These three scenarios in economy will shape activities in real estate sector in 2021

Projections into Nigeria’s real estate show a sector with bright outlook after activities slowdown in 2020, but activities in the sector in 2021 will depend largely on three scenarios that could happen in the in the overall economy, a new report has hinted.

The first of these scenarios is economic recovery; the second is ‘no change’ in the current state of the economy while the third is economic decline in which case the economy becomes worse or of less value than what it is at the moment.

Expectation is that if there is an economic recovery from the combined negative impacts of Covid-19 pandemic and recession, property prices, which are currently low due to subdued demand, will begin to recover or rise.

“Improved economic prospects will mean increased income for effective demand,” Ayo Ibaru, Director, Real Estate at Northcourt, explained in the new report compiled by his company, adding that when the economy recovers, local investor-confidence in the real estate market would increase.

On the flipside, however, when there is no change in the economy, reflecting government’s inability to manage the economy, investments will be lost to neighbouring jurisdictions. This, according to the report, would compel local investors to continue on innovative path already taken.

“Nigeria has reputation for policy inconsistency and this, coupled with uncertainties around government’s response to possible macroeconomic headwinds, can only lead to economic decline. This, in turn, will lead to weak growth, dampening demand for real estate and reducing transactions value,” Ibaru noted.

Globally, but Nigeria in particular, the real estate sector was badly hit in 2020 by the effects of macro-economic headwinds, Covid-19 pandemic and EndSARS protest, leading to unprecedented drop in property demand and transaction levels.

Big brand hospitality chains, for instance, saw bookings drop by over 94 percent and are unlikely to see pre-COVID levels until Q3 2021 when the economy expects a rebound, according to Bismarck Rewane, CEO, Financial Derivatives Company. Market transactions within the year came down to bottom-level.

Student housing which was already gaining traction with relatively high investment yield, also took a hit as a result of the 9-month ASUU-FG face-off. “There has been no demand for student housing, a result of the universities’ strike over funding agreements with the central government,” Ibaru said.

He noted some twists in investment trends where, according to him, central business districts are no longer the undisputed destination for new developments, adding that “some suburbs are now under strong consideration as developers are choosing, as they did in the 2018 recession, to make more research-driven decisions.”

“Both retail and office landlords are changing to remain attractive. Real estate investment managers are embracing technology more intently to accurately forecast performance metrics,” he added.

Another major twist is the rising demand for residential real estate, resulting from the Covid-19 induced social distancing rules that have compelled many people to work remotely from their homes.

“Demand for this segment of the real estate market is expected to increase as work from home (WFH) becomes a more permanent influence in space demand. Gated communities will see more demand and we expect a resurgence in demand for 3 and 4 bedroom apartments,” Ibaru observed.

Continuing, he said, “mixed use projects with well planned residential components are projected to perform best. Grade A office vacancies are expected to increase. Offices with rentals above $350 per square metre may find it difficult securing tenants. The pace of conversions will accelerate.”

Tope Runsewe, CEO Dutum Construction, shares this view, adding that Nigeria’s construction industry will see further growth and make more contribution to the country’s GDP.

Looking into 2021, Runsewe sees growth in the demand for quality delivery. “We are seeing a lot of interest in residential real estate, ranging from one-bedroom apartment to 4-bedrooms,” he said, adding, “interest for a gated community is a top priority due to security reasons.”

He also noted that there would be a rise in price of imported materials, in the demand for indigenous construction firms and an improvement in local expert pool due to the return of indigenous experts with international experience.