In the course of 2017, activities in residential housing development, especial at individual and unorganised level, is to drop by as much as 30 percent of the current annual output of between 1,000 and 1,200 units, a new research has revealed.
Real estate is a strong economic indicator, showing how well or otherwise an economy is performing. Since the past 24 months when the Nigerian economy took a turn for the worse, activities in the real estate sector have slowed with some projects completely abandoned.
Many corporate organizations, households and individuals, who are consumers of real estate products, have had their income crimped through job losses, salary cut, low productive capacity or outright close down of operations in the case of organizations. All these have affected demand negatively.
To continue to say in business, developers are reviewing the size of their projects, scaling them down significantly. “Homes are going to be smaller with smaller room sizes in order to lower costs. Quality will reduce drastically in terms of materials and finishing,” says the research by Ubosi Eleh +Co, a firm of estate surveyors and valuers.
There is however a positive side to the present state of the economy as it relates to real estate. Chudi Ubosi, Principal Partner at Ubosi Eleh +Co, sees a marginal 10-15 percent increase in rental values of flats as more people squeezed by the economy are downsizing from duplexes and detached houses to flats.
In the highbrow neighbourhood, rents are paid in dollars but with the crisis in the foreign exchange market, dollar based rental properties will continue to get realistically priced by being redenominated in naira or much lower dollar asking rents.
Though there are still people described by Udo Okonjo, CEO, Fine and Country, as “unmotivated sellers” in this segment of the market, those landlords not wanting their properties to remain unoccupied are ready to reduce rents and service charge to attract new tenants and maintain old ones.
“In some areas, rents have gone down as much as 60 percent. The dollarized rents are even worse because tenants still want to pay N160 to a dollar they were paying before which is about one third of the current exchange rate”, says Gbenga Olaniyan, CEO, Estate Links Limited.
He affirms there are legacy landlords who would rather leave their properties empty than drop their rents, saying some of them even feel insulted by tenants coming for a downward review of their rents.
“What some people are doing at the commercial space is to find a way to give allowance to the tenant. Where rent is $800 per square metre, the landlord may decide to give back, say 30 percent of this to the tenant as fit out allowance. The rent remains $800 but the tenant pays effectively $500 per square metre. The advantage of this is that when the market returns, renegotiation starts from $800, not $500 the tenant has paid”, he explains.
But Ubosi points out that the middle class neighborhoods and gated estates on the Lagos Mainland and Island retain rental values even though capital values have dropped marginally.
Shonibare Estate, Maryland Estate, Cappa Estate, certain streets in GRA Ikeja like Oduduwa Streets, Herbert Macaulay Crescent, all in Lagos, remain strong in spite of the economic downturn.
In many of these neighbourhoods, according to him, strong neighborhood associations are evolving aimed to provide facilities, services and livable environment. From the annual dues paid by residents, the associations maintain and provide more facilities such as security and other services.
“The overall effect is that properties within those locations command between 5 and 10 percent higher rental and capital values than others”, he says, arguing however that, if the recession bites harder, a large drop in achievable sale values will be observed for many properties.
CHUKA UROKO
