Nigeria's Sluggish Economy & Real Estate

For developers and contractors handling various infrastructure projects in the country, the first quarter of 2016 was traumatic due to the harsh economy, triggered by dwindling oil revenue, devaluation of Naira, foreign exchange restriction, anti-corruption crusade and delay in passing the Nigeria’s budget.

The persistent macroeconomic headwinds slowed construction activities in the first quarter, as continuous Forex restrictions led to increase in the cost of building materials.

According to the built environment experts, lower disposable income of people also negatively affected demand for property.

Besides, challenges with transferability of title and weak judicial system also created threats.

Some of the segments such as road construction, property market, low-income housing and mortgage finance suffered a great deal due to inactivity.

Property market

During the period under review, clamp down on corruption and money laundering affected the flow of funds into real estate.

Consequently, residential and non-residential building market registered sluggish growth due to the anti-graft crusade.

The officials of the Economic and Financial Crimes Commission (EFCC) sealed many houses belonging to former public office holders under probe in Lagos and Abuja.

This created panic in the housing market, as prospective buyers withdrew their patronage waiting for the coast to clear. Throughout the period, a lot of vacant houses in highbrow areas of Lagos and Abuja that would have found buyers remained unoccupied.

According to the Managing Director of Financial Derivative Company, Mr Bismarck Rewane, Eko Atlantic City and major ongoing commercial and office projects such as shopping centres struggled to gain attraction, as domestic and international investors adopted a wait-and-see approach to their projects. Immediate past Chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Lagos chapter, Mr. Stephen Jagun, confirmed that developers in high-end locations have started pricing their properties in dollar.

Dearth of low-income houses

Many Nigerians also expressed fear over shortage of low-income houses in major urban cities while a few developers concentrated their activities in high-end quarters of Ikoyi, Lekki, Victoria Island, Magodo and Ikeja Government Reserved Area (GRA) in Lagos.

Low-Income Nigerians were worried that if the situation persists, provision of low-income housing may go into extinction.

Recent revelation from a former Managing Director of Federal Mortgage Bank of Nigeria (FMBN), Alhaji Gimba Ya’ukumo, showed that over 68 million Nigerians were either improperly housed or not housed at all.

He warned that the nation would be in serious crisis if nothing is done to provide shelter for the swelling number of homeless Nigerians.

Although the Federal Government has proposed to build one million housing units per year in partnership with States and the private sector, Nigerians are yet to see its action in this regard.

Unpaid debts

All road construction projects in the country were suspended by contractors handling them due to non-payment of over N600 billion being owed by government.

According to the President, Federation of Construction industry (FOCI), Mr. Solomon Ogunbusola, management of some of the construction companies laid off 60 per cent of staff during this period. This he said resulted in sudden death of some workers.

However, there seems to be light at the end of the tunnel, as the Federal Government has announced plans to release N350 billion into the economy, especially the construction industry in order to create jobs.

Ogunbusola confirmed to New Telegraph that the government had commenced “selective” payment to some of the contractors to get them back to sites.

Mortgage financing

There was no serious mortgage activity in the first quarter of the year, as little was heard of the much flaunted Nigerian Mortgage Refinance Company (NMRC).

The underdeveloped mortgage market is considered to be a hurdle to both developers and house seekers.

The domestic mortgage industry is currently underdeveloped and credit is expensive, with interest rates averaging around 30 per cent, according to a recent report published by the African Development Bank (AfDB).

Most estimates suggest that only around 20 per cent of the population participate in the formal banking sector, with the remaining 80 per cent dealing almost entirely in cash.

State Govt.s’ Housing Proposal

Ten States in the Federation proposed to spend over N239.149 billion on housing provision, going by the summary of their 2016 proposed budget allocation to the Sector.

The States include Lagos, Kano, Sokoto, Kaduna, Taraba, Enugu, Ogun, Anambra, Akwa Ibom and Kogi.

In the 2016 budget document of each of the states, Kaduna State allocated N31 billion to housing, Taraba – N4.8 billion, Enugu – N738 billion, Akwa Ibom -31.3 billion, Anambra -30 billion, Kogi – N6.51 billion, Ogun – 26.6 billion, Lagos – N62.7 billion and Enugu – N138 million. 

Experts ’  Views 

Experts have proposed varied views on the way forward.

For instance, Rewane urged real estate practitioners and investors to look beyond the present situation in the country and invest more in property.

He hinged his advice on the 2016 budget, which has the highest capital expenditure on infrastructure such as works, power and housing with N433.4 billion allocation and N202billion for transportation.

The expert described Real Estate as the fastest growing Sector in the third quarter of 2015, pointing out that as the nation’s Gross Domestic Product (GDP) grows in 2016 due to government expenditure, Real Estate would be the beneficiary.

A Lagos based Estate Surveyor and Valuer, Chief Kola Akomolede, said that the lull in property market would continue due to low disposable income of ‘honest’ people.

He wants the government to deliberately allocate funds to the provision of low-income housing to revamp the economy.

Besides, he wants the restructuring of the mortgage system to enhance easy access, low-interest and home-ownership among Nigerians.

Recently, founder and Chairman, Zenith Bank, Jim Ovia, urged the government and developers to meet the dearth of low-income housing in the country, noting that people in this segment constituted the bulk of the country’s population

Growth areas

Rewane predicted that there would be rebound in construction activities after the release of budget and contractors’ arrears are paid.

He said the government might likely set aside court order and commence the reconstruction of Lagos-Ibadan Expressway and other major highways’ “Infrastructure development will make Real Estate more attractive.

Clearer policy direction will boost confidence levels of private investors and reduction of the benchmark interest rate to encourage borrowing for buyers and property developers,” he said.

He added that increased government spending; sector investment, infrastructural development and improved power supply would serve as drivers of growth in 2016.

Conclusion

As practitioners in the housing/ construction industry heave a sigh of relief that the first quarter of the year is gone, both federal and state governments must rise to the occasion by releasing money into the sector and create level playing ground for investors.

http://www.housingnews.org.ng/category/blog/