Market in gradual rebound with significant increase in enquiries in Q1’18
Characteristic of its slow reaction to changes in the wider economy, the real estate market recorded gradual rebound in the first quarter of this year (Q1 2018) several months after the economy exited recession and witnessed significant improvement.
The market actually saw an increase in enquiries estimated at 10 percent in the last six months, but those enquiries could not translate into closed transactions or increased prices, leaving the property market and asset values largely unchanged.
“We have really seen impact of the improvement in the economy on the real estate market, but that has not largely manifested in true transaction”, affirmed Gbenga Olainyan, CEO, Estate Links, in an interview, disclosing however that the number of square metres of space his company has rented out between June 2017 and now from majority of the A-grade offices they have in their books has exceeded all they did in the previous two years put together.
Olaniyan stressed that even-though the market is still not where it should be, there has been much more successful outing in the last six months than the previous two years combined. Besides that, he said, enquiries are increasing and, though these are not translating into closed deals, there is hope that in the very near future, transaction and sales will happen.
“We are getting much more demand. In real estate, the reaction time is usually slow and I am talking specifically about A-grade commercial office space”, he said, citing instance of a company that planned to change office in 2013 but suddenly saw the fortunes of its business turning around in 2017. Such a company, he said, would have to wait before deciding on what to do next. “These are the kind of people we are seeing now coming to make enquiries about rents and the size of space available”, he noted.
The residential segment of the market is telling similar story of gradual return to profitability. The market is not yet back to the 2014 and 2015 transactions, but the situation in the first quarter of this year cannot be compared to the same period in 2016 because the former is a lot better.
This gives developers and potential investors hope of a better tomorrow. But there is a challenge. Rising construction cost in the face of low demand has compelled most developers to slow down to watch the market.
“The last two units we still have to sell out of 15 units in our development are still selling at N50 million per unit which was the price at which we sold early last year when we were selling off-plan. That tells me that nobody wants to pay more than N50 million”, Olaniyan said.
Continuing, he explained that if he was to replicate that development, clearly, the price of the units would not be 50 million again because of the rise in construction cost and so, he wouldn’t be in a hurry to do another one but has to wait until the market moves.
“I see a situation where, because development has slowed down, the economy is recovering, money is trickling into people’s pockets, property prices which had been flat for so long, has to go up because a developer who borrows to build cannot sell at today’s price any longer”, he noted.
From the buyer’s side, there has been a significant shift because, with the economy starting to pick up, there has also been a shift in enquiries and Olaniyan explained that if in a week early last year they had just three serious calls, now they were sure to get 10. “A lot of the prospective tenants are still inspecting, telling you they are raising funds, but one is sure that even in real estate people have hope”, he assured.
The fall in the value of the naira relative to the US Dollars is still haunting and piling pressure on the retail segment of the market. Retailers are still struggling with dollar rents and a good number of them are closing shops at the structured malls and moving to stand alone houses.
The mathematics is yet to add up for that sector. For instance, a retailer who was bringing in goods at $100 before the naira devaluation had N16,000 as his cost and so, he could sell for N20,000. Now, the same retailer is still bringing in goods at $100, but his cost has moved from N16,000 to N36,000, and the buyers are not yet ready to pay N40,000. So, the next thing for him to do is to leave the mall. So, the structured malls are losing local retailers.
For the retail business, the story is different and unlike the commercial and residential markets where it is expected that rents will soon bottom out and stabilize, in retail, rent will only start coming up again when it bottoms out to where retailers’ naira can afford it and that will take another monetary policy change to happen. Even the foreign retailers are having challenges because they have to see buyers to make sales.
CHUKA UROKO