In the present unusual time full of uncertainty, complexity and anxiety arising from the impact of a novel virus that has ravaged global economy, residential real estate offers low hanging fruits for investors as they rethink, refocus and even reimagine their investment choices and products offering, experts have said.
The reason for this, the experts say, is simple. Bola Adesola, vice chairman for Africa, Stanbic IBTC Bank, explains: “If tailors or fashion designers, caterers and chemists are rethinking their strategies in line with the opportunities Covid-19 has presented to them, there is no reason investors in real estate should not do the same in the direction of the opportunities that may also lie in the sector.”
It has been noted that opportunities seem to be drying up in commercial real estate, especially in commercial office space, as a result of companies embracing the new normal or working virtually or remotely away from physical office buildings.
Lay-offs, pay-cuts and other factors that are the reasons for rising vacancy rates, estimated at 40 percent and 30 percent, in office buildings and retail outlets, respectively, are on the contrary, reasons for the rising demand in the residential market. But this demand is mainly for small-size, pocket friendly, family housing units.
It needs be pointed out however that pocket of opportunities still exists in commercial real estate. Businesses still need offices despite working at home; manufacturers need factories and warehouses while e-commerce companies need logistics, such as sorting and dispatch centres and this is why, according to Adesola, developers should still build commercial premises. For this reason, she advises that investors should not limit themselves. “While we focus on our lives and livelihoods, and even our liberty, in the midst of this pandemic, we need to think smart; “opportunities exist even for tenants, and property transactions will always happen even in this trying time,” she notes.
Andrew Nervin, chief economist at PwC, agrees, saying, “Now is the time for people to participate in the real estate market. There are opportunities in Lagos as the largest city in the country. After this crisis, we are going to have a new approach to real estate.”
Nervin, who spoke at a webinar hosted by Fine and Country West Africa in Lagos, is of the view that what Nigeria needed now was to ensure that the environment was enabling and also to do economic restructuring.
Explaining further the reason developers and investors opt for small-size residential family units such as one-bedroom and two-bedroom apartments, Adetokunbo Ajayi, CEO, Propertygate Development and Investment Company, says those whose luxury houses were already on the market cannot find buyers.
“But there is market for affordable small-size family housing units. Investors in this house-type are among the few gainers in the sector at the moment,” he notes.
Fine and Country affirms this in its recent report on the State of the Real Estate Market, stressing that multi-family units, specifically apartments, top the list in order of preference for most developers and investors in Nigeria.
The report explains that apartments make more economic sense to developers as multiple units can be developed on a piece of land without taking up too much space, adding that land optimisation leads to maximising value when developers are considering development options and also the ease of sale, lease or rent.
David Mbah, manager, commercial sales at Fine and Country, explains to BusinessDay that returns were higher for smaller apartment units, especially 2-bedroom, which means that demand is more for these house-types than the big-size apartments.
“It also means that smaller-unit apartments are the new investment destinations and any investor wanting to enter the market amid the COVID-19 pandemic should look in that direction,” he says.
He offers insights on where investors could move cash to and get good returns, citing examples from the report that shows that, in terms of rental values and returns on investment for different areas and house-types, Victoria Island and Ikoyi have more promising outlook and offer.
Rental values in Victoria Island as at the end of second half of 2019 stood at N1.5 million per annum for 1-bedroom apartment; N3.5 – N8.5 million for 2-bedroom; N5.5 – N15 million for 3-bedroom, and N6 – N25 million for 4-bedroom apartment.
In Ikoyi, it is N4 – N5 million per annum for 1-bedroom; N6.5 million for 2-bedroom; N10 million for 3-bedroom, and N10 – N25 million for 4-bedroom apartment.
Return on investment on these apartments is quite significant. In Victoria Island, the return on the different apartment sizes stood at 2.7—3.7 percent per annum for 1-bedroom; 7—10 percent for 2-bedroom; 6.1—10 percent for 3-bedroom; 6.1—9.2 percent for 4-bedroom duplex, and 3.75—6 percent for 4-bedroom terrace.
In Ikoyi, it is 9 percent for 1-bedroom; 5.4—8.6 percent for 2-bedroom; 5.3—8 percent for 3-bedroom; 4.5—8.3 percent for 4-bedroom duplex, and 4.8—5-4 percent for 4-bedroom terrace.
