The property market in Nigeria is back in the news for the wrong reasons with its performance in the second quarter of 2019 when it emerged the sector with the worst growth, posting 3.84 percent contraction within the period.
A recent data from the National Bureau of Statistics (NBS) shows the sector displaced the Public Administration sector which reported contraction of 14.21 percent in the first quarter of 2019. It was slightly ahead of Public Administration sector by -0.45 percent in Q2 to rank the quarter’s worst performer as the latter contracted by 3.39 percent.
“There is no liquidity in the market, no one is releasing money,” Tosin Ajose, Lead Advisor at Dealhq Partners, said, adding that it would take two to three years for the sector to fully recover.
With a deficit of more than 17 million units, the Nigerian property market contributed 6.44 percent to real GDP in Q2 2019, higher than the 5.57 percent it recorded in the preceding quarter but lower than the corresponding quarter of 2018.
However, the sector’s GDP growth in Q2 2019 is –4.78 percentage points lower, compared to the 0.93 percent it reported in Q1 2019, but is higher than the -3.88 percent recorded in Q2 2018.
“The poor performance is as a result of socio-political factors, coupled with the aftermath of the 2019 general election,” Ugochukwu Chime, the chairman of the National Real Estate Data Collation and Management Programme (NRE-DCMP) explained.
Chime explained further, “many of the investments in Nigerian real estate industry are mainly by the elite and their stake in the sector was down owing to their demand for liquid cash to run for the 2019 elections.”
In the quarter under review, Nigerian economy expanded by 1.94 percent (year-on-year) in real terms compared to the second quarter of 2018, which recorded a growth of 1.50percent. The growth observed in Q2 2019 indicates an increase of 0.44 percentage points when compared to 2.01 percent in Q1.
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.
The growth recorded in Q1 2019 was the first positive value reported for the property market since Q1 2016 when the state funded bureau started collating the data.
“The real estate sector is a laggard, 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 explained.
According to the Association of Housing Corporation of Nigeria (AHCN), an umbrella organization for all federal and state housing agencies, more than 90 percent of new homes that are built in the country funded from personal savings.
A key culprit for the housing challenges in Nigeria is the mortgage rates. Typical mortgage interest rates in Nigeria range between 7-10 percent for Federal Mortgage Bank of Nigeria (FMBN) and between 15-25 percent for commercial mortgage institutions, making it one of the highest in the world.
Nigeria has one of the world’s lowest mortgages 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.
“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.
In his projection, Chime said the real estate sector will remain flat in the third quarter of 2019. “But we are hopeful that, by fourth quarter, there will be uptick in the sector,” he assured.