Residential real estate offers investment opportunities amid weak Q2’21 outlook

After the bad experiences in 2020 by local and global economies arising from impact of the Covid-19 pandemic, the world, especially Nigerians, expected 2021 to be significantly different. But it is not.

The second wave of the pandemic and macro-economic issues, particularly in the areas of exchange rate of the naira to the dollar, and hyper-inflation that peaked at 18.17 percent in March, have all affected not just individual, but also household income and wellbeing.

The first quarter of 2021 was a struggle for everybody, households and organizations inclusive. The second quarter is not any better for many sectors of the economy, including real estate.

The residential segment of the sector is not giving investors promising outlook as analysts see lack of effective demand for housing widening vacancy factor, though mostly at the luxury end.

This will be driven by weak consumer disposable income, according to Bismarck Rewane, CEO, Financial Derivative Company, who also sees rents being reviewed upwards as building and maintenance costs climb.

Within this quarter too, Rewane says there will be increased preference for cheaper options like 1 or 2 bedroom apartments particularly on Lagos mainland. This means virgin fields for investors to play in but they have to rethink and refocus their offerings to reflect the new market reality.

However, in the midst of these, opportunities exist for investors in residential real estate. Tokunbo Ajayi, CEO, Propertygate Development and Investment Company, confirms this, saying that much of the opportunities here are in small-size residential family units.

“The reason developers and investors opt for these small-size units such as one-bedroom and two-bedroom apartments, is because large-size luxury housing units cannot find buyers,” he explained.

Besides students housing which offers up to 15 percent return to investors, Olumide Osundolire, Partner at Banwo & Ighodalo, says investors could also explore opportunities which exist in 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, providing 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.

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