High vacancy rate in expensive areas linked to developers’ bank exposure

Expensive areas in Nigeria, including Asokoro, Wuse 11 in Abuja, and Ikoyi, Lekki, etc, in Lagos, have witnessed high vacancy rate in recent time, which analysts estimate to be in the region of 25/30 percent. The analysts have adduced a good number of reasons for this high vacancy rate, prominent among which is that the houses are over-priced in a very low market demand situation.

Meckson Innocent Okoro, principal partner/CEO, M.I. Okoro and Associates, a firm of estate surveyors and valuers, told BusinessDay that most of these properties remained vacant for the added reason that their owners had taken bank loan to develop them.

Okoro, whose firm specialises in corporate estate agency with special focus on Ikoyi and its environs, explained that “a developer who has taken a bank loan to build a house from which he expects to sell for N300 million or rent out for N100 million per annum will not lower the price because there is no demand.

“No developer will do that because if he lowers his price from N300 million to N100/N150 million in order to stimulate demand, he will be in trouble, because that cannot not support the interest rate he has to pay on the loan. It is better for him to let the banks also see that the house is vacant.”

He said that illiquidity in the financial system coupled with the insecurity in some parts of the country had also affected this segment of the market, pointing out that foreign investors who were major buyers of these houses were not coming into the country as before.

According to Okoro, when the Federal Government divested from its properties in Ikoyi through the magnetisation policy of the Olusegun Obasanjo administration, developers that bought over these properties built high-rise structures of 10/15 floors, leading to what he called “over-supply without corresponding increase in demand.”

He pointed out however that this over-supply had not in any way affected the rental or capital values of these properties, explaining that the developers were, most times, high-risk bearers who could afford to leave their assets in the market, waiting for when they could achieved their desired prices.

He dismissed the allegation in some quarters that some of these buildings were products of money laundering, saying it was hard to prove such allegation.

“It is difficult to prove such allegation, but what is important to note is that the owners of these properties have created value, whether they are occupied or not; and don’t forget that most of those who launder money prefer to do so abroad for fear of disclosure,” he noted.

He pointed out further that the Island properties were expensive ones, adding that “the market has been generally low.” To him, between the last quarter of last year and the first quarter of this year, the number of closed deals has been very small, saying that not up to 20 percent of these deals were closed in 2012, which explains the emptiness in those properties.

“However, if you go to the middle-class settlements like Ikeja GRA, Surulere, Gbagada, Maryland, etc, the market is quite upbeat and this applies to many other locations outside Lagos,” he said.

CHUKA UROKO