How construction, real estate can drive growth, by experts
Worried by the decline recorded in their sectors in the last one and half years, stakeholders in the construction and real estate industry have suggested ways out of the woods. DAYO AYEYEMI reports
While the dust raised by the 2017 third quarter data on Nigerian’s Gross Domestic Product (GDP) published by the National Bureau of Statistics (NBS) is yet to settle, continuous decline in the real estate and construction sectors of the economy has become a source of worry for practitioners in the built environment.
Some of them, especially developers, builders, engineers, city planners and investors alike, who have expressed their concerns, have proffered solutions.
Speaking with New Telegraph, they canvassed for injection of capital; payment of huge debt owned contractors by government; institutions and structures that would ginger emergence of private businesses, attraction of institutional and foreign businesses into the country as guidelines.
The latest NBS report had shown that growth in the construction and real estate service sector had sustained decline in the last one and half years.
According to the report, the real growth rate of the construction sector in the third quarter of 2017 was recorded at -0.46 per cent (year-on-year), higher by 5.67 per cent points from the rate recorded a year previously, but -0.59 per cent points lower than the preceding quarter.
The report also showed that in the real estate service sector, which tracks the sum of fees for services rendered through data retrieved from tax authorities, real GDP growth recorded during third quarter of 2017 was -4.12 per cent, also lower by -0.59 per cent points relative to second quarter of 2017.
Reasons for decline
Analysts have attributed the decline to worsening economic environment due to falling oil output and restricted access to forex.
They noted that real estate and construction sectors did not buck the trend either, having been in free fall since last year, when the Central Bank on Nigeria published a list of 41 items that were invalid for FX.
According to analysts, most of these banned items were real estate/construction sector related, making the ban to exacerbate an already slowing sector, as most of the materials required for construction in Nigeria are typically imported.
“Making things worse, restricted access to forex and increased all around costs have pushed inflation to 11 year highs at 18.33 per cent. Coupled with negative GDP growth and increasing unemployment, a recipe for stagflation has been created,” they said.
However, In the institutional/commercial real estate space, the experts noted that multiple developments were preparing to or have broken ground over the past three quarters, especially in Victoria Island and Ikoyi.
“A few of these include the Nigerian Deposit Insurance Corporation (NDIC) headquarters, Centex Residential Development, Greystone Tower, VMP III, DSPDC development and the new Diamond Bank headquarters among others,” they said.
They attributed ongoing construction activities of the buildings to developers and investors’ insistence on ensuring that the rising cost of construction does not stop them from building already conceptualized projects that have secured funding.
They added: “This is because if they do not begin building now, the rising costs could mean that the (not drawn down) funding secured to build, may be unable to complete it.”
Speaking on the development, First Vice President, Nigerian Institute of Town Planners, Mr. Toyin Ayinde, said that one of the solutions to stimulate growth in the sector was to find out what makes construction and real estate thrive globally.
He said: “It has been discovered that growth in middle class population and retail activity are often responsible for demand for quality housing units, as well as infrastructure-enabled industrial parks and development zones like free trade zones (free zones).”
He pointed out that the real estate and construction sectors were being driven by emergence of private businesses and attraction of institutional and foreign businesses into the country, while local established businesses continue to flourish.
“The answer would range between a shaky “yes” and an affirmative “no.” So, you would imagine that a decline is inevitable,” he said.
To engender growth of the sector, Ayinde warned that unless the nation makes the enabling environment possible through a review of policies in these areas, investors would keep shying away “even when the real estate sector is acknowledged to be a good hedge against inflation and that it is a major employment generator.”
Principal Partner, Akin Olawore and Company, Mr. Akin Olawore, stated that injection of capital remained the main issue in construction and real estate sectors to deliver economic activities and growth.
According to him, the market needs financial support in terms of long-term low interest mortgage to stimulate supply and open up the entire construction and real estate sectors value chain.
“Obviously, the real estate market segment that can help drive growth requires heavy capital,” he said.
Olawore stated that enduring structures and institutions were required to drive private sector capital to the market, adding that the multiplier effect of these would grow the economy exponentially.
Commenting on the NBS’s report for third quarter of 2017, Past President, Nigerian Institute of Building (NIOB), Mr. Chucks Omeife, said that though it was very disheartening but it is also very factual in all respect, being the reflection of the sectors’ status since 2016.
He noted that the prevailing economic situation had made investment and new development in the built environment very difficult.
He said: “There is a lot of fear and trepidation as to unpredictable direction of the economy, which has remained comatose and has negatively impacted on Nigerians’ purchasing power.
“It’s only when an economy is buoyant and immediate survival needs have been met that the issue of shelter becomes important to a lot of people.”
However, he pointed out that the situation as presently seen had been very unpredictable as investors wanted a level of certainty in the nation’ s economic direction before investing.
To act as a catalyst for growth in the sector, Omeife stated that the government would need to pay off substantial debt owed to local contractors and also embark on the development of infrastructure projects that are yet to commence.
According to him, payments to local contractors and new projects could pump funds into the sector and assist in high reduction in the level of employment, which is very high at the moment.
“If this is done, some level of activities can be activated and the sector will gradually grow and start to contribute positively to the nation’s economic growth,” he said.
Construction and real estate sectors are engines of growth in any economy. The Federal Government must deliberately create policies to attract private businesses and institutional investors to the sectors to create jobs and generate economic activities.