Increased foreign, institutional investments to drive real estate growth in 2016
In spite of the slowdown that defined activities in the Nigerian real estate sector in 2015 arising from the global economic headwinds, analysts say outlook for the sector in 2016 is positive, pointing out that growth in the sector will happen through increased investment from foreign and institutional investors including pension fund administrators (PFAs) and mutual funds.
According to the analysts, growth in the sector would also be driven by access to funding and credit, the growing population of high net-worth individuals, and the expected intervention by the federal government in the housing sector as disclosed by Babatunde Fashola, the minister for power, works and housing.
Fashola disclosed, during his maiden media briefing, that the public sector would lead intervention in the housing sector by developing 40 blocks comprising 12 apartments (homes) each in each of the 36 states of the federation and Abuja, the federal capital territory (FCT).
Nigeria’s real estate sector is a growth phenomenon and the country’s great demographic story coupled with the wide housing demand-supply gap make the sector an attractive investment destination.
A recent report by Akintola Williams Deloitte puts the value of the country’s real estate market at N6.5 trillion, estimating that the market will grow at an average of 10 percent over the next few years.
Though it is still early days to determine the growth of the sector in 2015, Doyin Salami, an economist and teacher at the Lagos Business School, says the sector grew 8.7 percent in 2013 compared with GDP growth of 7.4 percent, adding that its average growth was 6.9 percent between 2011 and 2013 while GDP average growth was 6.4 percent”.
With the country’s estimated 18 million housing deficit which requires 17-20 million housing units to fill; 51 percent of Nigerians living in rented accommodation and 40 percent of them paying N20,000 to N100,000 yearly as rent; a low home ownership level estimated at 25 percent of the population, Nigeria can only be described as an investment haven for high yield seeking investors.
The Deloitte report reveals that the country attracted $3.96 billion (about 780.12 billion) in real estate development in 2014 alone, representing 11 percent of the total sum of $36.4 billion expended on infrastructure construction projects in the country, pointing out however that to make the expected growth in the sector happen this year, some critical steps need to be taken.
“We will need to provide the legal and regulatory framework that will attract private sector investors to develop affordable housing products particularly for the no-income, low income and middle income groups”, it said, adding that there is need to develop an effective land administration system to make land ownership available, secure, accessible and easily transferable at affordable rate.
Tayo Odunsi, CEO/Director, Real Estate Advisory, Northcourt, agrees, noting however that the outlook for the real estate market in the new year would depend largely on the overall performance of the economy as the demand, supply and price of space were subject to the well being of occupiers, developers and investors.
To re-stimulate the market, he added, “certain signals are requisite for a truly positive change in sentiments; some of which seem to be medium to long term in horizon, especially in consideration of the recent increase in interest rates by the US Federal Reserve Bank and the resultant further decline in foreign portfolio investments”.
For the sector’s outlook to make meaning, Odunsi recommends a revision of the CBN’s exchange rate demand restrictive policy to reduce uncertainty and investment risk of the Nigerian market while potentially improving investor sentiment (domestic and foreign) and also stimulating growth in the economy.
“The government needs to prepare a well-articulated and communicated fiscal plan aimed at reflating the economy, demonstrating preference for infrastructural improvements and growth of the real sector”, he said, adding, “government also needs to finance the budget by fiscal prudence, effectively increasing the tax base and removing of petroleum subsidy”.
CHUKA UROKO