Strong investor-confidence and resilience amid daunting challenges
Investors in the real estate sector of the Nigerian economy are still confident and frequently demonstrate resilience by developing and putting products on the market amid challenging economic environment and negative growth reports on the market.
With an estimated 300,000 square metres of empty apartments and 200,000 square metres of empty office space in the residential and commercial segments of the market respectively, it is quite easy for anyone to get a clear sense of the situation in an otherwise burgeoning market.
Infrastructure which constitutes over 30 percent of construction cost, regulatory policies which make land acquisition and title registration a nightmare, high cost of funds at over 30% rate, unstable foreign exchange rate, lack of functional mortgage system, etc are just a few of investors’ challenges.
Available record shows that since the last quarter of 2016, about 10 consecutive quarters now, the real estate sector has been recording negative growth despite positive growth reports in the wider economy.
Figures from the Nigeria Bureau of Statistics show that the sector contracted by -9.40 percent in Q1 2018, down from -5.92 percent in Q4 2017 and -4.12 percent in Q3 2017. The first quarter contraction was -6.3 percentage points worse than the -3.10 percent reported in the comparable period of 2017.
Though the sector showed signs of rebound in Q2 2018 as shown by figures from NBS, analysts hinge that good but negative figures on a number of factors including improved infrastructure and capital injection into the sector by domestic investors.
The sector reported Gross Domestic Product (GDP) growth of -3.88 percent in Q2 compared to the -9.40 percent rate recorded in the previous quarter, meaning that the sector has been in negative trajectory since the last quarter of 2016. The Q2 figure is 5.52 percent points better than the contraction reported for the sector in the first quarter, but not enough reason for investors to click glasses.
These negative reports are mainly reflections of the impact of the 15-month economic recession on the sector. Though recovery from the recession by the wider economy has been slow and fragile, at least, there has been a positive change in the narrative buoyed by a significant shift in oil price from the 2017 levels coupled with quantitative easing of headline inflation.
The recovery has impacted positively on other sectors of the economy than real estate. The economy has, indeed, moved without the sector, but some investors are not ready to say ‘die’. These are those investors that have remained confident, patient and resilient, taking a long term view of the market.
“We are not deterred or discouraged by short term limitations because we are not here for the short term; we are here for the long haul”, says Fabian Ajogwu, chairman, Novare Real Estate Africa. This mindset partly explains why many investors have continued to invest.
This also explains why construction work continues uninterrupted on large scale projects such as Lakowe Lakes Golf and Country Estate, RIVTaf Golf Estate, the Landmark Village, Lekki Pearl Estate and also on new urban community developments (new cities) like Eko Atlantic City, Gracefield Island, Orange Island, etc.
Besides realizing that Nigerian market has very strong fundamentals as reflected in demographics, large and growing population, and growing middle class population with strong buying power, investors also understand that real estate is not a trade. It is a long term game where investors look at cycles rather than any moment in time. Because of this, when investors plan their projects, they usually do so across both cycles—boom and recession because it is not common in any environment to have both boom and recession happening the same time.
The good news coming out of many development sites is about great innovations and creativity that have gone into these developments as means of sustaining them and enabling the developers to remain afloat. During and after recession, many of these developers adopted strategies that have worked, and still working, well for them both in the delivery and marketing of their products.
Strategies bordering on customer retention and capacity building, introduction of value added services to existing customer service experience; redesigning products to smaller units in order to make them more affordable; introducing new products like serviced plots; evaluating ongoing construction work on defaulting clients’ property and renegotiating sales agreement; engagement of marketing agents and providing incentives to existing clients were quite common.
Close watchers of this sector are of the view that investors will always take position in the Nigerian market for obvious reasons. According to them, Nigeria has a large number of people who are very aspirational. This is a country where the median age is just 19 years while the average age is 27. So, there is about 75 million people between the age of 16 and 27.
The implication of this is that, in spite of the challenges of the moment, the future looks bright and promising for investors with long term view of the market. This is because 75 million young population of the country will have to live, work, eat and play; they will go to school and hospital somewhere and real estate envelopes all these.
This means that provisions have to be made for them and this translates into investment opportunities. This means too that, eventually, the real estate market, with the right government enablement and right financial dynamics, will always prevail.
CHUKA UROKO