The Vacancy factor index (VFIX) in the Nigerian real estate market increased by 72 percent in the second quarter (Q2) of 2016 as a result of the 0.36 percent contraction in the country’s GDP in the first quarter (Q1) of 2016 with a further 1.5 percent contraction in Q2.
VFIX is an indicator of the state of the real estate markets in the upper class neighbourhoods of Nigeria, including Lekki, Victoria Island and Ikoyi in Lagos; Maitama, Wuse 2, Asokoro in Abuja and such areas as Trans Amadi, Peter Odili Road and Old GRA in Port Harcourt. These areas are close to the central business districts (CBD) or downtown areas of the metropolis.
The 72 percent rise in VFIX shows the rate of increase in the number of vacant properties based on the housing stock as at January 2015 and, in its recent report on real estate vacancy factor as at Q2 2016, Financial Derivative Company (FDC) Limited explains that the increase in the number of empty houses was also as a result of growing unemployment rate.
The Nigerian Bureau of Statistics (NBS) in November 2015 estimated the rate of the unemployed or under-employed people in Nigeria at 50 per cent and the FDC report notes that this, along with rising inflation and falling consumer confidence, have contrived to lower the demand for housing and pushed the index higher.
In Nigeria, consumer confidence has fallen due to a significant drop in household disposable income and spending power and, according to Omochiere Aisagbonhi, President/CEO, Omais Investments, households are now more concerned about eating and being well, than looking for properties to buy.
“The market is struggling with falling demand and many houses are empty because nobody is buying. We are considering offering for rent some of the houses we have in the market for sale, but we are not unaware that the rental market has its own challenges in terms of rising cases of rent default”, Omochiere said in an interview in Lagos.
The FDC report posits that as a lagging economic indicator which changes after a change in the economy has occurred, the housing sector is likely to remain flat until a stimulus has transmitted through the economy, hoping however that a point of change in the index will be evident in Q1 2017.
Gbenga Olaniyan, CEO, Estatelinks Limited, affirmed in an interview in Lagos that there was no likelihood of a rebound in the market before the first half of 2017, insisting that “unless there is a change in policies and a clear direction for the economy, the market will continue to struggle”.
But Mercy Ogah, an official at FDC, sees a decline in VFIX taking place when there is an expansion in GDP, an increase in the hotel occupancy rates, inflow of foreign portfolio and foreign direct investment, as a result of the new flexible exchange rates, growing consumer confidence and, most importantly, the flow of state and federal spending.
Analysts attribute the slowdown in the real estate market in particular and the economy in general, to lack of public sector spending, insisting that the best way to reflate a depressed economy and stimulate economic activities is through government spending or stimulus packages.
“But here is a country where salaries are hardly paid and no capital project is being undertaken by the governments either at federal or state level”, the analysts lament.
In spite of the economic condition, an ironic situation persists in the market where rents are still high amid supply glut and high vacancy factor. “Typically, high vacancy rates imply increased supply, which should translate to lower rents. However, rents in these highbrow areas have remained inflated above fair value and continue to be responsible for the high rate of default and abandonment”, says Ogah.
Given the economic conditions currently, Ogah does not expect a quick recovery of the VFIX as there is a time lag for the market to return to equilibrium. Expectation is that demand for housing locally will shrink further initially, due to lower disposable income and a move from prime areas to more affordable locations.
“We also expect in the short-term, new developments under construction. This will increase the supply of properties. From Q4 2016 onwards, we project a pickup in activities as the economy gradually recovers mainly through demand for housing by expatriates”, she says.
CHUKA UROKO
