Recession squeezes construction and real estate firms as stock gets battered
The recession of 2016 has hit operators in the construction and real estate industry hard as margins were squeezed and stock prices continue to get battered.
It is generally accepted that when there is an economic downturn, this sector feels the pinch because the demand for housing wanes while a number of vacant properties increase on the back of falling consumer confidence.
Those laid off as a result of an economic downturn also find it difficult to pay rent hence the default rates have gone up.
All the construction firms quoted on the floor of the bourse recorded losses in the 2016 financial year as delay in the passage of the budget and the devaluation of the currency undermined growth.
Julius Berger Plc, the largest construction company by market value and Arbico Plc posted combined losses of N3.81 billion in December 2016, which represents a 241 percent reduction from the profit recorded in 2015.
For mortgage lenders like Infinity Mortgage Trust Bank (ITMB) Plc and Abbey Mortgage Housing Plc they recorded a 73.94 percent drop in cumulative profit to N74.13 million as at December 2016.
ITMB’s net interest margin dropped to 28.17 percent in December 2016 from 30.71 percent as at December 2015. Cost to income ratio, a measure of efficiency fell to 61.13 percent in the period under review from 62.27 percent the previous year.
Abbey Mortgage’s operating expenses wiped out all of operating income as cost to income ratio stood at 103.18 percent, though lower than the 127.54 percent recorded the previous year.
There are however positive prognoses for the construction industry as the passage of the 2017 budget and an increase in the price of oil are expected to accelerate construction activities.
Analysts say the crash in property market is an opportunity for brave investors to tap into the real estate market immediately the country climbs out of recession.
The country’s growing population and rapid urbanization could also lead to an increase in the construction of shopping malls.
According to PwC, the Nigerian real estate sector is expected to be valued at $13.65 billion in 2016, compared to the value of $9.16 billion in 2014.
Between 2015 and 2016, Lagos, Abuja and Port Harcourt are expected to erect over 10 skyscrapers valued at over N500 billion, according to PwC.
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