Small size projects to drive devts in 2016 as uncertainty persists in economy
The lingering uncertainty in the Nigerian economy fueled by government’s stringent macro-economic policies is, in more ways than one, impacting and reshaping investment decisions in a manner that is contracting rather than expanding investments and developments.
For real estate developers and investors alike, these are testing times as it is predicted that demand may be curtailed with clients cutting back on spending until a clearer picture of the economy emerges to restore consumer confidence in the market.
Earnings at household and company levels have dropped and, even for those who have, the anti-graft war of the government is discouraging spending, hence the expectation that a lot of developers will tread with caution when embarking on new projects to launch.
A new report by Residential Auction Company (RAC) notes that in their investment decisions, location of choice has become a paramount factor for the developers, adding that in order to hedge risks, these developers are also cutting back on the size of projects they embark upon.
“They will seek to develop small size projects that will provide not more than 3 – 10 units which will quickly attract sales even at the off-plan stage, hence eliminating idle units waiting to be sold several months after completion which will increase the cost of keeping stock”, Omorotimi Akinlose, RAC’s managing director, notes in the report.
Akinlose says however, that the future of the housing market looks intact as supply would continue to increase with demand, and infrastructure is improved to attract more businesses.
The Lagos housing market has a lot of pipe-line projects and the report estimates that 62 percent of new housing units in the pipe-line will be delivered into the Lagos Island market, pointing out that this does not come as a surprise since the Lekki-Epe axis still has a vast area of green field sites.
“Notwithstanding the fact that Lagos Island has the bulk of new units in the development pipe-line, we cannot neglect or overlook some locations on Lagos Mainland such as Ayobo-Ipaja, Badagry and Okokomaiko that also have vast number of units in the pipe-line which is a major consequence of a few mass housing schemes launched under joint venture (JV) arrangements and are still awaiting completion”, the report points out.
It notes that with the on-going rehabilitation and expansion of the Lagos-Badagry Expressway and the construction of the Blue Line Lagos Rail Transport (LRT) mass transit transport system by the Lagos State government, the Okokomaiko – Badagry axis in the Lagos Mainland has the potential to emerge as the next ‘Lekki’ of Lagos Mainland with regards to the delivery of new housing units in Lagos provided infrastructures continues to improve along this axis.
These developments, the report adds, will have a directive positive impact on commercial activities in the location and will act as a catalyst to lure more residents from other locations on Lagos Mainland to migrate. The Blue Line is a 27km urban rail line that will run from Okokomaiko to Marina. There will also be a Red Line which will run from Marina to Ikeja International Airport.
Reviewing housing development and supply in Lagos, the report notes there is an emerging trend whereby the supply of new housing units follows the house-type developers have taken a penchant into developing, pointing out that multi-family units or flats are the number one choice ahead f other house-types.
“Flats make up over a third of all new housing units delivered annually into the market, giving it the largest share over other house-types. The construction of flats makes more economic sense for developers since it is more profitable due to the simple fact that they take up less built-up area per unit than the more elaborate single family unit and they also attract quicker sales. This is not to say that other house-types have been completely neglected”, the report posits.
Some developers have a tendency to adhere to the construction of one particular house-type while some are more open to the idea of integrating various house-types including flats, terrace, maisonette and semi-detached on a particular site as to cater for different segments of the market and households.
The emergence of terrace, town house and maisonette house-types commonly seen in the western markets such as the United Kingdom and United States of America are now a fast growing trend amongst local developers looking to attract a younger generation of clients that favour such house-types rather than the conventional detached and semi-detached house-types that was previously the norm. Similarly, just like flats, they also take up less built-up area, making them cost effective for plot sizes.
Bungalows are the least favoured house-type amongst developers presumably because they provide low profit margins and developers that embark on constructing these units are mainly targeting the low-end segment that seek affordable mass housing in usually out-of-town locations where land values are relatively low.
CHUKA UROKO