Rising vacancy, falling prices are challenges offering opportunities in recession’

The global financial crisis caused by the crash in the price of crude oil has caused an economic recession in many countries around the world and in Nigeria, the impact is on every sector of the economy including real estate which appears to have taken the worst hit.

The sector has seen rising vacancy and rent default rates among others and, according to Adediji Adele, an estate Surveyor and valuer who is also the vice president of the Nigerian chapter of the International Real Estate Federation (FIABCI), are reflections of an economic downturn.

This economic crisis has caused inflation rates in these countries to rise to abnormal heights. The situation has not just caused a currency crisis in countries like Nigeria, for instance, but has caused a financial meltdown for many small, medium, and large scale businesses.

Large companies are grumbling about some of the policies of the Federal Government in this economic recession, and have no other options than to find ways to either acquire foreign exchange at ridiculous prices from the parallel market, or sell off some of their properties to raise fund and this also applies to individuals and because cash flow has reduced drastically, it has led to property market crash.

Adele notes that rents for residential and commercial office properties in Lagos, for instance, have dropped by around 30 percent due to a supply glut as projects planned prior to 2014, when oil prices started to fall, are now coming to market whereas individual buying power is no longer there, forcing demand to come down and therefore, fall in price.

He quotes a  recent media report which revealed that default rate on rented properties and vacancy rates have hit 74 percent in prime property locations and, based on a sample size of 3,700 houses surveyed in Lagos recently, there is about 71 percent default rate among rented apartments with a projection that it might reach 80 percent in the course of this year.

He cited another recent report on ‘The State of Lagos Housing Market’ which put the state’s housing demand at 4.4 million units while the current supply is 1.4 million units, leaving a demand-supply gap of about 3 million units. “With Nigeria facing recession and inflation at very high record, real estate sector has been negatively impacted”, he stressed.

The central bank has made it difficult for foreign investors to repatriate profits as it seeks to protect the naira from collapse due to a slump of oil revenues. But Nigeria has a fast-growing population that will require more housing and shopping malls in the long-term. Adele agrees with smart investors who believe that the right time to step in is now, particularly as banks are reluctant to grant loans to other potential buyers in the midst of the downturn.

“One of the advantages of real estate investment is the ability to absorb inflation. Unlike several other investible assets, real estate is relatively stable and has the capacity to withstand the dynamics of economic recession or economic downturn.

“It is a tangible investment and while it will be affected by the law of supply and demand, it is rare for real estate investment to significantly lose its value, especially in an economy such as ours. We essentially run a cash economy as regards real estate, with very little support from government, banks and other financial institutions”, the FIABCI boss posited.

While recession has slowed down the growth of this sector, it is also the reason for its significant crash or sudden loss of value, but Adele advises that people must learn to see the opportunity in every difficulty rather than the difficulty in every opportunity.

“This is definitely a good time to buy as there are many great deals in the market. The number of properties for sale is far more than those with the willingness and the financial power to buy and so it is now a buyer’s market, meaning that he that has the money dictates and that is of advantage to those abroad because they are at the advantage of exchange rate, and at the same time those that have the financial power should buy now that prices are considerable”, he advised further.

Many highbrow areas and commercial properties have lost significant value and it will take a while for them to bounce back to where they were few months or years ago and so whoever has the financial power and knows the exchange rate is to his/her advantage should better take the opportunity now.

Another positive development that an investor can leverage this season is sellers’ willingness to consider offers that they would not normally consider and agree to terms that they did not generally agree to before. This is a period when significant discounts are permitted.

Many sellers and property developers are willing to accept reasonable deposits and payment by installments. It is generally understood that many people who can easily afford real estate investments are no longer able or willing to do so. This offers an opportunity to buy properties with flexible payment terms and also provides investors with the opportunity to pay amounts that will not disrupt their financial plans as well as avoid the need to use high interest bank loans.

One of the most notable hallmarks of recession is the fact that money is scarce. This has made it challenging for some people to see the possibility of investing in real estate. While the challenge is real, the possibilities are equally real.

This season also provides opportunity for aspiring real estate investors to form cooperative societies or any organized and tested system of pooling resources together in order to achieve their real estate investment goals. Companies that already have cooperative societies can also take advantage of this period to invest in real properties for members.

This is especially a very good method for buying large tracts of land that can then be divided into plots and allocated to members. There are other creative financial strategies that people could come up with if they really put their minds to it. Real estate is also not just about buying and selling land but also about renovation, reconstruction and property development.

These opportunities now abound in the market. This is a good time to seek those opportunities and preferably sign contracts with the various stakeholders for their implementation. Some of these do not require advance financial outlays but do demand that a prospective investor has the know-how and the skill set to develop them.