• As reports project positive outlook for residential real estate market
After five years of economic crises, the construction and real estate sectors have emerged stronger, reports by Northcourt and Ubosi Eleh and Company stated.
The reports showed that residential projects have continued to command more demand for construction contracting in the first half of 2022.
It stated that Lagos remains the most desirable location for real estate development, while second-tier cities are increasingly attractive to residential, industrial and agricultural uses.
The rise in demand for real estate services, the report by Northcourt stated, are connected to improved market fundamentals and a recovery in housing supply.
The determinants of the largely private sector driven market and their impact on residential real estate development, it said, include, locational advantages, labour and material costs, migration into the state and improved standards of living.
Nigeria’s economy is projected to grow by 2.9 per cent in 2022 while the construction industry is projected to expand by 5.7 per cent in 2022, accelerating from its 3.1 per cent expansion in 2021. Inflation has averaged 14 per cent over the past five years and pressures are intensifying, as currency pressures persist, imported inflation is likely to rise. The report revealed that demand for residential property remained strong, as apartments in key nodes spend less time in the market and vacancy rates have declined, while gated communities retained their appeal with developments in Abeokuta, Port Harcourt and Ibadan on the increase.
In Lagos, it revealed thatsome areas of Lekki Phase 1 are now more desirable to investors due to enhanced security, estate services and infrastructure.
Property prices in Imo, Kwara, Ondo, Oyo and Enugu states, the Northcourt research said, rose as maintenance costs followed suit, a result of an economy attempting yet another recovery. This, the researchers said, led to frequent landlord- tenant re-negotiations, as the rising cost of living made even justifiable property service charge increases difficult to pay.
According to the report, the rising cost of building materials continues to have a negative influence on the real estate market. Still, developers are making timely adjustment to deliver projects.
“Lack of secure access to land, high construction costs, limited access to finance, weak ownership rights under the Land Use Act, lack of critical infrastructure and the affordability gap and inefficient development contingencies remain key challenges.
“High capital values attract developers, high land and construction costs continue to dampen development activity. At least, until Q1 2023, infrastructure projects are anticipated to be commissioned, as the Federal and state governments carry out infrastructure projects, compensation for affected land parcels continues to remain inconsistent,” the report revealed.
Essentially, the H1 report highlighted that property rights would remain central to the expansion of the real estate market, while institutions for infrastructure management and local support will determine the performance of public and private sector initiatives.
The Director, Real Estate Research/Chief Operating Officer, Northcourt, Ayo Ibaru, observed that the gradual recovery of the overall economy and investments in the infrastructure, healthcare and energy sectors would likely support industry’s growth, however, total construction output is not expected to reach 2019 levels until 2023.
In the retail sector, the reports revealed that long-term sustainability of the market returns on mall investment is increasingly contingent on the quality of non-grocery support such as lounges, entertainment centres, play spaces, parking and security.
“The prognosis for retail, at least from a volume-of-transactions standpoint, is positive. Lenders report backing more project refinancing than new developments,” the report said.
ALSO, the yearly report by Ubosi Eleh and company projects a positive outlook for residential real estate for 2022 now in the eighth month, basing it on the face of a couple of developments leading into 2021.
It also projected a spike in rents and land values and reiterated that the two/three bedroom flats would remain in high demand much higher than terraces or detached houses.
Rental demand is expected to move upwards by as much as 25 per cent. In Lagos, the report projected that rental values for existing commercial buildings would rise between 10 – 20 per cent, while there would not be much change in demand is expected on real estate values in the north and the nation’s capital, Abuja. In the central business district of Abuja, the report projects that commercial real estate rental and demand value will continue to rise at between 15 – 20 per cent.
A significant highlight of the 128 – page report was that the nation’s economy grew at 3.4per cent to beat the three per cent figure projected by the International Monetary Fund (IMF).
The report described the rate as the fastest and strongest yearly rate since 2014 and that it was uncharacteristically driven by the non-oil sector. It added that Nigeria’s Gross Domestic Product (GDP) grew by 5.01 per cent year on year in the second quarter of 2021.
Managing Partner, Ubosi Eleh and Company, Mr. Emeka Eleh, said: “Residential real estate got more boost as the Coronavirus pandemic continued to create concerns and consequently many organisations adopted work-from-home policy. Residential demand was mainly for family housing units, pocket friendly and small sized accommodations.”
In its market review, the real estate market grew by 2.81 per cent in the last quarter of 2020, which marked an exit from recession it had been for several quarters and maintained that the sector sustained growth stride into 2021.
Eleh, however, described the growth as fragile because of many threats to the sector including insecurity, escalating cost of building materials, which rose to 50 per cent, amongst other factors.
Similarly, in its review of commercial real estate, the report noted that prime office rents in Nigeria’s big cities recorded marginal increase in the first quarter of 2021.
MEANWHILE, the immediate past chairman, Faculty of Estate Agency and Marketing, Mr. Sam Eboigbe, said the first half of the year in Lagos witnessed tremendous increase in prices of land in prime areas such as, Banana Island, Ikoyi and Lekki.
These choice areas continued to witness relative increase in volume of activities with regards to land as seen in the over N1 million per square metre in Banana Island, N800, 000-N900, 000 in Ikoyi and about N385- N450, 000 per square metre in Lekki phase 1 for just developable land.
“Some projects initiated by developers and investors couldn’t be delivered within the timelines and in most cases exceeded budgetary provisions since the naira exchanged for N500 -N600 to a dollar.
“Home buyers and subscribers had to resort to established organs of conflict resolution mechanism essentially for cases centred on inability to meet project completion deadlines.”
According to him, the period witnessed preference for speculative purchases, as the stakeholders compared income streams from property development than intentional purchase for speculative motives.
“Developers preferred the option to buy land and sell in few months time than acquisition for project development, as they were comfortable with profit from speculative purchases than profits from completed projects often fraught with too many environmental and economic constraints.
The second half of the year will certainly not be too different from the first half since no breakthrough seems in sight regarding challenges in the economy: insecurity, inflation, unstable exchange rate and escalating prices of building materials.
“It is predicted that this half will be buyers market, as we shall continue to witness too many listings in the market space with demand unable to match supply.
“This is a scenario that the investors try to avoid, as the cost of funds cum interest rate will render cash flow projection for project development merely academic exercise,” Eboigbe said.