Landlords tap opportunities in residential property conversion as interest, demand surge
For a number of reasons ranging from the high cost of building materials, low consumer purchasing power and diminishing household income, residential property conversion has come back forcefully and landlords are tapping the opportunities it offers.
Owners of large-size properties are converting them to office and retail uses, giving rise to stores, shops, supermarkets, and malls which, according to a recent report, give higher return than leasing out apartments for residential use.
“Conversions from residential to commercial provide tenants with much-needed flexibility of use and give landlords a reliable source of income,” a recent Nigerian Real Estate Market Review explains.
The rising demand for small-size apartments has seen many landlords converting their otherwise specious apartments to smaller family units for single tenants or couples just starting out in life.
Madam Olamide Adenuga, the landlady of a storey building comprising four 2-bedroom flats in the Idimu area of Lagos, confirmed to this reporter that conversion of residential apartments was trending not only for commercial purposes, but also for maximizing existing spaces and making more money.
“So far, I have been able to convert the two 2-bedroom flats I used to have on the ground floor of my house to four room and parlour self-contained apartments, thereby spaces for four tenants where I used to have two. From N200,000 I charged on the old two-bedroom flats, I now collect N250,000 for each of the self-contained apartment. And there are four of them,” Madam Adenuga disclosed.
This means that from the same two 2-bedroom apartments where she used to collect N400,000 per annum, Madam Adenuga now collects N1 million per annum by simply reducing the two flats into smaller units.
“That’s the reality in the market today because more people are looking for smaller housing units than those looking for larger units,” MKO Balogun, CEO, Global PFI, affirmed in an interview with BusinessDay, explaining that in every 10 home seekers, six are looking for small family units.
Balogun added that besides conversion, developers with large size apartments now allow for co-habitation where two or three tenants pool resources to rent a three-bedroom apartment, for instance, and share the available spaces.
The market review conducted by Northcourt Reasl Estate notes that there is a slowing supply in the housing market, pointing out however that there is a rise in demand as evidenced by high price signals.
“This demand has continued to grow each year with supply unable to keep up, resulting in a growing housing supply-demand gap. While high capital values attract developers, high land and construction costs continue to dampen development activity,” Ayo Ibaru, Director of Research at Northcourt, noted.
For its good infrastructure and relative security systems, Ibaru said, Abuja has continued to welcome new residents , citing the Katampe area which has new housing projects, some of which are on Ibrahim Gambari, Aminu Sale and Mamman Kontagora streets.
“There are also large residential developments ongoing in the Gwarimpa, Wuse and Lokogoma areas. To bring an end to flooding, some parts of Trademoore estate in Lugbe have been scheduled for demolition which will see a reduction in residents on Imo and Bayelsa streets,” he said.
According to him, the rise of home offices has strengthened the Lagos housing market such that the demand for apartments with four or more bedrooms has increased since the end of 2020 and is anticipated to continue until 2023.
In the previous three years, occupancy rates in high-end residential locations have increased just as house prices have . Further, the growing capital and rental values of gated communities reflect a sustained increase in demand.
“As developers continue to prioritise security and optimise maintenance fees, this will likely continue. Road and drainage infrastructure have continued to deteriorate nationally as the government struggles to renovate. Due to population pressures on inadequate infrastructure, electricity and water are most often in low supply, contributing to rent discrepancies and the general desirability of most location,” Ibaru noted.
As a result of the growth of the business community and landlords’ inability to cut commercial space rentals, he said, “there is a sustained demand for residences with four or more bedrooms for the express purposes of conversion to commercial use by small and medium enterprises (SMEs).”
Over all, the residential market remains active despite the challenges in the economy and this is buoyed, according to the Northcourt report, by the lingering impact of Covid-19 pandemic for which, till date, some companies still favour work from home (WFH).
Security is yet another strong reason for which demand for gated residential communities remain very strong in most Nigerian big cities.
Findings by Northcourt show that, in a number of nodes, including Lekki Phase 1, Surulere, and Magodo in Lagos, the number of 3-bedroom apartments there belong to the first wave of occupants which consisted of conventional family-sized households living in owner-occupied residences.
A recent survey of the Lagos Island residential real estate market cited in the report, shows that about 41 percent of respondents report working from home (even if this may be partial) while 14 percent work from a co-working space.
By extension, 35 percent of the respondents consider working close to home very important, 16 percent consider it as slightly important while 32 percent consider it important.
The interest for detached houses came in highest at 23 percent of the respondents, 20 percent are interested in 2-bedroom flats while 18 percent and 16 percent are interested in 1-bedroom flats and studio apartments respectively.
The survey reveals further that 54 percent of the respondents consider affordable rent as very important, 11percent consider it slightly important while 27 percent consider it important. 57 percent consider good road infrastructure very important, 12 percent consider it slightly important and 29 percent consider it important.