Forex stability, stock market rally bolster investors’ optimism in real estate
The relative stability which the foreign exchange market has seen in the past few months, along with the stock market rally of a couple of weeks ago, have bolstered investors’ confidence and optimism of improvement in the fortunes of Nigeria’s real estate sector.
The foreign exchange and the stock markets are strong economic indicators that reflect the health and performance of an economy. Real estate investors reason that the improvement seen in their performance indicates that the economy is looking up, which is good for the sector.
The intervention of the Central Bank of Nigeria in the forex market resulted in the appreciation of the naira, to the point of a convergence between rates offered on both the official and parallel markets. At the more accessible parallel market, the naira appreciated by around 26 percent, from a peak of N516/US$ to N380/US$ as at the end of the first quarter of 2017.
The stock market rally, as reported a couple of weeks ago, is a significant improvement on the situation that defined the market by the first quarter of the year. There was a 4 percent decline in the All Share Index over that quarter, which, Nnenna Alintah, a researcher at Broll Property Services, said “reflected a perception of uncertainty from portfolio investors, regarding the sustainability of the CBN’s intervention into the forex market, as well as the systemic risks associated with the economy”.
What the economy is seeing at the moment is in agreement with International Monetary Fund’s (IMF) report, which says that the global productivity growth for 2017 is projected to show improvement, compared to 2016, adding that economic activities in both advanced economies and emerging market & developing economies (EMDEs) are expected to accelerate in 2017, with global growth for the zones projected at 3.4 percent and 3.6 percent respectively, compared to 2.4 percent and 2.5 percent in 2016.
“The IMF’s revised 2017 forecast for Nigeria also predicts a positive growth for the economy and positive indicators in the year, so far are all pointing to economic recovery. These include increased oil production, security, improvement in the oil rich Niger Delta, the recent intervention of the Central Bank of Nigeria in the forex market, and inflation dropping from 18.71 percent at the beginning of 2017 to 17.24% as at April 2017 according to Nigeria Bureau of statistics”, Alintah noted.
On the back of these developments, real estate is beginning to see positive traction. The forex market was its major problem, bearing in mind that most of the components of construction materials are imported. With the economy in terrible shape, the purchasing capacity of the people went down. Even those who had the capacity to buy, withheld their money.
“Now however, we are seeing positive development. The revenue is beginning to improve. For more than a month now, there is stability in the foreign exchange market. Before now, people could not even get money to do their businesses. But now banks are sending letters to borrowers, asking them to come and borrow”, confirmed Adetokunbo Ajayi, MD, Propertygate Investment Company, in an interview.
Ajayi expects that from a macro-economic perspective, the improvement in the forex market will be sustained, and hailed the recent rally in the capital market, which has not happened in a long time. “As a critical part of the economy, my thinking is that the economy is beginning to gain traction”, he said.
Continuing, he said, “we expect that as long as we have a steady environment, the right policies and the government continues to boost confidence, the economy will continue to improve. For the real estate sector, as the economy improves and people’s purchasing capacity rises, that will mean greater patronage of developers”.
There has been a significant slowdown in the real estate market, leading to a considerable drop in both demand and price, but Ajayi does not believe the market is undergoing price correction. His reason is that, notwithstanding the economic recession, especially in Lagos and some other places, the key element of real estate is land and the price of land remains the same.
“People were expecting to see a fall in the price of land but that never happened. In some cases, the prices even went up. What is causing this is because land is in the hands of people who have the capacity to withstand the bad economic conditions. So, those people held unto their property, waiting and watching, he said.
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