Expert sees more struggle for real estate sector on shrinking income

…as FIABCI recognizes, promotes creativity, professionalism

For investors in the real estate sector, there is no light seen yet at the end of the tunnel as the impact of the economic headwinds which is almost crippling the sector may not end any time soon, more so as company and personal income continues to shrink in response to inflation.

Available data shows that real estate is 8 per cent of the Nigerian economy which is now in a recession following two consecutive quarters of GDP contraction. In addition to this, real estate has been in decline, and has contracted so many times.

Doyin Salami, a lecturer and member of faculty at Lagos Business School who gave this hint at the weekend, noted that real estate has been shrinking and that what will happen to it in 2017 will depend largely on what happens to the economy generally as it takes its cue from the general economy.

“Looking at the budget proposal of 2017 submitted by the federal government, what you will see is the projection of economic growth at about 2.5 per cent for 2017. With the Nigeria population growing at about 2.8 per cent annually, 2.5 per cent growth actually still represents a reduction in per capita income”, said Salami who was guest speaker at this year’s Annual Business and Award Dinner organized by the Nigerian chapter of the International Real Estate Federation (FIABCI).

Continuing, he said, “if you combine the rate of inflation in 2016, which ended the year at about 19 per cent meaning that anything that started the year with 100 ended at 119, with another 12 per cent inflation which the government has projected, we are in excess of 131 for what was 100 a year ago”.

He argued that if incomes do not rise at the same pace, it means the real value of income continues to shrink and therefore, the capacity for demand/spending continues to diminish, and once the capacity of spending diminishes, demand falls.

Salami faulted the often quoted 17 million housing units deficit, , saying, “the figure seems not to change since more than 10 years even with the growth in population; it just leaves a bit of concern about how accurate the data is”.

He reasoned that given the state of the economy and the sector in particular, it is much better to buy a government treasury bill now than to build a house because treasury bills will give 20 percent returns and no risk while houses are associated with a whole lot of risk such as government approvals and consent, non-payment of rent by tenant and managing the house as a whole.

“Having said that, capital appreciation in housing is one of the slowest; it’s long term and not something that is rapid; it may take another two years for the housing market to become productive looking at the present economy and the rate at which already built houses up for sale or rent are not occupied”, he said, advising that the housing sector needs to look at how to capture more information and data to help those who want to invest to have a holistic approach to the sector.

In his remarks, Gbolohan Lawal, Lagos State Commissioner for Housing, agreed totally with Salami, stressing that “the sector really needs to be awakened because we have noticed no growth in the real estate industry”. “As a government, we have decided to inject private capital into housing delivery in Lagos, and we are building capacity and creating the enabling environment to make this happen”.

Earlier in his welcome speech, Joseph Akhigbe, the FIABCI-Nigeria President, had explained that the theme of the Dinner, ‘Real Estate 2017: It’s All About the Economy’ was carefully chosen in the light of the prevailing economic situation as it affects the real estate industry.

“I am sure that in this brief period, since the economy took a downturn, we have all witnessed the good, the bad and the ugly side of the devaluation of the Nigerian currency, rising inflation, and excess supply of property as a result of the economic downturn”.

The annual FIABCI-Awards Dinner is an annual event through which the federation provides insights on real estate and contribute to national economic space. This year’s edition which was meant to creativity and promote good business environment recognized and rewarded Finance, Architecture and Design, Public Private Partnership, journalism, and Development/Urban Planning.

CHUKA UROKO