Coronavirus is here and the impact is not only for the immediate. It is also for the medium and long term. It is feared that long after the disease is gone, the impact will still be felt in some sectors of the economy. Real estate is one. In this interview with CHUKA UROKO, the Chief Executive Officer of 3Invest Limited, RUTH OBIH, looks at how the deadly virus is affecting this sector among other issues. Excerpts:
The global economy today is bleeding from the impact of a virus that the World Health Organisation (WHO) has described as a pandemic. What is the immediate impact of this disease on real estate?
The impact of the COVID-19 outbreak is being felt in all aspects of life with the largest impact on humans. This is already changing behaviours and responses to everything including the real estate sector. The impact on the various segments of real estate is quite unique. Though it is easy to assess the short-term impact of the pandemic on this sector with the total global shutdown, the long-term effects cannot be determined yet.
Looking at the three different segments of the market, you see that the hospitality sector is experiencing short-term volatility with low occupancy rate. Retail will experience low cash-flow due to reduced demand. Expectation is that non-essential goods retailers may seek rent reliefs from landlord while those retailing essential goods with the infrastructure to respond to online orders and home delivery are beneficiaries of social distancing.
The office sector will experience short time disruption as more people work from home. Physical office use rates will fall as remote working increases, and landlords with exposure to short-term leases are the worst hit. Co-working space operators are at higher risk. In some cases, landlords are negotiating new leases or renewals with tenants to ensure deals are executed.
The residential market will remain resilient to the effects of COVID-19. Demand for new homes and rents may rise as people may be seeking more sustainable homes post- COVID-19. However, low consumer confidence and reduced mobility will impact demand during this period of uncertainty. Technology is an important mitigator and we are seeing an increase in online transaction platforms.
Analysts say that because of the social distancing rule, transactions in the property market have dropped significantly. What has been your experience so far? Do you foresee that affecting house price too?
Low consumer confidence and social distancing are impacting demand in this period of uncertainty. Commercial real estate sector that relies on cashflow is hugely affected by low occupancy rates in the hotel sector to the closure of commercial spaces due to social distancing and stay at home order. We are directly hit as our Cowork business is affected, but our media and digital platforms are still working.
My prediction is that the residential market will be a beneficiary as demand for homes may remain stable if not high. I foresee lower rents post-COVID-19 due to possible layoffs and redundancy. Landlords should be considerate and less optimistic when seeking rents from tenants. Overall, I believe it’s a good time to invest in real estate.
At the beginning of the year, close market watchers had projected about 2.36% growth for this sector in 2020. Given the present market realities, what are your thoughts and fears?
These projections are wide speculations. I took some time to study some forecasts and reports, and my conclusions are that we lack empirical data. One thing I certainly took away from my short time at MIT Centre for Real Estate is how not to wear the rose-tinted glass when gathering data.
Empirical data implies that the information is based on experience, not just speculation. There is a strong relationship between real estate and science. So, when making predictions, we must consider all major factors including threats and uncertainties.
We expect short-term slowdown in investment activity in the global real estate sector in the first half of 2020. However, a bounce-back is anticipated in the second half if the virus is contained. Overall, we must embrace the reality of not expecting a positive 2020.
My greatest fear is not just climate crisis but our unpreparedness. What is the solution? It’s simple. We must embrace sustainability and that’s why we at 3INVEST have recently changed the focus of our annual Real Estate Unite event to Unite Sustainability Summit and this was arrived at not only by personal experience but through thorough research.
Your company has partnerships with some overseas developers where the impact of COVID-19 is severer. Tell us how this virus has affected all that?
I know you are referring to our partnership with Houston EB5. Well, the US EB5 programme was hugely affected by two US government policies. There has been an increase in minimum investment threshold from $500,000 to $900,000 and there is also the immigrant travel ban. However, nothing beats a foreign exchange transaction in times like these. Part of our resilient approach to business is to develop multi-currency revenue models. So, back to your question. The immediate effects look blurry but they have positive long-term implications.
Apart from being a difficult business environment, Nigeria is also a very competitive marketplace where competitors go all out to out-do and outwit. What have been your experience and attitude to competition in this crowded market?
3INVEST has a dynamic business model. We started out shortly before the 2008 economic downturn. We have been hit several times. In 2011 we digitised our model, we developed resilient business model that can thrive in any business condition. In 2014, we were directly hit by Ebola. So, our first reaction to this COVID-19 was clear internal communication, education and readiness. We were the first to shut down operations long before others. Our mantra at 3INVEST is live well, work right and invest wisely. Wellbeing and healthcare are our greatest approaches to life and business. Our competition is mostly internal and that challenges us to develop business approaches that become a direction for competition in the market.
Proptech, Blockchain and online marketing are aspects of technology that are increasingly, narrowing the space for professional practice and real estate service providers like you. What experiences do you have to share?
invest was a catalyst for digital operations in Nigeria. We digitised our business models in 2011 when we launched 3investonline portal. We actually shutdown that platform a few years ago to launch another online platform. We are also using this period to push out projects in our pipeline and we will be making announcements soon.
I believe technology will play an important role and plans for new online transaction platforms will be accelerated in 2020. I’m a great believer in Proptech and I believe too that blockchain will close a lot of gaps in the sector but must be approached with the right resources.
To what extent do you leverage technology in your operations? What benefits have you seen, especially in your return on investment and overall bottom-line?
3INVEST is a tech-based company. We have a lot of digital media operations currently running like our syndicated real estate radio show and podcast. We also own Lagos Cowork. Though that space will be affected by this outbreak, the business model still remains Proptech and you don’t need to physically be a tenant. So, good use of technology gives an industry player an edge.
