The real estate sector in Nigeria has continued its stay in negative growth territory and the figures from the National Bureau of Statistics (NBS) fourth quarter 2018 report released a couple of days ago have shown that the sector is still in recession long after the wider economy exited recession in the second quarter of 2017.
The NBS report shows that, on an annual basis, the sector’s nominal growth rate was 0.48 percent in 2018, lower than the 3.01 percent recorded in 2017 unlike the figures reported on a growth sector such as manufacturing.
In the manufacturing sector, which comprises 13 activities, the annual growth rate was 2.09 percent in 2018 which was a significant improvement over the previous year’s growth rate of –0.21 percent.
This, however, contrasts with agriculture which, in spite of all the hype, especially with the over 90 percent rice import reduction, still recorded an annual 2018 growth rate of 2.12 percent, which is lower than the 3.45 percent recorded in 2017.
The growth trajectory in the real estate sector is a clear indication that the wider economy is moving without that sector. But there are reasons for that. “The real estate sector is a laggard in the economic structure for several reasons, particularly in its position in people’s priorities; that is, what people take as something that impacts their lives. In the hierarchy of man’s needs, food comes first, shelter follows and then housing.
“Another reason is the nature of the capital required for investment in real estate. Generally, real estate investment is not the kind of thing you do on short-term basis. You have to plan for it”, explained Femi Akintunde, GMD, Alpha Mead Group, in an interview.
The wider economy, according to the NBS Q4 report, had a good showing. Within the period, Gross Domestic Product (GDP) grew by 2.38 percent in real terms (year-on-year), representing an increase of 0.27 percent points when compared to the fourth quarter of 2017 which recorded a growth rate of 2.11 percent. This also indicates a rise of 0.55 percent points when compared with the growth rate recorded in Q3 2018. On a quarter-on-quarter basis, real GDP growth was 5.31 percent.
This growth could not, however, lift the real estate sector. But it should be pointed out that, in nominal terms, the real estate services grew by 3.78 percent, higher than the growth rate reported for Q4 2017 by 7.12 percent points, and higher by 0.11 percent points when compared to the preceding quarter.
The sector’s contribution to nominal GDP in Q4 2018 and for the whole of 2018 stood at 7.07 percent and 6.76 percent respectively, which is slightly lower than the comparable periods in 2017.
“Real GDP growth recorded in the sector in Q4 2018 stood at -3.85 percent, higher than the growth recorded in Q4 2017 by 2.07 percent points, but lower by –1.17 percent points relative to Q3 2018. Quarter-on-quarter, the sector grew by 6.91 percent in the fourth quarter 201”, the NBS report says.
In terms of the sector’s contribution to real GDP in the quarter under review, the sector recorded 6.60 percent which is higher than the 6.50 percent it recorded in the preceding quarter but lower than the corresponding quarter of 2017. Real estate activity accounted for 6.41 percent of total real GDP in 2018.
Experts are of the view that this negative growth in the sector, which has persisted for 12 quarters now, will linger till after the upcoming elections, adding that what happens thereafter will depend largely on who emerges as the next president and what his economic policy directions will be.
Besides elections, Akintunde said that oil price and unfavourable macro-economic environment, especially inflation, would also impact on real estate significantly going forward.“Real estate sector is still in recession. Inflation rate, currently, is about 11.44 percent. It is projected that it may peak at 13 percent. What this means is that the real value of everybody’s investment is going to be discounted against that figure”, he noted.
He noted further that the on-going negotiation on minimum wage would increase inflation rate depending on which direction that goes. “If inflation goes up, the price of everything will go up, including material inputs for real estate which are largely imported”, he said, adding, “inflation will put pressure on the purchasing power of consumers and all these are going to affect real estate”.
Though Obi Nwogugu, Head of Real Estate at African Capital Alliance (ACA), believes that when everybody is not investing in the best time to invest in order to get better deal for one’s project, many investors have adopted watch-and-see attitude to investment till after the elections.
“In the light of these elections, I have decided to put on hold any spending we do till after the elections”, Oscar Ikwuemesi, CEO, Foxbar Homes, told BusinessDay in an email response to a question. Foxbar is a real estate investment and development company, offering Western-styled multi-family apartment units in the Lekki corridor in Lagos.
CHUKA UROKO
