For the real estate sector in Nigeria and those who make investments in it, the outgoing year, 2019, was a sobering moment. It was a year in which joy had a slender skin for the sector and the investors.
Though hit by challenges from slow economic growth, lack of liquidity and dampened purchasing power, the sector was able to pull through a three-year recession, recording 0.93 percent positive growth in the first quarter of the year.
But the joy of that recovery was momentary as the second quarter growth as reported by the National Bureau of Statistics (NBS) was negative. In the third quarter growth report, the sector recorded growth contraction that brought it down by 2.31 percent.
“The sector in 2019 witnessed a very difficult season with decline in most of the major segments – commercial, retail and residential which also impacted negatively on not only the sector’s contribution to GDP, but also returns on investment,” said MKO Balogun, CEO, PFI Global.
Some properties in a couple of estates were taken over by AMCON, while there was continued low rental yield on residential properties as more estates were built but remained unoccupied. Notably, there was an increase in development of 1 and 2 bedroom units (BRUs) and conversion of existing 3 and 4 BRUs to 1 and2 BRUs.
Balogun noted that commercial properties had the greatest impact with major developments running into their third year without reaching optimal occupancy levels. Despite this, a couple of new commercial developments are still coming up that may lead to more poor returns.
Retail has always seen major changes when the economy is under-performing. But grocery retailers will continue to make it big while existing hardware retailers are going into grocery retailing to survive.
“It is still a tough industry business,” Kola Ashiru-Balogun, managing director, Mixta Nigeria, told BusinessDay in an interview, saying that numbers don’t lie. According to him, the sector underperformed in the year under review.
“It is still in negative growth in terms of GDP. That is a pure reflection of how serious we have taken the industry. I think that, as a country, if officially we are in recession, it means that, individually, we are also in recession. Individual or personal wealth is next to nothing,” he emphasized.
He noted further that, looking at personal balance sheet in relation to assets, real estate asset today is zero and the money in the bank is also zero. So, Nigerians are technically in recession, meaning that individual GDP has been going down
Though there were some positives in the economy in the outgoing year which Paul Onwuanibe sees in reduction of bank interest rates and the CBN policy forcing banks to lend a greater portion of their balance sheet, lending to this sector from banks still dropped considerably by N122 billion.
But Onwuanibe was quick to point out some low points which, he said, revolved around lack of clarity and transparency in the regulatory environment, coupled with the extremely poor infrastructure to support real estate development.
According to him, good roads, beautification and security are the biggest real estate growth enablers, but these were not seen playing out in the sector in the outgoing year.
Nigeria lacks good roads. The country has the largest road network in West Africa and second largest in Sub-Saharan Africa (SSA). Its total road network is estimated at 200,000 kilometres. About 2,627 kilometres are dualised while only 35 percent of the network is motorable.
Apart from opening up communities, linking cities and facilitating trade and commerce, roads encourage and enable real estate investment. It reduces cost of construction and houses prices which are at the core of the burgeoning housing demand-supply gap in the country.
In the same vein, though technology is gaining traction in the property market, the challenges of expensive, cumbersome and long titling and registration processes remain and investors had this also to contend with in 2019.
In all of these however, some experts told BusinessDay that the sector was, in actual fact, stabilizing in the outgoing year. “The industry as a whole is stabilizing and it has the potential to fully stabilize and report growth in 2020,” Ayo Ibaru, COO /Director, Real Estate Advisory at Northcourt said, explaining that this was largely because the sector was recovering from the effect of recession.
Olurogba Orimalade, former chairman, Nigerian Institution of Estate Surveyors and Valuers (NIESV) Lagos State Branch, described the performance of the sector as adjustment. “The property market has come to its reality, as such there is a lot of adjustment; stakeholders are now giving more flexible terms,” he said.
He noted, however, that the readjustment wasn’t so successful before now because of factors like high cost of finance and scarcity of the US dollar as these were among other challenges that impacted negatively on the sector.
Abdulmalik Mahdi, managing partner at Modern Shelter Systems & Services, Abuja, was of the view that the sector has shown remarkable resilience in spite of the general slowdown of the economy. “In part, I think this is because the housing gap is still wide and demand is greater than the supply,” Mahdi said.
The situation in the sector is not however hopeless. Onwuanibe 2020 bringing more government responsibility to infrastructure such as roads and traffic control.
Balogun agrees, adding that affordable and student housing would, in 2020, be major market drivers while conversion of existing units to 1 and 2 BRUs will also gain momentum and new builds would focus more on that segment.
He said that cost of home ownership has also come to the fore as most companies are relooking at their portfolio and optimizing through rationalization or redesigning for cost effectiveness while others, especially in retail banking, are looking at outsourcing the entire brick and mortar components so that they can focus on the experience.
CHUKA UROKO & ENDURANCE OKAFOR
