Foreign inflows into property market shrinking despite 20% price correction

Contrary to expectations and market watchers’ prediction that transactions in the property market this year would be driven largely by foreign inflows, there are indications that those expectations may not materialise after all, as such inflows are shrinking considerably.

Falling prices in the international oil market, the crisis in the foreign exchange market and lack of clear policy direction in the economy have combined to impact negatively on investor-confidence, leading to a reduction of activities in the Nigerian real estate sector.

Finance analysts note that remittances to Nigeria are reducing and one of the reasons is that the economy is not stable and, according to a Diaspora Nigerian who pleaded anonymity, “there are no clear directions; we don’t know what this government is all about. I am one of those who believe that, in our circumstance, this is perhaps the best we can have, but it could be better”.

“The confidence level in the economy has gone down and some of the on-going projects which have foreign interests are struggling”, says Femi Akintunde, CEO, AMFacilities, explaining that some foreign investors are reviewing their investment decisions, while some others have had their business plans cancelled because they were no longer sustainable.

At the moment, the property market is contending with low demand, an oversupply at the high end, very high vacancy rate and price correction estimated at 20 percent in the residential and commercial office segments of the market.

The on-going price correction in the Nigerian market is expected and understandable, says Gbenga Olaniyan, explaining that unlike places such as New York and Manhatan, where people talk of price drop, Nigerian market experiences price correction because the business environment here cannot sustain the kind of rent people used to pay for business premises.

“However, when people were paying those high rents in Nigeria, it was because there was almost zero supply of quality Grade A office space in the country; rents here were three times what obtained in Sandston, South Africa, where there are better quality office buildings and don’t forget, their economy is almost at par with that of Nigeria”, Olaniyan explained further.
As at October last year, Grade A office rent was $1,100 per square metre, but now, it is no more than $800 per square metre. Similarly, the prime land in places like Bourdillon, Gerard and Kingsway Road in Ikoyi which were selling for $330,000 to $350,000 per square metre, which marched Banana Island price, have dropped because people who bought at the time did so to build three or four blocks of 24 flats each, but these are no longer selling or letting because demand has dropped.
In the same vein, at some prime locations where developers were selling at foundation stage, none is selling now while off-plan sales which was already gaining traction in the market is fast fading away because many finished houses can’t even find buyers.