‘With recession, it’s no longer business as usual in real estate market’
The 10-month old economic recession in Nigeria, which analysts say is easing off but without any visible impact on commodity prices, has taught Nigerians some hard lessons. Perhaps, in other sector of the economy are these lessons more poignant and impactful than real estate where developers are, increasingly, coming to terms with realities and the fact that it is no longer business as usual.
Pre-recession, Nigeria had one of the most burgeoning real markets in the world where developers offered products that had no consideration whatsoever for buyers’ legitimate earnings or buying power. Houses were put on the market for prices that smacked of profiteering, thereby scaring away real buyers and courting people with ‘easy’ money who bought just for the sake of buying.
With recession the music has changed and everybody, including the developers, have to change dance steps. This has become all the more imperative with federal government’s anti-graft war which is after those whose illegitimate income polluted every consumer market with real estate leading the pack.
“With the economy in very terrible shape, the purchasing capacity of the people went down. Even those who had the capacity to buy withheld their money. Some even moved their money to other countries”, Adetokunbo Ajayi, MD/CEO, Propertygate Development and Investment Company, confirmed in an interview, adding, “we have seen almost a stop in development activities in real estate”.
But as tough as it was, Ajayi noted that there was a positive angle to this which is that people now want to invest, but the products are not readily available. So, for those who have taken the initiative to continue to be in business amid the recession, it is a positive thing for them.
Another positive side to the story, he added, is that there is curtailment of supply to the market. “When the market was bullish, people were just undertaking developments without taking into consideration the market fundamentals of demand and pricing. Now, we believe that with the problems of the past, people are now better guided. When next they are coming up with development, they have to consider the fundamentals more so, now that the market has changed”, he said.
Ajayi recalled that those who did developments without considering market fundamentals suffered more during this recession, while those who did developments considering important factors did fairly well. He hopes that people should learn from that and begin to do things better.
According to him, the era of developers who built with the assumption that they did not need to consider people’s actual or legitimate earning is gone. “As we all know, the nation thrived on corruption before now. So, when such people were building they had it in mind that somebody would come to buy at whatever cost he put it. That era is becoming faint and distant.
“When we are doing development now, we must consider the actual earning capacity of the potential buyer. So, we are now beginning to see products that actually speak to the market. With the recession and the challenges of the past, it is no longer business as usual in the real estate market”, he emphasized.
He noted that the economy has started gaining traction, saying that from the macro-economic side, improvement in the foreign exchange market would be sustained, pointing out that, as a critical part of the economy, expectation is that real estate will soon begin to gain traction.
“We expect that as long as we have steady environment, right policy and the government continues to boost confidence, the economy will continue to improve. For the real estate sector, as the economy improves, peoples purchasing capacity will rise and that will mean greater patronage of developers”, he expected.
Though the market has seen a significant drop in both demand and price as a result of recession, Ajayi does not believe the market is undergoing correction. “I will not say the market is self-correcting because, notwithstanding the economic recession, especially in Lagos and some other places, the price of land which is the key element of real estate remains the same.
“People were expecting to see a fall in the price of land but that never happened. In some cases, the prices even went up. The cause of this is that land is in the hands of people who have the capacity to withstand the bad economic condition. So, those people held on to their property, waited and watched”, he noted.
CHUKA UROKO