Property value now determined by market forces, buyer-seller agreement
An interesting development is unfolding in the Nigerian property market as recession continues to ravage the nation’s economy, reducing industrial productive capacity and shrinking household income.
Like other sectors of the economy, the real estate market has taken a hit such that unlike before when the seller was king and money-bags with potentially ill-gotten wealth drove property prices to unrealistically high values, property prices/values are now determined by not just market forces of demand and supply, but also an agreement between the buyer and the seller.
The experience, according to close market watchers, is a mixed bag of cheers and jitters because while the market has now given advantage to buyers and investors, the sellers and their products are helplessly left at the mercy of the market and buyers.
“As household disposable income shrinks, property values have been steered by market forces towards values that a buyer and seller can equally agree upon. It’s definitely no longer a seller’s market and even the buyers are forced to act very rationally, contrary to past seasons”, says Ayo Ibaru, Director, Real Estate Advisory at Northcourt Real Estate in a new report.
It is now a buyer’s market but this applies mainly to sales market. The rental market is relatively different as could be seen in Lagos, for instance, where rents have moved in alignment with basic economic principles of demand and supply.
“With increasing demand, there is a corresponding price increment and as supply rises, prices decline”, Ibaru explained in the report, pointing out that in 2016, locations such as Agungi, Magodo and Sangotedo experienced price increases for both 3-bedrooms and 4-bedrooms, while Ikoyi and Ikeja GRA inversely experienced declines on both fronts.
According to him, certain locations saw increased demand for 4-bed houses only such as Lekki Phase 1, Surulere and Victoria Island. This increased demand for large houses is partly due to a growing trend of conversions from residential use to retail and office space, which generate greater utility for the leases in these nodes.
For upscale locations where rents are charged in dollars, tenants demonstrate that they are in charge by negotiating fixed exchange rates to ease payments. Some simply insisted on converting to Naira denominated rents.
Ibaru reveals that the Lagos residential market also saw renewed attempts to increase the supply of middle income housing by the Lagos State government, noting that the Ilubirin mass housing project received a fresh foreign investment injection of $500 million officially which helped to take the project off the list of abandoned public sector works. The state government also reduced the sale price for existing developments to attract citizens disinterested by the previous high prices.
In other locations in the country, investment in property has been hindered by, amongst other macro-economic factors, local political uprisings which have become more frequent in recent times.
This has been the case in Port Harcourt where, amid militant activities, a few residential projects have taken off successfully such as Rivtaf Golf Estate by and Intels camp. Rainbow town which is the biggest residential project in the Garden City, and a joint venture between the Rivers State government and First Bank Plc has not done quite well.
The slow pace of work has left early subscribers with doubts and prevented new ones from joining. Increasingly, cost conscious oil servicing firms in Port Harcourt relocated expatriate personnel closer to the place of business. The signs were clear in most companies that business would not be as usual.
CHUKA UROKO