How new oil law holds opportunities for real estate investors

Possibilities and opportunities for investors in the Nigerian real estate sector are part of the many benefits the new Petroleum Industry Act (PIA) signed recently by President Muhammadu Buhari is expected to bring to the country’s economy.

In addition to paving way for Nigeria to attract private capital into the operations of the Nigerian National Petroleum Corporation (NNPC), which will be commercialised in the next six months, it is expected too that the new oil law will expand the corporation’s ability to enter into new deals.

The law will help NNPC to finance its projects and bigger national ventures; it will also enable it to raise capital from financial institutions to fund projects and tackle funding shortfalls with joint ventures.

Financing projects or raising funds to fund projects means there will be an uptick in real estate activities, leading to the development of oil facilities. That would also mean fresh demand for both commercial and residential real estate, to serve as office space and residence for oil workers.

By the new law, it is seemingly possible that the commercial office market which, in the first half of this year, recorded its lowest transactions in five years may be well on its way to a rebound.

The slowdown in the residential and commercial real estate, particularly at the luxury and A-grade office space have been attributed to the challenges in the international oil market which led to many oil firms leaving the country with their staff who were major consumers of these real estate assets.

“Though I don’t have all the details of the new law yet, one thing is sure. The new law will stimulate investment which means there will be an increase in business activities. While new oil firms are expected to come into the market, existing ones will be encouraged to expand the operation,” Tokunbo Ajayi, MD/CEO, Propertygate Investment Company, said.

Ajayi explained that all these would translate to increased economic activities in which case people would be thinking of buying homes while new firms will be needing office space, shops or business premises. The result of all these would be increased demand for real estate.

Read also: New oil law paves way for Nigeria to attract private capital

He pointed out however that all these would depend on how the NNPC commercialization is implemented. “It must give investors enough comfort for them to consider new investments,” he said.

Femi Akintunde sees the new law as the best thing to happen in the oil industry in 20 years, explaining that it holds a lot of possibilities for a country that derives 90 percent of its revenue from oil.

“The unbundling or commercialization of the NNPC is the icing on the cake for the new law. But for all these to work out, the interests of the various stakeholders in the PIA have to be served. These include the government, IOCs, host communities, the public and environmental activists,” Akintunde advised.

He affirmed that proper implementation of the NNPC commercialization would lead to an increase in economic activities, stressing that real estate would only benefit if there are economic activities that would increase people’s disposable income.

“At the moment, there are three major problems that are slowing activities in the real estate sector. These are access to fund, low income and weak demand. If people’s income improves, it will impact on demand for housing. Increased demand leads to an increase in the supply of housing products,” he said.

Akintunde hopes that the new law would lead to oil firms making investment decisions, adding that all the investments that had been in waiting due to lack of clarity in the oil industry law would now be revisited. He noted that Shell alone had over $30 billion investment plan but had to put it on hold.

He also hopes that more investment would be coming into the country and the service companies such as facilities managers, estate valuers, among others would benefit, leading to a boom in the real estate market.

“Office space, residential and industrial real estate would be in demand. Expatriates will come and they will need luxury real estate in places like Lagos and Port Harcourt,” he said.

Besides industrial real estate which benefited from the Covid-19 lockdown and social distancing rules, both residential and commercial real estate have been struggling amid the crippling impact of the pandemic.

The office space market, particularly, has had its worst moment. In its first half (H1) 2021 office market viewpoint, Broll Properties says the market recorded less than 200 square metres in new leases.

The report adds that foot traffic at office buildings fell under 30 percent in the period, but hopes that the rate is expected to pick up as tenants such as Cisco and Google begin to roll out policies for staff resumption to the office.

“Key trends in the office market in the period include new leases signed remain subdued, its worst level in over five years; vacancy levels rise overall, however, the pace of increase is not uniform across different buildings,” Bolaji Edu, Broll Nigeria CEO, disclosed.

He noted that both asking and achieved rents were falling as the nature of transaction activity was limited, making the market tenant-friendly. Eduadded that the market was yet to bottom out as more corporates continued to revaluate and aspire to optimise their operations in Nigeria.