Though some analysts argue that opportunities offered by Covid-19 contributed to real estate exiting an 18-month recession in the fourth quarter of 2020, experts who spoke at a recent Lagos Business School (LBS) Breakfast Meeting think differently.
Increased construction activities and investors scrambling for attractive yields, they say, are the main reasons the sector was able to crawl out of recession with a positive growth of 2.81 percent.
Bismarck Rewane who gave this hint at the meeting, noted that the 2.81 percent growth is the first time the sector is recording positive growth since first quarter of 2019 when its growth was 0.93 percent. The sector’s growth record in the third quarter of 2020 was -13.04 percent.
On how increased construction activities contributed to real estate recovery from recession, experts explain that the large-scale project downturn is already resulting in increased interest in private sector projects.
Residential construction spending in the private sector alone was up nearly 7 percent in 2020, and privately-owned housing starts clocked a 12.8 percent year-over-year growth in November 2020.
It is expected that the construction of projects that were initially put on hold amid COVID-19 lockdown and the rebuilding of vandalized properties will boost the construction sector and thus, drive growth of the overall real estate market in 2021.
“We expect to see growth in the real estate construction sub-sector as many projects that were put on hold amid the COVID-19 lockdown will commence,” Temitope Runsewe, CEO, Dutum Construction, said, expressing optimism for industrial and residential real estate.
The implication of these developments is that opportunities are growing for investors while hope of more jobs coming is rising. The construction sector is the highest employer of labour. Analysts estimate that every square metre of real estate activity creates jobs for three people.
The slowdown in other investment asset classes such as equities, bonds, Treasury Bills swayed investment interest in favour of real estate and that explained why there was a scramble for yield by investors with patient capital and long term view of the market.
Rewane noted further that real estate agents have become increasingly innovative to attract more investment which is why land and house ownership packages now come with installment payment plans. This has the advantage of bringing more people on to the property ladder
Looking ahead, Rewane expressed concerns that vacancy factor may widen as a result of consumers shrinking wallet. Vacancy factor also known as vacancy rate is the percentage of all available units in a rental property that are vacant or unoccupied at a particular time.
“Housing costs to climb on expensive raw materials; rate of increase in commercial buildings to pick up in the near term; Vacancy factor is down 6 percent to 19 percent in Q1’21 from 25 percent in Q3’20 and this is in agreement with the recovery in the real estate sector in Q4’20,” he said
Different from vacancy rate, vacancy factor is an indicator of the state of the real estate markets in the upper class neighborhoods which are close to the central business district (CBD) or downtown areas of the metropolis.
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