This is not the best of times in the Nigerian real estate sector as the current state of the economy is having negative effects on it with construction activities taking a plunge and sale of properties at very low ebb.
Buffeted on all sides by different factors, the economy has been on a tailspin for about seven years and there appears little hope of a turnaround any time soon.
For instance, the inflation rate in the country climbed to a near 17-year high in July, fuelled by rising food, energy and transportation costs.
The Consumer Price Index, which measures the rate of change in prices of goods and services, released by the National Bureau of Statistics on Monday, August 15, 2022, showed a surge to 19.64 per cent in July, from 18.60 per cent in the previous month. The rate is the highest recorded since September 2005. The figure is also 2.27 per cent points higher compared to the rate recorded in July 2021, which was 17.38 per cent.
The report added that food inflation rose to 22.02 per cent in July, an uptick compared to 20.60 per cent in June.
The steady fall in the exchange rate of the naira to the dollar and other international currencies is also a major problem to the economy. On Thursday, black market operators sold $1 for N702 at the parallel market, where most users rely on for supply, while the Central Bank of Nigeria official rate was N 427.43 to $1.
The steady decline in the production of the nation’s main revenue source, crude oil, is also negatively affecting the economy. Oil production in July 2022 stood at 1.183 million barrels per day from an all time record of 2.4 million bpd in 2016. The fall is largely due to crude theft due to vandalism of pipelines.
As a result of all these, the once bubbling Nigerian real estate industry is currently gasping for breath with practitioners bemoaning the situation.
For instance, the number of new housing units coming into the market has drastically reduced over time, while many of those already in the market have remained unsold with potential buyers seemingly not interested in picking them up.
It was gathered that there had been high rates of default in repayment by those who took loans to develop some of the houses, while many home buyers who took mortgages were finding it difficult to meet their obligations.
To a former President of the Nigerian Institution of Estate Surveyors and Valuers, Mr Bode Adediji, the country is currently passing through an unprecedented economic crisis occasioned by myriad of factors, including insecurity, mismanagement, corruption, scary national debt profile, stagflation, global recession and leadership challenges, among others.
Adediji stated, “The real estate sector has been virtually crippled by factors such as dwindling household income, unemployment, inflation and rising prices of land and properties, continued mortgage system collapse and infrastructure deficit, among others.
“Accordingly, the professional and business aspect of the real estate sector is in serious danger more than ever before. The government needs to take a review of the entire economic system and pursue purpose-driven policies and programmes to avert a total collapse. The widening gap between the tiny rich and the poor majority must be a cause for concern.”
A Lagos-based estate surveyor and valuer, Stephen Jagun, shared the same sentiment, saying the impact of the current economic situation on the real estate sector was massive.
For example, he said the high naira to dollar exchange rate was causing the prices of building materials and accessories to continue to rise, thus adding to the cost of buildings.
Jagun stated, “The Nigerian economy and market are difficult to predict. There are a lot of slush funds in the economy and people launder the funds through the real estate sector. Despite the fact that property prices are increasing, those with slush funds don’t mind putting money on properties.
“However, for those investing in the real estate market to make profits, it is now a buyers’ market as they now influence the prices; because sellers want to offload what they have, they succumb to the prices.”
According to him, the situation is grim for developers who sell off-plan as they can’t store building materials, such as cement, for too long.
Off-plan property purchase means that the subscriber is buying into the concept and design of the development with hopes that the project execution process will be favourable and the end product matches their expectation.
Jagun said, “Once the prices of the buildings are fixed before construction begins, it is usually difficult to go back to the buyers, who have made payment or deposits, to say the prices have increased. A lot of such developers have had their fingers burnt. Buyers may not meet their financial obligations and developers find it difficult to deliver on promises because of rising costs.
“Peoples’ purchasing power is dropping and they are struggling and the mortgage system is not working. People who don’t have ill-gotten wealth cannot play in the market.”
He added that the Economic and Financial Crimes Commission was focusing on the real estate sector as a result of the fact that those with ill-gotten wealth were hiding their funds there and laundering such through it.
“Because of the destruction that followed the #EndSARS protests, those with genuine funds want to move into and live in gated estates for the security that such offers them, and as a result, values of properties in such estates are rising,” he added.
For those in the middle class, some of them are selling off their properties even below the market values and relocating abroad, Jagun stated.
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