Though excess capacity is yet to be soaked up and many properties remain unoccupied, there are expectations that demand for prime properties will pick up in subsequent quarters of the year, as inflation declines gradually, a recent Q1 2017 economic review by the Financial Derivatives Company has shown.
For the first time since January 2015, a marked slowdown in the rate of inflation was recorded in the first quarter of this year, leading to consumer price index (CPI) decline by 1.46 percent, from a peak of 18.72 percent in January 2017 to 17.26 percent in March 2017.
Similarly, there has been an improvement in liquidity that resulted at the official and parallel foreign exchange markets, leading to a significant convergence between rates offered in both markets. At the more accessible parallel market, the naira appreciated by around 26 percent, from a peak of N516/US$ to N380/US$ by the end of the first quarter of this year.
Chudi Ubosi, an estate surveyor and valuer, confirmed to BusinessDay that demand might go up as the year progresses. Ubosi based his prediction on increased enquiries from prospective investors and home seekers. “We are getting a lot of enquiries from buyers; even though we are not closing deals like before, the enquiries mean that people have intentions to invest or buy”, he said.
But Bismarck Rewane, Financial Derivatives Company’s CEO, noted in the economic review, that affordability remains a key issue in the property market, which partly explains the high vacancy rate in the highbrow locations of the country, including Ikoyi and Victoria Island in Lagos, and Asokoro and Maitama in Abuja.
According to him, the vacancy factor index (VFIX) in Lagos, which is an indicator of the state of the real estate market in the upper class neighborhoods, stood at 73.4 percent in Q1 2017 and is expected to rise to 80 percent this year, if the prevailing economic condition persists.
Rewane’s projections are in line with a recent survey by the Nigeria Economic Summit Group (NESG) which shows a negative actual performance of businesses in Q1, 2017, but a positive optimism forecast for Q2 and Q3 2017. This shows positive sentiments for businesses going forward and also attests to positive expectations of not just real estate players, but also the wider public who are real estate patrons.
But one segment of the real estate sector which seems unaffected by improved market conditions is retail market, because these improvements are yet to feed into improved consumer confidence, leaving the retailers with low patronage, declining footfalls at malls and low capacity for re-stocking their merchandise.
“Whilst some retailers benefitted from the increased dollar liquidity and appreciation of the naira at the parallel market in the first quarter of 2017, there was little respite with respect to other costs associated with retail operations”, notes Nnenna Alintah, a researcher at Broll Property Services .
Though retailers welcome the appreciation of the naira at the parallel market, a lag time exists before they start to feel the full benefits of a strengthening naira and Alintah hopes that if the naira follows this trend in a sustained manner, lower operational costs will materialise, with respect to restocking and sourcing merchandise by the retailers.
Overall, Rewane says the crash in the property market will be seen as an opportunity for investors seeking diversification. He foresees politicians bringing property for sale in the market for 2019 general elections.
The liquidity squeeze in the financial system has affected everything in the economy, but more in real estate. Many developers who took loans to do their business are unable to pay back. “Bank foreclosures are also pushing market prices”, Rewane pointed out, adding, “AMCON is not selling into the market, while Real Estate Investment Trusts (REITs) have not been that successful”.
CHUKA UROKO
