For a long time to come, President Muhammadu Buhari’s first two years in office will be remembered for the wrong reasons. Nigerians will not forget in a hurry the sudden change that occurred in almost everything Nigerian, beginning from a plunge in the economy to extreme hardship, reduced quality of life and amputated lifestyle.
For the real estate sector, the absence of policies and clear direction which pushed the economy into recession, impacted negatively on up-take of properties. The rise in the exchange rate of the naira to the dollar has made many on-going developments no longer viable, forcing many developers to return to the drawing board to rethink their projects. Rents are being reviewed downwards for many commercial and residential properties amidst rising vacancies and rents default.
Technically speaking, Buhari has been in office for about eight quarters and, by the end of the first, the honeymoon period was quickly over. A blend of the Goodluck Jonathan’s administration’s indiscretions, external macroeconomic headwinds and the present administrations’ ineffective and slow responses took the country on a slippery slope that led to recession.
Every sector was negatively impacted and real estate was not spared. Every real estate subsector from residential, retail, office space to industrial was hit with reduced demand for space, high vacancies, declining rents and capital values.
Severe macro-economic challenges as reflected in galloping cost-push inflation, crisis in the foreign exchange market which reduced the value of the naira to that of vegetable, rising unemployment, job losses, etc combined to crimp organisational and household income, leading to low purchasing power.
Demand for real estate products came down sharply as families, according to Omo Aisagbonhi, CEO, Omais Homes, concerned themselves with feeding and getting well. Companies were more concerned with day-to-day survival than expanding operations or changing address.
In addition to the high vacancy rate in highbrow locations such as Ikoyi and Victoria Island in Lagos, and Maitama, Asokoro and Wuse in Abuja, cases of rental default were commonplace mostly in middle class settlements where young company executives and bankers who populate such locations have lost their jobs or have had their salaries slashed due to economic headwinds.
The contraction of the economy has really affected the real estate sector, affirms Omorinsola Ipaye, CEO, KPW Property Services Limited, noting that real estate holdings are now being liquidated to increase disposable income.
“The sector has seen slower activity in investments, especially due to government’s high borrowing rates in fixed income instruments; real estate yields, in the short term cannot compete and investor appetite is shifting to investments with higher yields and less risk”, she said.
There is, however, a positive take away from this sector which could be credited to the Buhari administration. In spite of its imperfections, lopsided, skewed and selective approach, the anti-corruption crusade of the Buhari administration has brought some level of sanity and discretion into the real estate market which is, cautiously, undergoing self-correction.
“The market is undergoing self-correction in terms of pricing. What we had before now was an artificial market where prices were unrealistic and unreasonable”, Emmanuel Obire, CEO, Multi-purpose Infrastructure Development Company (MIDC), confirmed in an interview.
Ipaye adds that “the anti-corruption drive has seen dynamics in real estate markets change as illegitimate monies previously laundered into real estate has reduced and the market is in correction mode where pricing is aligning with the true purchasing power of investors”.
In spite of everything, Buhari and his team seem to have been working as things began to turn around in the first quarter of this year, resulting in more activity in the real estate sector. “Prices (rent and sales) are not yet at the previous high levels, and there are doubts they ever will”, says Tayo Odunsi, CEO, Northcourt Real Estate, but noted that improved quantity of transactions has made real estate a turnover business.
Odunsi believes in a recent survey by the Nigeria Economic Summit Group (NESG) which shows a negative actual performance of businesses in Q1, 2017, but a positive optimism forecast for Q2 and Q3 2017. “This shows positive sentiments for businesses going forward and also attests to positive expectations of not just real estate players, but also the wider public who are real estate patrons.