The Nigerian economy is in recession. Kemi Adeosun, the Minister of Finance made it official recently when she admitted that the economy was “technically” in recession. A technical recession refers to two successive quarters in which the economy contracts from the previous quarter.
In the first quarter of 2016, Nigeria’s economy contracted by 0.36 percent. The second quarter is yet to be announced but with inflation rate already risen to 16.5 percent in the month of June, many analysts are already expecting another contraction. So the minister could be right about the economy. It is “technically” in recession.
During a period of recession what textbook economists usually expect is low demand chasing huge supply and an inevitable fall in prices of commodities. But it has not been the experience with Nigeria. In the case of Nigeria, there is low supply as a result of the challenges with foreign exchange, low demand with regard to shrinking incomes and rising prices again because of scarcity in foreign exchange.
Anyone who has been in the market lately will testify that prices of many goods are no longer what they used to be. Some items have seen increases of more than two hundred percent. In real estate however, while prices are not crashing, they have remained relatively stable. In other words, low demand is yet to reflect on the price of houses.
According to professionals and experts in the industry who spoke to Businessday, that is good news for buyers. Speaking to Businessday, Paul Okunaiya, Senior Investment Manager, at Afrinvest a private equity firm that oversees USD1 billion across 14 funds, noted that periods of recession mean that both the seller and the buyer are in a tight situation. While the buyers are unwilling to spend, the sellers are unable to increase prices. However, he said, smart investors will take advantage of the situation now because once the recession lifts and things begin to get back to normal sellers will quickly adjust their prices because they expect demand to peak.
Okunaiya also believes that it is far more profitable to buy a house now rather than embark on building a new one. The cost of building materials have appreciated over the months the economic crunch have lasted hence calculating the cost in terms of finishing a building and the stress will be far more than what it will take you to just walk into a real estate firm and buy a house.
Another reason you should invest in real estate now is what Udo Okonjo, Chief Executive Officer of Fine and Country West Africa, said, “This is the time to invest in real estate because in recession, the power of negotiation is strongest.”
Some landlords or real estate owners are eager to let go some of their “stocks”. Okunaiya points out that some these stocks have been with the owners for months and years. Although houses are not like perishable commodities but they do have a life span when decay starts to set in. Some properties in Lekki-Epe area for instance already bear the marks of decay due to lack of patronage. These can be a bargain for some investors who as Okonjo said can negotiate.
“As a good investor,” said Okonjo, “never be desperate, ask for a discount and always negotiate. To successfully invest in real estate, you must have a vision and strategy.”
The best part is, “you do not need a million to invest, you need a vision,” said Okonjo. So stop thinking about recession for once, take out your wallet and make that critical investment.
FRANK ELEANYA
