Real estate expert and Managing Partner, Ubosi Eleh and Co, Chudi Ubosi, shares his thoughts with JOSEPHINE OGUNDEJIon the real estate projections for 2023
Notwithstanding the poor performance of the economy in the outgoing year, the real estate industry has shown resilience amid high inflationary trends, flooding, and other unfriendly policies that almost crippled investment. What is your projection on the real estate market in 2023?
From a professional perspective, real estate has always done fairly well in Nigeria despite our challenges economically, and politically, among others, and one of the reasons is that there are very few investment outlets (asset class) in Nigeria. Real estate is the most prominent and probably the “easiest” to access, understand and operate; in addition to this, a burgeoning demand that far outstrips supply. This is because people go into real estate, not just for investment alone (income from rents) but also for residential reasons, speculations, shore of value, commercial, and industrial uses, among others.
The year 2022 has many challenges as you have outlined but real estate still did fairly well. Performance was good, rentals and capital values increased in most cases by as much as 10/15 per cent for rentals and the same for capital values. My projection is that real estate will continue to do well even in 2023. It will still remain the major investment asset class and investors will continue to flock to real estate as a shore of value. Doing well, as I have stated earlier, may be relative because we all know the challenges of our economy and the very basic knowledge that it is heavily underperforming. However, in spite of these issues, investors of every kind are still going home with fair returns.
Finally, if we are to narrow it down to types, my projection is that residential real estate will outperform every other real estate on a broad scale, our population and the accompanying high demand make it so. In terms of residential real estate type, medium to low-income real estate is where the greatest pressure is and the best chances of higher returns.
How would you rate the growth of the sector in the third quarter of 2022?
The NBS statistics indicate that real estate contributed 9.50 per cent to the GDP in the third quarter of 2022. All in all, very nice statistics; however, we need to be careful here. Has the economy grown to warrant a 9.50 per cent contribution from real estate? Are there more investments in real estate? From my little corner, I have my doubts. I believe a lot of these figures are being driven by high land values because of inflation and real estate acting as a shore of value. The figures are due to an increasing population and higher demand. Also, the lack of opportunities in the rural areas, poor infrastructure, transport modes, and services, among others, means that more and more people are moving to the urban areas and this just puts pressure on real estate and pricing. Take Lagos for example, data indicates you have easily 2,000 people arriving in Lagos daily with no intention of returning. At the end of the day, they need to be accommodated, etc. All these put pressure on the available real estate and in the end, shoots up prices among others. Finally, it comes through as growth or development, which it may be but it would have been best if it was 9.50 percent occasioned by increased development, construction, and infrastructural provision.
Sequel to reports that the real estate sector contributed N7tn to the GDP, how do you think this would enhance an increase next year?
Real estate contributes to every economy. In Nigeria, it did 7.50 per cent in 2021 to the Nigerian economy. In the first three quarters of the year, it contributed N7tn. Based on the impact, we are hoping it will create more employment and increased sales for building materials vendors, and professionals associated with the industry, and as all these happen, it should have the effect of spurring more investments into the real estate sector and subsequently an increase.
Nigeria currently faces a huge housing deficit of 22 million. Going forward, how can this deficit be bridged?
This is a subject that attracts a lot of attention because of the significance of housing to the average being and the very high rental and capital values that Nigerians are subject to currently. The solution to bridging the gap will include significant amendments to portions of the Land Use Act to ease access to land and in effect, ease access to title conferring ownership. Nigerians and the government have to research means of building cheaper homes with a larger proportion of locally sourced materials. This is already being done by the Nigerian Building and Road Research Institute. Their results should be made more public and widely available. The government in many states with the worst housing issues (Lagos for example) should look at increasing infrastructure and services, roads, access to power, water, and security among others, so that developers can go, say 50km out of the city centre where land is cheaper to provide housing estates which will in effect be cheaper for the citizens to buy or rent.
With better transportation modes, citizens can live much farther from their places of employment and so on, hence reducing pressure on the housing stock in the city. We will need to standardize a lot of building materials, like windows, doors, and so on, so that mass production enables highly reduced costs which eventually will translate to cheaper prices. Also, we will need to work on our cost of funds from the financial institutions and reduce interest rates to single digits for both developers and buyers who should then be able to access mortgages at those rates for 20/25/30 years depending on age, etc.
Even in trying to bridge the housing gap, the government needs to be deliberate about it. We need an accurate housing census that will give data state by state on how many houses are available and types, as in whether detached, duplexes, 2, 3, 4-bedroom flats, single rooms, etc. We will need to work with population census figures to determine accurately what is needed currently and even in the states. We will need to project needs for a minimum of 10 years, assess the number of school leavers, those getting married, and so on. These data will then help the government to introduce policies to encourage the development of specific types of housing to address the greatest needs and also focus on areas and locations of most pressure.
Are there any big projects Nigerians are expecting from the industry in 2023?
The definition of “big” is relative, and the sector is important. There are many planned hospitality, residential, retail, and commercial projects in the pipeline scheduled for completion all around the country. Many were planned for completion in the last two years, but COVID-19 and its fallout, as well as the recovery time, in addition to the economic challenges in 2022, have either stalled or pushed forward completion dates. In terms of residential, Address Homes in Lagos for example would probably add over 200 houses to the housing stock of Lagos in 2023 when many of their ongoing projects would be completed.
The surge in rental costs has prompted city dwellers to downsize or downgrade to more affordable apartments to stave off harsh economic situations, especially the cost of living. With the year 2023 in view, what can be done to ameliorate the rental burden?
The most obvious one is to provide more housing; however, housing development and construction are not elastic. Start to finish for even the most basic of homes, especially with our mode of construction could be as much as 12 months. So, in the short run, things that could be done would be palliative. The government should focus on easing transportation, fixing as many as possible bad roads, aiding the better control of traffic, and creating more stringent policies on street trading to reduce congestion. The fact is that one of the reasons why many cities are unliveable is the terrible traffic caused by bad roads and congestion. If these short-term measures improved traffic flow tremendously, life would become a lot more bearable for city dwellers. Other measures would include the provision of better security, etc. For many city dwellers, the other challenge even as they source cheaper accommodation is that of the quality of life that accompanies the accommodation.
What do you think will be a major threat to the sector’s growth?
From my perspective, all the issues raised above will continue to serve as threats. Again, the major threat is the government and its willingness or otherwise to help or ignore the sector. A lot will flow from their actions or inactions, access to affordable land, fairly priced and durable building materials, cost of funds for developers, access or lack of access to cheap long-term mortgages, etc all serve as major threats to the growth of the real estate sector in 2023.
What are the major economic indicators that will affect the real estate market growth?
Economic indicators that would affect real estate growth include the cost of funds when borrowing from financial institutions. Of course, a boom in manufacturing for example will have positive effects on real estate – higher demand for warehouses which will trickle down and translate to increased commercial, retail and residential demand. There are plans – some already yielding results – to increase our oil output from less than 400,000 barrels per day to 1.80m BPD. Further success will increase government revenue and will engender the meeting of budget objectives which will all be positive for the economy.