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Renewed confidence in investment market seen attracting FDI into real estate

Renewed investor-confidence in Nigeria’s investment market will be attracting foreign direct investment (FDI) into the country’s real estate sector, particularly in the commercial segment, a Q3 2017 report by EMC-Real Estate on market research has shown.

This is expected to inject more life and create more opportunities for developers in a sector that is still smarting from the crippling impact of the country’s worst economic recession so far.

According to the report, Nigeria’s non-oil tax revenue in 2017-2018 is expected to increase in step with the recovering non-oil sectors represented chiefly by the agriculture and manufacturing. This expectation is also buoyed by government’s efforts at widening the tax base, though it will be from a relatively low base, as oil will continue to be the dominant revenue source for the government.

The report notes that, as a result of this positive development in the non-oil sector of the economy, the flow of FDI  into the country has increased marginally through 2017 above the low levels seen throughout 2015 and 2016.

“Interest in commercial real estate is growing once more with the domestic and international equity investors, once again, considering the development commercial property in the Lagos region”, says Edward Osammor, director at EMC Real Estate.

The hope of a consolidated, single foreign exchange system being in place once again by 2019-2020, according to him, supports the realistic belief that considerable volume of FDI will flow into the real estate sector once again.

In spite of the slow down which the economy has passed through in recent time, there remains significant interest in Nigeria from foreign investors, especially those from European, South African and Middle East countries.

This renewed confidence in the country’s investment market, Osammor says, is underscored by the International Finance Corporation’s (IFC’s) decision to acquire 1,500 square metres office space within the African Capital Alliance’s (ACA’s) flagship Alliance Place office building expected to be completed and delivered by the first quarter of this year on Kingsway Road, Ikoyi, Lagos.

“This deal is believed to be the first ‘condominium’ purchases structure of office space in the Nigerian market and was brokered by EMC-RE”, he enthused.

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An innovative Grade A office building located in the prime commercial centre of Ikoyi, Alliance Place is a project promoted by Edimara Properties Limited—a joint venture between ACA Holdings Limited and Samges Investment Limited.

 The 12-floor office complex had already recorded 50 percent occupancy rate and Obi Nwogugu, a Principal at ACA, who confirmed the IFC deal to BusinessDay, had assured that they were working hard on the remaining 50 percent.  “A good number of people are coming to us about the building and we are excited about that”, he said.

On completion, the building will boast eight floors of flexible office space and meeting rooms; four floors of multi-level parking, a light and airy reception area and a ground floor café. Expectation is that contemporary and international elements along with select African accents will be incorporated into the style of the complex.

The acquisition of space in this building shows that there is always market for a good product, no matter the slowdown in the economy and the challenge in the real estate market. The commercial office segment of this has, in the past 18 months, seen some downsides reflected in oversupply and high vacancy rate.

But with the exit from recession, rising oil price, stability in the foreign exchange market, increased liquidity in the economy, among other factors, analysts say the real estate sector as a whole presents a bright outlook in the new year. 

Increase in foreign reserve on the back of a stable foreign exchange rate and increased oil production are supporting the naira and leading to naira appreciation at the import and export (I&E) window. It is expected that 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 analysts also predict that in 2018, a stable foreign exchange rate and a gradual exit from recession will lead to an improvement in real estate growth. They expect this improvement to cut across the local market where stable and increased consumer income will lead to greater support for the market while stable foreign exchange and exit from recession will bring international investors back to the market.

Damola Akindolire, ED, Real Estate Development at Alpha Mead Group, says that, among other factors, increased government spending will also support growth of the real estate sector.

He explains that the  FG intends to borrow additional $5 billion to finance the budget deficit which would be a positive sign for the economy, leading to increase in economic activities and disposable income. “Hopefully they should have the budget approved for implementation by Q1 2018, otherwise this will put the fragile recovery in jeopardy”, he posits.


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