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. At the end of Q3 2018, the sector reported growth of -2.68 percent as against the -3.88 percent growth rate recorded for Q2 and -9.40 percent in Q1 2018.
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 and rent default in the high end residential, commercial office and retail segments of the market. Demand softened and prices alongside rents went down considerably at this end.
“The economy really improved but real estate lagged behind. But this is understandable. Not much progress can be made in this sector with a large portion of Nigeria’s population outside the housing market and mortgage still remains too expensive for many people to access and afford”, explained Adeniyi Akinlusi, CEO, Trustbond Mortgage in an interview.
He explained that the informal sector which is the largest segment of the Nigerian population is still outside the housing market and this population accounts for over 60 percent of the country’s GDP.
MKO Balogun, MD/CEO, Global Property and Facilities International, agrees, adding however that “a lot of things are not being done properly in the real estate sector and the players are to blame; not the government. The solution to the sector’s problems must come from the players and until these problems are solved, the sector will never grow”.
Balogun is of the view that the high vacancy rate at the high end market is caused by investors and developers who have refused to listen to expert advice or to follow the trend in the market. According to him, market demand has shifted significantly from three and four-bedroom stand alone houses and apartments to studio, one-bedroom and two-bedroom apartments.
“For me there is no oversupply in the market because a lot of people are looking for homes to buy or rent. Anybody who dimensions the market very well will sell off before completion. Statistics shows that 60 percent of home seekers are those looking for one and two-bedroom apartments”, he said.
Due to job losses and shrinking personal/household income, many people could not buy or rent houses and even pay house rents by those who already have accommodation. In effect, during the period under review, there were movements out of expensive areas to relatively affordable locations.
In Abuja, there was significant urban-rural movement occasioned by tenants’ inability to pay rents in the city centre. An estate surveyor and valuer, Alomaja Olajide , confirmed to BusinessDay that people were relocating from places like Garki, Wuse and other highbrow locations where they could no longer afford N1.3 million to N1.5 million rent to satellite towns like Kubwa where rent was more affordable at N700, 000 per annum for a three-bedroom apartment.
Similarly in Lagos, the mid-low end market has witnessed tenants’ movement. Areas like Maryland, Omole Phase 1, Magodo Estate, Ikeja GRA, Surulere, Ilupeju, Ajao Estate, among others, saw vacancy rates that were unusual in such locations which are sought after by young executives that work in banks and other blue chip industries.
But many of these young executives lost their jobs and could no longer afford their rents. Some of those who were still at work were not sure of their salaries, leading to high rent default rate. Some of them moved from the mid-income locations where rents ranged from N2 million to N3 million per annum for a duplex, and N800,000 to N1.5 million per annum for a three-bedroom apartment to areas like Ketu, Aguda, Ejigbo, Okota, Egbeda, Iyana-Ipaja, Oke Afa, etc where rents were relatively lower at N1million to N1.5 million per annum for a duplex and N500,000 to N750,000 per annum for a three-bedroom apartment.
On the island, people who occupied the N3 million to N3.5 million property in Lekki Phase 1 moved down to the Chevron axis to pay N2 million rent. Some people moved from Ikoyi or Victoria Island where rent was as high as $70,000 per annum to Lekki Phase 1 where a flat went for just N6 million per annum.
As bad as the situation was, some positive developments happened. In the course of the year also, in order to sustain their businesses, investors and developers became, increasingly, creative and innovative, leading to increased investment in student housing, co-work office space, short-let apartments, rent-to-own initiatives, among others.
Observably, many big ticket investors including African Capital Alliance, Elalan, Grenadines Himes, etc, scaled down their developments to respond to market demand with small-size housing units developments in the expensive areas. This explains the development of the Blue Water Lagos in Lekki, The Oceania in Victoria Island and 4Bourdilon in Ikoyi, each offering mostly one and two bedroom apartments.
The real estate market, at the moment, is buyers and tenants market and, according to analysts, the market slowdown will persist into the second quarter of next year, more so as it is an election year. Next year, the analysts insist, looks set to be another challenging one for landlords.
In the UK, as it was in Nigeria, the lettings market was flat in 2018 with not much prospect of growth next year with policy changes relating to fees and costs due to kick in. PropertyWire, an online residential real estate platform, notes that this is certainly to be the case in London with the latest reports suggesting a slow outlook.
CHUKA UROKO
