Real estate ends 2014 with increased demand at mid-low income market

Conservatively, 2014 could be described as a good year for real estate in Nigeria as the market witnessed increased investment and relative growth in its commercial segment where both major and second tier cities of the country saw start-ups and on-going projects leading to the development of retail and commercial office spaces.

Available record shows that growth in the market was a carry-over from the previous years, particularly in 2013, when it outpaced GDP, growing 8.7 percent as against GDP growth of 7.4 percent. Its average growth was 6.9 percent between 2011 and 2013 while GDP’s was 6.4 percent.

The rebasing of the GDP earlier in the year threw up hidden potentials in the market, revealing that the current size of the market is 30—40 percent larger than it was previously estimated and, according to Doyin Salami, an economist and lecturer at the Lagos Business School, “apart from being the fastest growing sector, real estate is today the sixth largest sector after crop production and distribution, crude petroleum and natural gas, information and communication, telecommunication”.

At the residential segment, the market also witnessed increasing demand at the low and middle income level, though supply was severely constrained by the long standing problems of inadequate funding, poor infrastructure, high land charges and the obnoxious Land Use Act which have persisted for years.

However, at the high income market where supply was steady, demand dropped significantly, leading to a vacancy rate which Femi Akintunde, the MD/CEO of Alpha Mead Facilities Management and Services Limited, estimates at 60 to 70 percent in Ikoyi—Nigeria’s most highbrow location with upscale residential apartments.

Akintunde explained to BusinessDay in an interview on the performance of the market in 2014 that this drop was caused by a number of factors, chiefly the petroleum industry bill (PIB) and its impact on oil industry activities.

“The first major problem we had in the beginning of 2014 which was a carry-over from the previous year was the continued delay in signing the PIB which affected a lot of oil industry activities. Oil companies are no longer investing in Nigerian market. A lot of them have downsized their operation and with this they have to look at how to reduce cost.

“A lot of them are moving towards the monitorization of housing benefits for their staff. So the staff are given enough money to look for their own accommodation. This has compounded the problem of demand at the high income level property market such that when you go round, you see a lot of vacancies in Ikoyi up to 60 to70 percent”, he noted.

Explaining the increase in demand at the low and middle income market, Akintunde, quoting statistics from the African Development Bank, noted that in the last five years up to now, the middle income people in the income bracket of N75,000 towards N250,000 or N300,000 have been increasing.

He added that “some people are dropping from the top while some are coming from the bottom; so the middle income level has been growing and it is estimated that it constitutes about 23 percent of the Nigerian population. If that number is computed against 170 million people in Nigeria, it gives you 40 million and we say we have a housing gap of 170 million units which has been there in the past three to four years”.

According to him, though 92 percent of people in this income bracket are educated beyond school certificate, the AfDB survey also estimates that 68 percent of them are living in rented houses, meaning that demand at that level remains strong.

As demand here is growing, he said, the supply side is not adequate to meet the growing demand, pointing out that the two major entry points to homeownership—buying or building—are constrained by the aforementioned problems which remained unresolved by the outgoing year.

“The real estate industry in 2014 was severely affected by those issues that have not been adequately addressed and we are still living with them because we seem to be pre-occupied more with politics than quality governance.

“Funding remains a big problem for the developer who is going to supply the houses which is why the capacity to supply has been restricted. Funding for the developer is not coming at a good rate and it is not even there. When you get it, it is short term loan, meaning that the developer has to transfer the cost to the buyer who is struggling with his income”, he lamented.

Due to the problem of basic infrastructure like good road, he added, the real estate sector suffered major setback in 2014, pointing out that there are no access roads to areas where houses are developed and even where they are built, they don’t last. “People just paint the surface of the earth and call them roads, thereby trivializing the who essence of roads infrastructure”, he said.