Why investors bet on luxury real estate despite huge capital outlay, low demand

Why investors bet on luxury real estate despite huge capital outlay, low demand

For reasons such as high profit margin and quick return on investment, investment interest has continued to favour luxury or high end properties in spite of the huge capital requirement and also falling demand for such properties in the face of economic recession.

Investors explain that people will naturally invest where they expect quick return on their investment and, according to Emmanuel Odemayowa, CEO, Ambassage Properties, in the low end market which people say has wider and higher demand, home buyers find it difficult to pay for N500,000-N700,000 property despite its relative cheapness.

“The few people who look out for where to pay between N2 million and N10 million for property get good value for their money and this good value means good location which gives quick and good return on investment”, he explains.

Odemayowa notes that the uncertainty in the stock market has pushed people to the property market which they see as a viable alternative. “Mowe-Ofada land is still selling but people are now going for good properties in good locations that give them value in a short period of time”, he adds

Meckson Innocent Okoro, an estate surveyor and valuer, agrees, saying that not many developers would leave Ikoyi, Victoria Island or Lekki for Okota in Lagos, or Maitama, Asokoro and Wuse for Nyanya in Abuja.

He explained that if a developer buys land for N300 million—N500 million in Ikoyi, he is doing so because he is sure of the market, adding that when the same developer uses that same amount of money to buy a plot of land in Okota, Ajegunle or any other low end market, it will take a long time before he gets back his money.

“This is why developers will continue to go for the highbrow areas of Ikoyi, VI, Asokoro, Maitama and Wuse  to develop luxury properties. They avoid the densely populated areas because, if  they put a property for rent there, people will manage to pay for two to three years and thereafter say they cannot pay again and may even go to court. Here, risk is higher; demand is low and ineffective because the capacity to pay is low”, he noted.

Perhaps, more decided is the reason by Jide Awosode, CEO, Grant Properties, who says, he develops and delivers to the mid-upper end property market because “if you are in business, you are there to make money. People have always asked me why I have remained at the mid-upper end  market and, for me,  that is the only place where I can get quick return on my investment”.

He explained that he could not do mass because he was neither a philanthropist nor government, stressing that the business of mass housing belongs to government.

“However, if anybody wants me to do mass housing, I will do it on the condition that I must get land free of charge, or at least it must be given to me at a huge concession.  Also, I must get title for the land just by asking, that is, once I apply, I am given. Even at that, it must be given to me almost free of charge or at a huge concession”, he said.

An investor who does not want to be named confirms that the margin is relatively higher and also exiting from a project is much quicker at the luxury end, explaining that even with the present challenges in the market, a N100 million housing scheme guarantees a minimum of N120-130 million, leaving the investor with a N20-30 million margin which, he said, “is quite encouraging”.

CHUKA UROKO

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  1. Why investors bet on luxury real estate despite huge capital outlay, low demand - Radio Diaspora
    January 10, 2017 at 2:10 am Reply

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