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Economy, Real Estate

Real Estate Investments Fall Short of Growth Expectations on Crawling Economy

It’s almost six months since the real estate sector exited recession in the first quarter of 2019 but not so much has changed for the lagging industry as investors are yet to see a meeting point between their investments and projected growth.

Industry players have revealed that investments in the sector has failed to respond positively to predicted growth, owing to the slow but positive pace of the Nigerian economy.

“We are nowhere near the place where investments in real estate projects will surpasses or meet our growth projection; this is because the economy is not yet zooming, it is just there,” Chiedu Nweke, CEO of CZAR Project Limited, told BusinessDay.

After contracting for 12 consecutive quarters, Nigerian real estate sector saw the break of dawn in Q1 2019, six quarters after the larger economy exited its 15 month contraction in Q2 of 2017.

In real terms, the property industry expanded by 0.93 percent in the first quarter of 2019, the first positive value reported for the industry since Q1 2016 when National Bureau of Statistics (NBS) started collating the data.

“The economy really improved but real estate lagged behind. But this is understandable. Not much progress can be made in this sector with a large portion of Nigeria’s population outside the housing market and mortgage still remains too expensive for many people to access and afford,” Adeniyi Akinlusi, CEO, Trustbond Mortgage Bank explained.

In the first quarter of 2019,, Nigerian economy grew by 2.01 percent, a slow down by 0.37 percentage points when compared to the 2.38 percent it reported in the previous quarter.

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Despite reporting positive figures in Q1 2019, the real estate sector’s contribution to the overall real GDP slowed to 5.58 percent, lower than contribution recorded in the preceding quarter, as well as the corresponding quarters of 2018.

When BusinessDay asked Sa’adiya Aminu, MD/CEO of Urban Shelter on the sidelines of the 2019 edition of the Africa Real Estate Conference & Awards (AFRECA 2019) which held recently in Lagos, if returns on investment were meeting projections, she said “the real estate sector is suffering and money is a major challenge,” adding, “you and l can afford a million dollar house if there is mortgage.”

Nigeria has one of the world’s lowest mortgage-to-Gross Domestic Product (GDP) rate at 0.6 percent. This lags Ghana’s 2 percent, South Africa’s 30 percent and crawls after the U.S and UK rates of 60 percent and 70 percent respectively.

Nigeria has more than 17 million housing deficit and more than 90 percent of new homes that are built in the country is funded from personal savings.

According to Femi Akintunde, Group MD, Alpha Mead Group, “if Nigerian real estate sector must play the role of providing Nigerians with the basic need of shelter, there must be that enabling environment and infrastructure that will allow the sector to prosper

“There is a serious constraint around financing because the real estate sector sucks capital and the ability of the economy to support the kind of growth and development we’ll like to see in the real estate sector is not happening yet,” he said.

Bank lending to real estate sector tumbled to its lowest level at 3.92 percent in four years as at March 2019. Sectoral credit allocation to the estate shed 0.2 percentage point quarter-on-quarter and 2.49 percentage point year-on-year.

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Of the N15.21 trillion combined credit disbursed to 17 sectors by the Nigerian deposit money banks, real estate got N596 billion in the first quarter of 2019, N26 billion or 4 percent lower than N622 billion received in the preceding quarter.

For real estate investments to deliver expected growth, Akintunde said, there would have to be some actions on the part of the government in terms of regulatory framework and also the discipline to enforce compliance and application of those laws.

“Capital is not a problem, there is money all over the world but they’re not coming to this direction because we’re not treating investment well; the environment in which investment can thrive and make adequate returns is not created and so investments flow in other direction, be it local or foreign,” he noted.

Checks by BusinessDay revealed that since exiting recession in the first quarter of this year, Nigerian property market has been on a growth trajectory and expectation is that it will record an estimated 2.5 percent growth before the end of the year.

‘We are optimistic and believe that by Q1 or Q2 of 2020, the sector will be better and, at that point, I think every businessman will start enjoying because the middle class will start emerging again,” Nweke, told BusinessDay.

Source: BusinessDayng

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