For the real estate sector of Nigerian economy, 2024 has not been a favourable one and this was amply reflected in the performance of the sector in the first half (H1) of the year.
Though together with construction the sector contribute N11 trillion to GDP, according to recent figures released by the National Bureau of Statistics (NBS), players in the sector are quick to say that experiences have not been something to cheer about.
As a sector that mirrors the economy more than anyone else, the pot-pouri of fiscal and monetary policies of the federal government are impacting negatively on the sector and its operators.
The central bank of Nigeria (CBN) has introduced a number of reforms aimed to stabilise the economy by controlling inflation, enhancing revenue collection, reducing budgetary deficits, managing public debt and stabilising the exchange rate. All these, unfortunately, have not been able to tame inflation.
All through the first half of the year, inflation rates have been on the rise, peaking at 34.19 percent in June, up from 33.94 percent in the previous month. This led to a decline in consumer purchasing power, and directly influenced the real estate market.
Inflation has increased construction costs, challenging project viability and reducing new developments. Building and construction materials costs hit the roof-top while labour cost also skyrocketed, all adding to house prices and even maintenance cost which unsettles the rental market and squeezes renters.
In its recently released real estate market report on the first half of 2024, Northcourt Real Estate, revealed that the sector contributed 5.20 percent to Nigeria’s GDP in Q1 2024, adding, however, that this contribution is lower than the 5.31 percent contribution it made in Q1 2023.
“Poor economic performance has contributed to unfavourable business conditions and has led to a decline in foreign direct investment (FDI) in Nigeria, limiting the availability of capital for real estate and construction projects,” Ayo Ibaru, the company’s chief executive, explained to BusinessDay.
Besides inflation, interest and exchange rates have been volatile and too high to support construction and new investment in real estate. In its bid to encourage savings and reduce money in circulation, the CBN has been raising interest rate and it is at a point where borrowing is no longer a viable option for developers.
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Similarly, exchange rate has been crazy. It was crazier in the period under review when one USDollar,nat a time, exchanged for as much N1,900 in the parallel market. Given that over 70 percent of the materials used in building are imported, the exchange rate regime put many projects on hold.
Though the volatility is easing, it is not yet celebration time for developers and investors, more so as the almighty dollar is not readily available for exchange. Moreover, the state of the economy is such that people are minding more about feeding and getting well than buying houses especially for luxury.
It was not all gloom, however, as, according to Ibaru, population growth continued to drive demand for residential real estate, particularly in mid-market areas. The supply of Grade B+ retail mall developments in Abuja grew while the growing demand for affordable housing and sustainable building practices has led to a continual mismatch between supply and demand.
Amid all these contradictions, the Northcourt report projects that the real estate market is to grow by 7.24 percent and reach a total estimated value of $2.14 trillion by the end of 2024. “Residential real estate holds the largest share, with an estimated market volume of $1.77 trillion by the end of 2024,” Ibaru said.
Analysts are of the view that whatever are the highpoints of this sector, concerns continue to mount over the country’s widening housing deficit. A recent World Bank report, cited by Matthew Ashimolowo, the Senior Pastor at Kingsway Christian Centre (KCC), Maryland, Lagos, estimates the deficit at 20 million units.
According to Ashimolowo who spoke at a real estate event in Abuja recently, the deficit requires Nigeria to build 700,000 units for the next 20years to close, giving the value of the deficit as N7 trillion, that is, what Nigeria needs to investment in that sector to close the gap.
Ahmed Dangiwa, the minister of housing and urban development, who also spoke at the Abuja event, corroborated Ashimolowo’s estimates, differing however in the number of housing units need and the value of the deficit in monetary terms.
Dangiwa said that Nigeria needs to building 550,000 housing units yearly in the next decade to close the estimated 20 million units gap, and needs to invest about N5.5 trillion in the process, calling for private sector collaboration and partnerships to solve the country’s housing problem.
