Activities in the burgeoning property market in Nigeria have slowed considerably in the last quarter of 2014 following a cautious attitude to the market by major investors who have pulled back with a keen eye on the possible outcome of the general elections slated for February this year (2015) in the country.
The market is also responding to the security situation in the country, and according to close watchers of this market, the situation is discouraging local and foreign direct investment.
“The first quarter of this year was promising; everybody was hoping that a couple of things would happen at the national level. From the second quarter of the year, it seemed as if the market was gathering steam, but towards the end of the year, it started getting dull because of political activities; a lot of assets came to the market but there were very few people with cash to buy”, Omochiere Aisagbonhi, the President/CEO of Omais Investment, confirmed to BusinessDay in an interview.
The security situation in some parts of the country, Aisagbonhi added, was not helping the market. He observed that as “the political class is threatening fire and brimstone, those who want to do massive investment in the economy are slowing down and watching out to see how the first quarter of the year will play out”.
Femi Akintunde, the MD/CEO of Alpha Mead Facilities Management and Services Limited, affirmed that security issues in the country were affecting foreign direct investment, stressing that investors who had started some projects were either pulling out or slowing down.
“There is a number of malls and commercial office developments that ought to have progressed significantly today , but the foreign investors have pulled out and some of them have stepped down their interest because the challenges they see don’t encourage them to continue”, he emphasised.
Analysts have described these developments as an anti-climax for the real estate sector which, by the recent rebasing of the nation’s GDP, was discovered to be the fastest growing sector of the economy.
Growth in the sector was discovered to have outpaced GDP in 2013, growing 8.7 percent as against GDP growth of 7.4 percent. Its average growth was 6.9 percent between 2011 and 2013 while GDP’s was 6.4 percent.
The rebasing of the GDP also revealed that the current size of the sector is 30—40 percent larger than it was previously estimated and, according to Doyin Salami, an economist and lecturer at the Lagos Business School, “apart from being the fastest growing sector, real estate is also the sixth largest sector, after crop production and distribution, crude petroleum and natural gas, information and communication, telecommunication”.
Aisagbonhi is however optimistic. He says that though a lot of things were going to happen between now and the first quarter of 2015 that would affect the market ,such as further drop in oil price and rise in exchange rate, the market would still pull through and return to profitability.
Looking back to the beginning of 2014 to now, he noted that the market saw rising demand in the middle and low end of the market, pointing out however, that this demand was constrained by lack of funding.
“Nigerians want to own homes, but the problem has always been funding. If a young man who is working wants to own a home and he finds a bank that will give him a loan facility at 7-8 percent interest rate, he will buy a home.
“But you can imagine when a bank demands 17-18 percent interest rate on a mortgage loan; that is almost an impossible loan to take”, he said.
He agreed with Akintunde that the upper end market was having serious demand challenges that have left it with low demand, leading to 60-70 percent vacancy rate in highbrow areas like Ikoyi in Lagos.
Though Akintunde blamed the supply glut at this segment of the market on the delay in the passage of the Petroleum Industry Bill (PIB) which has affected activities in the oil industry, Aisagbonhi locates the problem in the greed of some house owners, who he explained, demand about $150,000 per annum for three-bedroom apartments.
CHUKA UROKO
