Investment considerations favour residential real estate as investors weigh options

The residential segment of the real estate market is attracting encouraging interest from investors who, still smarting from the impact of Covid-19 pandemic, are weigh their investment options for 2021.

As other investment asset classes including Equities, Treasury Bills and Bonds present near-zero prospects with low yields, investors with patient capital and long term view of the market, are looking to real estate which, to them, offers low hanging fruits.

Already, existing investors in this market are rethinking, refocusing and even re-imagining their investment choices and products offering, to reflect changing market demand in the wake of the pandemic and poor economic conditions.

Opportunities are drying up in commercial real estate, according to experts, especially in commercial office space, as a result of companies embracing the new normal, working virtually or remotely.

Lay-offs, pay-cuts and other factors which are reasons for rising vacancy rates in office buildings, estimated at 40 percent, are said to be reasons too for the rising demand in the residential market which is mainly for small-size, pocket friendly family housing units.

There are, however, pockets of opportunities in commercial real estate as businesses still need offices despite working at home. Bola Adesola, vice chairman for Africa, Stanbic IBTC Bank, adds that manufacturers need factories and warehouses while e-commerce companies need logistics such as sorting and dispatch centers.

“This is why developers should still build commercial premises,” she explained, advising that investors should not limit themselves. “We need to think smart; opportunities exist even for tenants and property transactions will always happen even in this trying time,” she noted.

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Andrew Nervin, Chief Economist at PwC, agrees, saying, “now is the time for people to participate in the real estate market. There are opportunities in Lagos as the largest city in the country. After this crisis, we are going to have a new approach to real estate.”

Much of the opportunities in residential real estate are in small-size residential family units. Tokunbo Ajayi, CEO, Propertygate Development and Investment Company, explained to BusinessDay that the reason developers and investors opt for these small-size units such as one-bedroom and two-bedroom apartments, was because luxury housing units cannot find buyers.

Olumide Osundolire, Partner at Banwo & Ighodalo, advises that yield-hungry investors could also explore opportunities in the retirement/care homes which, according to him, is a largely untapped and unserved market in Nigeria.

The opportunity in this market, he explained, arises from lack of adequate enclosed retirement communities for the elderly, and also from the 2004 reform in the Pension Fund Administration (PFA) scheme which guarantees stable retirement income for the elderly and provides the necessary cash flow to fund this lifestyle.

Osundolire in a report on ‘New Investment Opportunities’ listed three basic types of retirement/care homes, each depending on the range of its services. They include the Independent living apartments; Nursing homes and Home health-care. The first type is the current destination for investors with its encouraging return on investment.

The retirement community, according to the report, consists of facilities and amenities that enhance the lifestyle of the middle class retirees from 60 years and above.

“These gated communities are developed with a needs-driven approach to meet the lifestyle needs of the residents from housing design, shopping, exercise and fitness, mobility, health home services, entertainment, community activities amongst others,” the report explained.

Expectation is that this opportunity is to be nurtured by a significant rise in the population of the aged going forward. Osundolire noted that ageing population is a global trend, quoting a UN report which estimates the world percentage of persons over 60 years old at 13 percent.

Sub-Saharan Africa, which has the smallest proportion of elderly and which is ageing slower than the developed regions, he added, is projected to see the absolute size of its older population grow by 2.5 percent between 2000 and 2030.

“Nigeria, the country with the largest population in Africa, estimated at 200 million, has an elderly projected population growth rate of 3.2 percent, a rate that has been estimated to double by 2050,” he said.