Increasingly, suppliers or landlords of short-let apartments in the Nigerian real estate sector are turning into tenants over operational costs as reflected in the soaring price of diesel and high exchange rates.
Besides making short-let apartments unaffordable and reducing demand for same, rising costs are also stifling investment in real estate as well as other sectors of the economy due largely to high input costs, according to Keji Giwa, Founder/CEO, Digital Landlords and ShortletHomes.
Giwa noted that hope for high rental yield from short let apartments has been wiped out by the increase in operation costs, adding that current realities have led to extortion in electricity bills by service management companies which were, in most cases, owned by the same property developers who sold the property to the operators..
“Many property developers have realised recently that they could easily turn landlords into tenants by charging up to 400 percent premium on electricity bills and close to 100 percent profit margins on service charge.
“While a landlord may generate N1.3 million from a short-let property as rental income, N1 million of that money goes into paying electricity bills. When you consider the cost of maintaining a short-let home, cleaning, facility management and replacing damaged items, you find that it is no longer profitable,” he said.
Giwa lamented how the economic realities in the country were affecting every aspect of the country including diaspora remittances which, according to him, have dropped considerably in the last three years.
He cited a World Bank data which says that Nigerian diaspora population remitted $65.34 billion in three years to boost economic activities in the country. A breakdown of the figure shows that in 2018, the remittance was $24.31 billion; in 2019, it dropped to $23.81billion while in 2020, it fell to$17.21 billion. “Remittances made up 4percent of Nigeria’s Gross Domestic Product in 2020,” he said.
Giwa noted that Nigerians in Diaspora were not just high-income earners, but were also significantly contributing a whopping 5 percent to Nigeria’s GDP.
“While the diaspora market clearly presents a huge opportunity to fund the Nigerian real estate, there is little attraction for investors who want to invest today. Out of the funds remitted to Nigeria each year from the diaspora market, unsurprisingly, 70percent is spent on household and personal uses like large purchases, and education while the outstanding 30 percent goes into building or buying houses.
“The bad news is that investments into real estate have started to dwindle as more people have realized that it is better to invest in dollars or pounds than in naira,” he said.
He added that with the current market realities and the number of properties developed at different locations by owners, more landlords would become tenants, pointing out that properties owners in locations such as Lekki Phase 1, Ikoyi, and Victoria Island had experienced about 500 percent increase yearly rental income.
“This has taken their return on investment on a property from 2.5 percent a year in local rental income to 22 percent a year in high yield rental income,” he said.
As part of solutions to the problems, Giwa, whose ShortletHomes has made significant impact in the short-let sector, said that developers held the key to making real estate in Nigeria attractive to Nigerians in diaspora.
He noted that Nigeria was fast becoming a destination for indigenous tourists every Easter , ummer and what is now called dirty December. He added that property developers should focus on recreational facilities investment to attract tourism and recreational activities, hoping that this would boost the recreational short-let market which could generate as much as 30 percent ROI for investors.
“This is what we are doing with Giwa Garden City which is a facility comprising 570 vacation homes right next to Giwa Gardens Water Park in Sangotedo— the largest water park in Africa. The property will attract 1.4 million people a year, generating over N35 billion in revenue and attracting major investments to Sangotedo.
“We are also capitalising on the gold rush of Ocean View Apartments and beaches on the Oniru axis; The Carnelian, 21-storey luxury apartments with recreational activities, ocean view and private beach where each apartment has already experienced a 163 percent appreciation in value since the purchase of the land and expected to appreciate by a further 158 percent on completion,” he disclosed.
He hoped that attracting the international community using recreational and tourism-based initiatives would attract revenue in foreign dollars and pounds, overcoming the dollar to naira depreciation issue which buyers, investors and landlords were now faced with.
The key , he stressed, was to sell recurring value and no longer just selling properties to turn landlords into tenants through extortion in electricity bills. Recreational short let opportunities could create revenue in dollars or pounds for buyers provided operational cost was low.
Giwa hoped further that property developers who could capitalise on this initiative would gain a huge competitive advantage and dominate the diaspora market over the next few years to come.