Fragile economy, low income, credit keep real estate sector in recession

Nigerian real estate  sector has yet again contracted in Q3 2018, in what is the 11th consecutive quarter in recession since the first quarter of 2016, figures available on the sector on the National Bureau of Statistics (NBS) website reveal.

At the end of the 9th month of 2018, the real estate sector reported growth of -2.68 percent as against the -3.88 percent growth rate recorded for Q2. The sector performance in the review period was linked by economists to Nigeria’s fragile economy, low credit and insufficient income.

Although the Q3 figure released by NBS was better than Q2 figures by 1.21 percentage points.

Responding to the report, Rafiq Raji, chief economist at Macroafricaintel said real estate prices were previously driven by a booming economy fuelled by higher oil prices.

“A loose public purse was also a catalyst. The current depression in the sector is symptomatic of the slow pace of the economy and perhaps the anti-corruption efforts of the current government,” Raji told BusinessDay.

The sector growth rate in the review quarter was, however, higher than the growth recorded in Q3 2017 by 1.44 percentage points.  It contributed 6.50 percent to real GDP in Q3 2018, which is 0.30 percent lower than the 6.80percent it recorded in the corresponding quarter of 2017 and 6.83 percent in the preceding quarter.

Nigeria with the highest population in Africa has about 20 million housing deficit and BusinessDay survey has revealed that about 90 percent of house acquisition in the country is funded by individual savings, owing to the funding challenges in the country’s property industry.

Again, the country has one of the highest mortgage rates in Africa. Its mortgage to GDP ratio is less than 1 percent, as against 2 percent in Ghana and over 30 percent in the more developed countries.

“Mass housing, for which there is huge demand, is probably not attractive because incomes are low and credit is dear. More high-end property, plenty of which are empty in places like Abuja, have not enjoyed much customer-patronage because the rent economy, fuelled by political patronage, has been in dire straits for the past 3 or more years. That is good for Nigeria but bad for the real estate economy, Raji explained.

Nigeria’s real estate industry was also among the least attractive sectors to the country’s commercial banks as it got one of the smallest portions of loan in the 3rd quarter of 2018.

The figures compiled from the state stats showed that Nigeria’s property sector was only able to attract N710.2 billion in the third quarter of 2018 as against the N744.56 billion and N784.2 billion it got in Q2 and Q1 2018 respectively.

“For the banks, before they were saying let’s take a bit of risk by investing in the real estate sector but now what you hear is let’s not even take any risk at all,” Olurogba Orimalade, the current chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Lagos State Branch,  told BusinessDay.

Meanwhile, Nigeria’s GDP in the third quarter of 2018 grew by 1.81 percent (year-on-year) in real terms, driven by non-oil sector. The growth rate report in the review quarter represents an increase of 0.64 percentage points when compared to the 1.17 percent rate recorded in the third quarter of 2017.

Q3 GDP figures was 0.31 percentage points better than Q2 2018 figures of 1.50 percent. The non-oil sector grew by 2.32 percent in real terms in Q3. This is higher by 3.08 percentage points compared to the rate recorded same quarter of 2017 and 0.28 percentage point higher than the second quarter of 2018.

The -2.68 percent contraction figures reported by the real estate sector in the quarter under review is the fourth lowest negative growth of the real estate sector after Q2 2018, Q1 and Q2 figures of 2017, as they reported -3.88 percent, -3.10 percent and -3.53percent respectively.

BusinessDay analysis of the  real estate sector revealed that the contraction recorded for the first quarter of 2018 is so far the worst contraction the property market has reported since BusinessDay started tracking it in Q1 of 2016.

The worst quarter contraction of the sector that follows after the Q1 2018 figures was in the fourth quarter of 2017 when the sector expanded negatively by -9.27 which was 0.13 percent points better than the 2018 Q1 figures.

Endurance Okafor