The last two quarters of 2017 marked a significant improvement in the Nigerian economy following the country’s exit from a 13-month recession. This improvement did not happen in the real estate and so, for investors in this sector, 2017 was a sobering moment. But a new year is here with some optimism. In this interview, MUNACHI OKOYE, CEO, MCORE Limited, offers insights on what to expect in the real estate sector in the New Year. He speaks with CHUKA UROKO. Excerpts
The real estate sector ended 2017 on a negative note. What are the expectations for both existing and potential investors in the sector in 2018?
The real estate sector in 2017 was negatively impacted by the recession which translated to a fall in GDP growth in the construction and real estate sectors. On a practical note, falling income and job losses meant that the retail sector suffered, leading to rent arrears, increased vacancies and inability to let new space as fast as projected.
The slowing economy also led to a reduced take-up of new office space and the inability to charge rents as projected to meet funding requirements. The high end residential market continued to suffer although the mid-market residential market maintained a level of resilience as local demand continued to hold up this sector of the market. The hospitality sector was also held up by local demand.
In 2018, we expect that a stable foreign exchange rate and a gradual exit from recession will lead to an improvement in real estate growth in 2018. We expect the improvement to cut across both the local market where stable and increased consumer income will lead to greater support to the local market and the stable foreign exchange and exit from recession will also attract international investors back into the market
We also expect that the high end market, particularly in Ikoyi, will continue to re-orient itself away from international oil companies (OICs) driven demand towards local demand driven by local affluent buyers. This translates to greater densities in Ikoyi, multiple homes on a single plot and more efficient use of space and lower prices in the plus and minus N100 million range for a home.
What are the factors that will drive positive outlook for the sector which you seem to be predicting?
An increased oil price coupled with stable production will mean increased revenues for the country and a greater ability to allocate funding to capital projects and infrastructure projects in particular. Infrastructure development is a huge facilitator of real estate growth so new infrastructure will pull real estate growth along with it
The accrual to our foreign exchange reserves on the back of a stable foreign exchange rate and increased production will support the naira and may actually lead to Naira appreciation at the import and export (I&E) window. An appreciating naira will be attractive for international investors as it will give them the comfort that their dollar denominated investments will not be negatively impacted by falling assets values denominated in naira. The positive sentiment as we leave recession will lead to greater economic growth which will positively impact real estate growth
Do you see the sector recovering from the impact of recession in the first two quarters of this year? How?
The recovery from recession is still very fragile and is led by oil sector growth rather than non oil sector growth. We expect the recovery to take a fall year (4 quarters). We also cannot account for the 2019 elections, whether they will have a neutral, negative or positive impact on the economy particularly in the final quarter of 2018 into 2019
Which of the iconic projects would you rate as the top 2 in 2017 and why?
Of the iconic projects that were delivered into the property market, the top two in the out-gone year are Heritage Place and The Wings Towers.
The Heritage Place which is located on Kingsway Road in Ikoyi was developed by Actis, an international private equity firm, with its development partners—Primrose Development Company (PDC) and Laurus Development partners, while The Wings Towers, a twin-tower office building developed by RMB Westport, is located on Ozumba Mbadiwe Street in Victoria Island. It is a 14-floor, 27,000 square metre office complex.
Both projects set new standards in the quality of Class A office space in Lagos.