Though the rental market in Nigeria is more active than sales, only a few real estate investors and developers raise capital to build houses, especially residential, for renting or letting.
Over 80 percent of Nigerians in the housing market, especially those in the big cities of Lagos, Abuja and Port Harcourt, Enugu, Kano, Onitsha, etc, are renters and the reason for this are many. At the core of these reasons is poverty.
It is estimated that 70 percent of Nigerians are below poverty line, living on a little above a dollar a day. This class of people can neither buy nor build houses on their own and, because mortgage in this environment is still evolving, they have to resort to renting.
What this means is that there is huge investment opportunity in the rental market, yet it remains unattractive. Besides poverty, investors are also scared of the long period of time it takes to recoup investment in a build-to-let facility.
“Many investors will not go into this kind of investment because, in this part of the world, poverty emboldens tenants. Some of them will rent houses, pay for the first two years and as from the third, they are ready to fight or take you to court.
“Given the kind of judicial system we have in Nigeria, the case can drag for more than 10 years and during this period, the tenant will not be paying rent”, noted Meckson Okoro, an estate surveyor and valuer, in Lagos.
Yemi Edun, managing director, Daniel Ford International affirms, noting that “rental income of most properties is 5 percent of total cost of property which gives a minimum of 20-30 years to recoup investment through rent.” He stressed that “low occupancy and cost of repairing and renovating the property every five years or risk of having no tenant push investment recovery periods up to as high as 30-50years”.
In the last 20 years, the property market in Nigeria has passed through cycles-upsides and downsides. During boom times, property values generally rise significantly. But Edun says such rise in property value is defective. The increase in the naira value of properties in Nigeria, over the past 20 years, has been mistaken by many as asset appreciation. This is a very big mistake”, he explained.
Within the same 20-year period, the local currency, the Naira has been devalued by more than 5000 percent. The Naira exchanged for the US Dollar in 1989 at $1-N7.35. Today, in 2019, the exchange rate has jumped to $1-N360.
Inflation rate in the country has hovered between 12 percent and 18 percent and this, Edun says, is what gives the very false illusion to what seems to be a rise in the Nigerian property value. “If you were to compare it to the Dollar value at time of purchase and adjust for inflation, the property may probably have lost all its real value and so, may be worth far less than the initial price it was purchased for.
In a comparative analysis of properties in Lagos, Edun noted that in Dolphin Estate Ikoyi, whereas the sales price of a duplex is N70,000,000-N80,000, 000, the rental income isN3,500,000-N4,000,000 while it takes a minimum of 20-30 years to recoup investment through rental income at 5 percent.
At Admiralty Towers, Gerald Road, Ikoyi, the sale’s price is N16 million to N200 million; rental income is N8 million to N10 million and interest rate is 5 percent for a minimum of 20-30 years to recoup investment through rental income alone.
Flats at Ocean Parade in Banana Island goes for N280 million- N400 million, rental income is N14 million- N20 million per annum at 5 percent for 20-30 years to recoup investment through rental income.
At Stallion Estate, Lobito Crescent, Abuja, sales price is N80 million; rental income is N4 million at 5 percent for 20-30 years to recoup investment through rental income alone. At Ozomma Ikakezumba Close, GRA, Onitsha, Anambra State, terrace houses sales price is 85 million; rental income is N4.2 million at 5 percent for a minimum of 20-30 years to recoup investment through rental income alone.
CHUKA UROKO
