Weak demand: When developers equate location to luxury

These are no easy times for Nigeria and its economy as the oil price fall, stringent monetary policies of government, lack of clear direction in government’s economic policies have combined to reduce, weaken and, in some cases, cripple activities in all sectors of the economy.

In the real estate market, the narrative is mixed, but essentially woven around demand which, in the last 12 months, has weakened for a combination of factors including focused supply, low purchasing power on the part of buyers and, above all, over-pricing which has created affordability problems.

Nigeria is, arguably, a fascinating real estate market as a result of its strong demography, but one of the biggest problems in this market is the overpricing of properties. Most of the developers favour the high end market which targets the rich in highbrow areas.

Because of this, many of them have equated location with luxury and their efforts at maximizing value have led to the minimization of quality such that some deliver what Hakeem Oguniran, managing director, UPDC Plc, describes as “concrete shells” in the name of mansions and castles.

Among real estate industry players and watchers, the issue of demand has become a matter of debate as some say the weak demand which the market has seen is as a result of buyers’ low purchasing power while others say it is as a result of over-pricing and poor product quality.

Sijibomi Ogundele, the MD/CEO, Sujimoto Construction Limited, believes houses are over-priced in Nigeria, but argues that if developers have to over-price their products, the quality of the product must, of necessity, meet the price demanded.

“Developers have an obligation to ensure that quality meets price. The truth is, every investor or buyer is looking for two things—quality and value. And really, gone are the days when ‘monkey dey work and baboon dey chop’”, he says, noting that wealth has gone back to the hands of prudent and diligent business people.

Many market watchers do not believe that there is either over-supply or weak demand in the market and according to Ogundele, the argument for supply exceeding demand is unfounded because luxury apartments are in high demand. “Poorly finished buildings with exorbitant prices constitute the pile of empty apartments constantly littering highbrow areas. A developer who compromises on the quality of materials, no matter how highbrow the property is, has no moral right to place an exorbitant price on it”, he says.

He recalls that,  about 12 months ago, $360 million left Nigeria into two real estate destinations— the UAE and UK, disclosing that his company operates in a niche market where their target audience is well defined, and the demography of this audience represents 1 percent of Nigeria’s population.

Sujimoto Construction is the developer of the iconic LorenzoBySujimoto which is set to be the tallest residential building in Nigeria and the first fully-automated building in Africa where the company has brought three fundamental principles of real estate into one space—location, architecture and lifestyle.

“Just like Burj Khalifa and  Burj al Arab, we are building an architectural monument where young developers and inspirational architects can come and celebrate true African luxury”, Ogundele enthuses.

He disagrees that demand is very low at the high-end real estate market in Nigeria, saying that it is not possible to ask for the price of a Bentley in exchange for the quality of a Toyota  which, indeed, is a stark reminder of the realities experienced in Nigeria’s real estate industry.

These are challenging times in Nigeria, especially for investors, because of the uncertainty in the oil and gas and stock markets, but for the discerning ones, these are the best times to invest in real estate as the industry offers a unique edge that enables investors ride on growth in equity over the years and the income on rent on a short-term basis.