Property market now attractive for investors looking beyond recession

The economic recession in Nigeria, which is taking toll on all sectors of the economy, has caused major shifts in demand, supply and pricing of real estate assets, creating an attractive investment opportunity for funds looking beyond recession and high-risk investors with patience.

Rents for residential and commercial office property in Lagos, the country’s commercial capital, have dropped by around 20 percent, year-on-year, due to a supply glut as projects planned before the oil prices fall are now being completed and introduced into the market.

Besides the economic recession, the property market in Nigeria poses a lot of challenges such that investing in it requires a willingness to navigate opaque land laws, corruption and the prospect of having money held up in the bank due to currency restrictions.

The market therefore offers opportunity for investors who have this willingness and also those betting that this most populous nation in Africa will deliver high returns when it climbs out of recession.

Writing on property market crash in Reuter’s African Business, Alexis Akwagyiram says the central bank has made it difficult for investors to repatriate profits as it seeks to avoid a collapse of the naira due to a slump of oil revenues, which has pushed Nigeria into its first recession in 25 years.

Akwagyiram however notes that Nigeria has a fast-growing population that will require more housing and shopping malls in the long-term, and some investors believe the time is right to step in, particularly as banks are reluctant to grant loans to other potential buyers in the midst of the downturn.

Bolaji Edu, CEO, Broll Nigeria, agrees, stressing that though there are challenges in the short term, there are potential prospects in the medium to the long term. “I believe that in the medium to long term, there are still potential prospects for the retail market. This is very strong”, he said.

Continuing, he said, “in terms of formalized retail, Nigeria is yet to scratch the surface. Also talking in terms of square metre per population, the country is just scratching the surface. Lagos has got about 50 percent of the retail space in the whole country. Compared to Nairobi with a smaller population and a larger retail space, it would seem we have not even started”.

He pointed out that these prospects were driven by demographics, explaining that the country has a huge and young population, and all the demographics were working in its favour. “But the big issue here is exchange rate stability which affects investors’ business model and potential return on investment”, he noted.

Some private equity funds, mostly from South Africa, are investing in Lagos and Abuja, betting the spending power of the country’s 180 million people will grow. South African investors like RMB Westport, Actis and Resilient Africa have strong footprints in Nigeria and, according to Funke Okubadejo, real estate director for Actis, “Nigeria provides a compelling market opportunity”.

“We believe Nigeria has massive potential in the retail area,” said Jan van Zyl, head of Nigerian property development at South African fund, Novare Equity Partners, which opened one of Nigeria’s largest retail facility in Lekki, Lagos recently.  “The sector is in its infancy and will only continue to grow from a very low base”, van Zyl hoped.