come out of poverty, as an emerging market, without a strong housing programme. Nigeria requires its land use laws to be amended and a policy framework that prioritises housing. The government must inject funds into the housing market, respect the place of data and research, improve political will and develop funding systems that make housing investments profitable for developers and landowners such as tax rebates.
Post-COVID, rent prices are not likely to go down, and construction costs will rise because of the exchange rate and the dependence of the construction industry on imports. Considering real estate market cycles, below market deals are expected, especially when the economy enters the projected recession and house prices will reduce, opening up opportunities for people who still have cash to make well-guided investments.
The long-term impact of the pandemic is still unsure because it also depends on government actions. Prior to the pandemic, the federal government and Central Bank of Nigeria had begun to pressure financial service institution to invest more in construction and development; these have since slowed down, but the government will need to design packages to assist the industry. Without evidence that the government is actively funding the system, the transaction count will drop.
Post-COVID expectations for the real estate industry in Nigeria will be a function of how hard it is affected. The industry requires stronger voices to ensure that the right conversations are had so that laws change, a progressive stance is encouraged, and efficiency and data and research leveraging are encouraged. Policymakers must learn from those who know about real estate markets and cycles, and not just firms that work in branding and marketing, and it should be evident that lessons have been learnt from the COVID crisis. The industry will graduate to being more efficient and technology driven, and systemic efficiency should be encouraged, with the government ensuring that 80% of land related operations will be digitalised by 2022.
Ayo notes some key lessons for industry players in the wake of the pandemic. It is best to build a system before it gets affected, as the need for recommendations that have been made for decades like working on land use law, improving policies and making pricing and housing systems more efficient are all becoming obvious. There is also a need for partnerships, as even companies that have existed for several years are looking to partner with younger firms. Every method of doing business is soon tested and the more progressive an industry is in terms of service delivery, processes and methods of transactions, the better.