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Factors that will shape Nigeria’s commercial, residential real estate in 2020

The Nigerian real estate industry is gradually recovering from recession and holds prospects to exit contraction in 2020, a survey by industry sources shows.

After exiting 12 consecutive quarter of recession in the first quarter of 2019, Nigerian real estate industry was hit by slow economic growth, lack of liquidity and dampened purchasing power and thus, ended the year on a negative but stabilising mode.

Nigeria’s economic growth of 2.28 percent eluded the real estate sector which contracted by 2.31 percent in the third quarter of 2019, the best growth in six months.

On the factors that are likely to shape Nigeria’s property industry in 2020 Tope Runsewe, MD, Dutum Limited said that state governments are exploring partnerships towards increasing the housing stock in their respective states.

“Developers are integrating technology in property development to achieve cost-saving and quality price of residential properties has been on the increase with some locations experiencing substantial value appreciation,” Runsewe said.

Whereas homeownership level is 84 percent in Indonesia, 75 percent in Kenya and 56 percent in South Africa, it is only 25 percent in Nigeria whose population is estimated at 200 million. Going by

United Nations projection, the country’s population will be as high as 400 million in 2050.

According to the Association of Housing Corporation of Nigeria (AHCN), the underdevelopment of Nigeria mortgage sector in driving homeownership is worrisome as more than 90 percent of new homes utilise funds from personal savings for incremental construction.

While Lagos remains the commercial nerve centre of Nigeria and the most vibrant property market in the country, industry sources see emerging markets such as the Sangotedo residential market as a hub in Lagos that is yielding a good return on investment.

“The surge in the population of young adults coupled with reduced spending power has increased demand for smaller units of accommodation in Lagos,” Ayo Ibaru, COO, Northcourt said.

On the commercial sector of Nigeria’s real estate market industry survey shows that there have been high rates of conversion of larger units accommodation such as 4-bedroom and above to commercial use within the Lekki axis.

“Co-working and co-living arrangements have been on the increase owing to the high cost of real estate. The commercial property market in Lagos is performing well. Average prices of grade A office ranges from $450psm and $700psm in Victoria Island and Old Ikoyi,” Adejumoke Akure, Partner, Estate Links said.

With new construction projects on the pipeline, it is expected that Grade A office supply would increase between 2020 and 2023. The completion of the Apapa road, although still has the challenge of gridlock is expected by industry sources to improve traffic within the axis and ultimately increase demand for industrial properties in Apapa.

“Inflation rate stood at 12.13% as of January 2020. Investors need to increase their investment in the real estate sector to avoid the effect of inflation on capital,” Akure said.

The surge in urban growth at 4.3 percent in the second half of 2019 places pressure on real estate infrastructure and it would require that new dwellings be provided to accommodate the growing population and businesses. This makes real estate an attractive investment media, as compiled from industry sources.

According to Runsewe, investors are faced with the problem of making the right choice of investment and considering real estate investment is known to be an edge against inflation, “it has the potential to protect against the decrease in purchasing power due to inflation. Certain investments might provide a decent return on capital, but can be sold at a loss,” Runsewe said.

Ibaru recommended that investors and developer should consider exploring the untapped potentials in the market especially in smaller unit accommodations and student housing.

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