Contrary to experts predictions that 2023 would see sustained growth in the real estate sector, most of the operators in the sector today are telling tales of woes as adverse economic conditions, especially at the macro level, dimmed all projections and expectations.
Following from the performance of the sector in the previous year, it was predicted that the sector would expand by 5.2 percent in 2023. Though experts believed that the sector’s traditional risk factors would remain, they still saw the sector’s .contribution to GDP increasing to 6.5 percent.
Bismarck Rewane, CEO, Financial Derivative Company (FDC), was at the forefront of these predictions, stressing that all these would happen on the back of the sector’s sustained growth among other drivers.
Inflation and high building materials cost, which topped the sector’s woes in the outgoing year, were among the traditional risk factors listed by Rewane. Others were high and unfriendly interest rate environment, and poor land acquisition policy.
Figures released by the National Bureau of Statistics (NBS) in its third quarter 2022 GDP report showed construction and real estate sectors growth trajectory in 2022. The report showed that both sectors together contributed N20 trillion to the GDP in the first three quarters of 2022.
On the strength of the above, it was expected that the sector would see growth in the incoming year as increased economic activities would lead increased demand for real estate assets.
But most of the predictions tumbled as the economy took a turn for the worse early enough in the ‘new ‘ year. This was reflected in the performance of the sector in the first quarter of the year. Real estate services contributed 4.46 per cent to the nominal GDP in the first quarter of 2023 relative to 4.92 per cent recorded in the first quarter of 2022 and 5.62 percent in the fourth quarter of 2022.
As an election year and typical of Nigerian politicians, almost from the very beginning, politics took the centre stage, consigning both governance and economy to the garbage heap only minded by scavengers.
Soaring inflation and naira scarcity conspired with fuel subsidy removal to create an economic environment never seen before in any economy. All these impacted negatively on projects delivery and made it pretty difficult for most Nigerians to buy or rent homes.
The situation has been such that the outgoing year is ending as one of the toughest for the real estate sector. Macro-economic, political and social environments have dampened growth and also made the sector perform below 50 percent of the projections and/or its potential.
Inflation, high interest rate and volatile foreign exchange rates reduced and rubbished household income while poor fiscal policies coming from the the CBN discouraged developments.
NBS figures show that Nigeria’s headline inflation rate surged consistently all through the year, peaking at 28.20 percent in November, up from 21.82 percent in January 2023. This impacted heavily on prices of building materials, house prices and rents.
Prices of building materials like reinforcement, cement, sand, paints and sanitary wares rose by over 50 per cent, while the cost of buying new homes and rent went up by over 100 percent in some locations. Many housing construction sites across the country were slowed or abandoned in most cases due to construction cost which rose to an estimated 40 percent.
Attempt by BUA Cement, one of Nigeria’s leading manufacturers of the product, to crash the price of cement which rose to N5,600 per 50kg bag, up from between N3,000 and N3, 500 depending on brand and location, did not succeed for reasons that included cost of transportation.
Consequently, new buildings were few, access to land was difficult, a good number of buildings collapsed due to poor construction while flooding rendered many people homeless. Property worth billions of naira were demolished for reasons ranging from lack of building approvals to illegally acquired land, and defective construction considered unsafe for human habitation.
“Indeed, the outgoing year means different things to different players in the sector. In every year, there are high and low points in the performance of this sector, but I think it could have done better,” Chudi Ubosi, Principal Partner, Ubosi Eleh + Co, noted in a telephone interview.
Ubosi noted further that politics with its uncertainties, currency instability and inflation, which led to very opaque investment climate, did not help the sector. He, however, hoped that 2024 would be better, more so with the various economic policies of the Tinubu administration which, he said, were attempting to stabilize the economy.
Olufemi Babalola, CEO, Gravitas Investments Limited, developers of Gracefield Island, said real estate sector at once reflects the tumultuous changes in the national economy and the inherent resilience of the sector, particularly in Lagos and Abuja, the two cities that underpin more than 80 percent of documented real estate transactions in Nigeria.
Babalola noted that Port Harcourt has lagged behind disappointingly as the famed projects of the immediate past governor of Rivers State do not shift the needle positively on the Human Development Index (HDI) and so, there is no vibrant real estate market in Port Harcourt.
“In Lagos, Abuja and to a limited extent border towns between Nasarawa and Abuja, Kaduna, and Kano, real estate has proven resilient. Inflation at over 28 percent as at November, sudden and rapid depreciation of the Naira have combined to increase construction cost. Price has consequently increased, particularly for residential houses,” he said.
According to him, aside economic issues, misguided policies by state governments in search of revenue and imposition of unreasonable regulations in a bid to deflect attention from the corruption and incompetence of their officials, of which collapsed buildings are symptoms, posed more hurdles for the sector. “But the market is remarkably resilient,” he posited.
Alderton Ewa, President, Nigerian Institute of Building (NIOB), said the outgoing year was time when the ambition to improve the production of affordable housing was thwarted as most of the stakeholders embarking on such projects abandoned construction sites because of escalating cost of building materials and high exchange rate.
On his part, MKO Balogun, Group CEO, Global PFI, noted that there were series of activities towards the end of the year, especially on the affordable housing side, but commercial and retail segments of the sector lagged due to poor economic situation as shown in high inflation, low disposable income, foreign exchange volatility, and general low private sector-driven economic activities.
