Opportunity beckons long term investors as market correction deepens

For investors with long term view, this is time to move cash to market as the market is correcting itself with significant drop in sales prices and rental values. The economic recession in the country and the corruption crusade of government have put an end to blind buying and unrealistic sale prices.

About  four years ago, a lot of properties were over-valued in terms of sale prices. The property market in Nigeria is like a pyramid and much of the money that came to the market within this period was concentrated at the top end of the pyramid.    

Properties that were meant for the middle end of the market were over-valued in terms of price. There was a case of a certain primary mortgage bank (PMB) that did a development in Abuja. They delivered  each of the housing units in the project at N35 million, but because of the artificial market that was created in Abuja, they put these houses on the market for N250 million each and some people bought.

Now that they have realized that the market is correcting itself, they have brought the price down and are selling the remaining units for N45 million per unit and this is the real price of the house. What the country has seen all these years is an artificial market in which prices were unrealistic and unsustainable.

Similarly, there is a property in Osborne Phase 1 in Lagos that was rented out for N15 million per annum three years ago. Now, the landlord has collected N6.5 million per annum which shows that people are now being more realistic on both the rental and sales side.

This market has seen lush money much of which, estimated at 70 percent, were proceeds of corruption which reached dizzying heights in the last six years when politicians consolidated their foothold on governance.

Again, a lot of people had been using the property market to store cash and also to hold value which is what happens in other parts of the world. But Nigeria’s case is always different.

“Nigeria has a housing deficit of 17 million; Lagos alone has about N3 million of this. If we are to close that deficit, it means we are to produce 100,000—180,000 housing units annually”, notes a developer who does not want to be named.

He pointed out that because of the recession and depreciation in the value of the naira, a lot of money coming into the market now is from Diaspora Nigerians  who are taking advantage of the stronger currency they have which gives them more naira.

“A lot of our subscribers are from Nigerians in Diaspora. We have seen a lot of inflows from outside the country”, the developer reveals, urging savvy investors to enter the market now that buyers dictate the pace and direction of market transactions.

In the commercial segment of the market, what some landlords are doing is to find a way to give allowances to the tenant. Where rent is $800 per square metre, the landlord may decide to give back, say 30 percent, of this to the tenant as fit out allowance. The rent remains $800 but the tenant pays effectively $500 per square metre. The advantage of this is that when the market returns, renegotiation starts from $800, not $500 the tenant has paid.