Real estate deals suffer on dollar liquidity problems
The dollar shortage in Nigeria is hampering the real estate assets sale and the delivery of projects, BusinessDay has learnt.
In the real estate sector, input materials are largely imported and some assets are sold in dollars.
The volatility of the naira-dollar exchange rate and scarcity of the greenback, in some cases, have made some assets whose sale is dollar-denominated to remain on the shelf months after expression of interest. Some projects with timeline delivery have been delayed or stopped mid-way into construction.
As at April 2022, $1 was exchanged for N588.00, representing 49.8 percent increase from the N392.51 it exchanged for in April 2021. In the last six months, spanning October 2021 to April 2022, dollar exchange rate has increased by 42.2 percent, from N413.59/$1 to N588.00/$1.
Some assets have since been on the market for sale, mostly in the high-brow locations of Lagos and Abuja where some luxury residential apartments are priced in dollars. Ikoyi in Lagos harbours many such apartments and these account for the high vacancy rate in that real estate sub-market.
One of the asset sales that has been delayed because of dollar liquidity constraints is the Ikeja City Mall, which is owned by AttAcq and Hyprop.
In 2020, AttAcq and Hyprop entered into an agreement for the sale of the mall to Actis, through their new funds called the Actis Africa Sustainable Real Estate Income Fund and Actis West Africa REIF LP.
Actis is a global investment firm focused on private equity, energy, infrastructure, and real estate asset classes. It has a growing portfolio of investments across Asia, Africa and Latin America. The firm, which was founded in 2004 with about 250 employees, has $19 billion in assets under management.
The Ikeja City Mall transaction is yet to be closed, almost two years after because of naira-dollar exchange rate problem. A recent report by Estate Intel recalled that in May 2021, the long stop date for the transaction was extended to July 31, 2021 due to dollar liquidity constraints.
“On April 1, 2022, AttAcq and Hyprop advised its shareholders that the longstop date to implement the sale of the asset has been extended to June 30, 2022, citing US dollar liquidity constraints in Nigeria,” Dolapo Omidire, Estate Intel’s founder/CEO, told BusinessDay.
He cited a published note where both parties remained committed to the transaction, hence it was agreed to proceed with a fully compliant merger application to the Federal Competition and Consumer Protection Commission of Nigeria in the interim.
That agreement, Omidire said, was to reiterate commitment and take some steps forward. “The extension of the longstop date is conditional on the purchaser submitting a fully compliant merger application on or before May 31, 2022, failing which the longstop date shall be May 31, 2022,” he added.
Real estate investors and sundry stakeholders have been lamenting what they call an “enduring unfavourable policies and a full-blown crisis” in the Nigerian foreign exchange rate regime, warning that the long-term effects are deeper than could be imagined.
Investors are also worried that foreign exchange crisis in the country affects construction, leading to outright stop or cost variations that are capable of forcing them to shift completion.
Experts are of the view that this situation could lead to a significant part of the nation’s labour force in building and construction industry, mostly artisans from neighbouring countries such as Togo, Benin Republic and Ghana, leaving the country in droves.
They said foreign exchange issues would make housing more expensive for average Nigerians, whose purchasing power has been eroded by hyperinflation and depreciation in the value of the naira.
Kunle Adeyemi, managing director and chief executive officer, Sterling Homes Limited, stressed in an interview that the depreciation of the naira would have far-reaching impact on real estate.
He said: “Cost of building materials, especially imported ones, has increased and this will be passed on to off-takers, leading to higher prices of real estate products.
“Also, existing projects may suffer some setbacks including delays or outright project abandonment because of naira depreciation. Similarly, new housing projects will be impacted depending on source of funds. Furthermore, the attraction of real estate investment as a store of value may be impacted negatively by the free fall of the naira.”
A developer who did not want to be named told BusinessDay that there were many projects in Lagos and Abuja that have been put on hold since the naira began its free fall. He, however, declined to mention some of the stalled projects for what he called “security and business ethics reasons.”
Adeniji Adele, an estate surveyor and valuer, blamed the crisis in the foreign exchange market on the bad implementation of various government policies over the years as a result of double standards and inconsistency.
Adele, who is the president of International Real Estate Federation, Nigeria chapter, noted that “the market reacts negatively to the continued rise in exchange rate which has affected cost of building materials and labour in the built environment; so real estate pricing will never be the same again.”
“The market price has gone up, while cost of borrowing is higher and financial institutions are not willing to lend to grow real estate stock as they prefer to advance facilities on short-term basis,” he said.