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Real Estate

Confidence in economy, appropriate pricing pull real estate sector out of 3-year recession

Improving investor confidence in the Nigerian economy and appropriate pricing by product suppliers were the major drivers of the positive growth that pulled the real estate sector out of a three-year recession in the first quarter of 2019, players in the sector have said.

Nigeria’s real estate sector had been in negative growth territory in the last 12 quarters, long after the wider economy exited the 15-month economic recession in the second quarter of 2017.

The GDP growth for the real estate sector in the first quarter of 2019 was 0.39 percent, according to the National Bureau of Statistics (NBS) in its Q1 2019 report released on Monday. This represents the first positive growth in the sector since the first quarter of 2016 when the economy as a whole slipped into recession.

A close look at the 0.39 percent growth shows that it is 10.33 percent higher than the growth in the sector as reported in the first quarter of 2018, when the sector recorded the worst contraction at -9.40 percent. The 0.39 growth is also about 4.78 percent higher than the -3.85 percent recorded in Q4 2018.

“Though it is still a challenging environment, we have seen investors’ confidence in the economy improving. Economic outlook has also improved and product pricing is making more sense to buyers now than before. These are essentially the drivers of the growth recorded in the sector,” Obi Nwogugu, head, real estate unit at African Capital Alliance, told BusinessDay on phone.

Nwogugu added that people have decided to get on with life and are, therefore, making investment decisions because they don’t have to wait indefinitely for things to get better in the economy.

READ MORE:  Experts offer insights as real estate lags, economy moves without sector in 2018

He disclosed that the company had already achieved 50 percent commitment with more interest coming for its ongoing Blue Water development in Lekki, Lagos. This is the largest modern and best-in-class residential development in Nigeria, sitting on 4 hectares, about 37,000 square metres, of land. The development, which is estimated to cost $165 million, will deliver 600 apartments on completion.

In the build-up to the general elections in Nigeria in February this year, investors and home buyers adopted what was clearly a wait-and-see attitude to the economy generally, withholding investment, especially in real estate where market demand flattened out up to the last quarter of 2018.

But now that elections have come and gone, “people now see some clarity in governance; they are almost sure of policy direction of the government because things are not going to change overnight”, said Udo Okonjo, CEO, Fine and Country International, in a telephone interview.
Okonjo said there was a sense of confidence in the economy, more so as the market has become a lot more stable than it used to be, leading to the growth so far recorded which, according to her, is stronger in the commercial real estate space.

“The key thing here is that the long drought in the real estate market has made landlords more reasonable with pricing. Office space prices are now between $650 and $850 per square metre, depending on location and quality of finishing,” Okonjo noted.

She said further that some serious investors were adapting quickly and moving with time, unlike the others she described as “legacy investors with patient capital” who, according to her, are the reasons for the many empty houses, especially in Ikoyi where vacancy rate hovers between 20 and 30 percent.

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MKO Balogun, CEO, Global PFI, attributed the Q1 2019 growth in the sector to a new consciousness in the residential segment of the property market, explaining that investors have become wiser and more attune to market realities.

Demand in the market now, he explained further, favours small size apartments such as 1-bedroonm and 2-bedroom.

“Over 60 percent of people looking for homes to buy or rent are not looking for 3-bedroom or 4-bedroom apartments. They want something smaller,” he said.

Balogun noted that many of the big mansions are no longer empty because landlords now allow apartment-sharing whereby three people can come together and rent a 3-bedroom apartment. Again, developers now tailor their developments towards market demand, such that most of the upcoming developments are in small-size, multi-family units.

In commercial real estate, he said, vacancies are reducing because landlords are now ready to rent out smaller spaces such that where a landlord before insisted on 1,000 square metres, a prospective tenant looking for 500 square metres can easily get one.

“And new developments are being modelled to reflect that demand,” he said.


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