• Predict high demand for residential property
• Lagos, Abuja, Kano to witness increase in activities
• Subsidy removal to trigger materials price hike

Despite macroeconomic challenges, experts have predicted a better year for real estate. Last year was not a rosy one as increased financing costs, rising interest rates and inflation took shine off investment. A lot of property developers were forced to downsize portfolios, invest in assets at potentially cheaper levels and reposition properties to meet shifting consumer demand.

For instance, the exchange rate more than doubled, putting pressure on building material importers and culminating in high prices in the market. Cost of renovating and developing new homes also rose sharply.

The rise in interest rates made it more expensive to finance real estate projects and reduced returns for investors. The consolation for investors has been continued rent growth in apartments in major cities such as Lagos, Abuja, Port Harcourt, Enugu and Kano, as well as e-commerce–related industrial properties, where the demand outstripped supply.

A recent report by National Bureau of Statistics (NBS) showed that the construction and real estate sectors contributed N20trillion to the GDP in the first three quarters of 2022. While construction services earned N12.9tn real estate contributed N7tn to the GDP.

The report further indicated that construction contributed 9.5 per cent to nominal GDP in the third quarter of 2022. This was higher than the 9.26 per cent it contributed a year earlier and higher than the 7.95 per cent contributed in the second quarter of 2022.

It also grew by 18.92 per cent year-on-year in the third quarter of 2022. On a Quarter-on-Quarter basis, the sector growth rate was placed at 16.38 per cent. The contribution to nominal GDP in Q3, 2022 stood at 4.96 per cent, relative to 5.27 per cent recorded in the third quarter of 2021 and higher than the 4.95 per cent reported in the second quarter of 2022.

The sector, however, dropped 28.75 per cent points compared to the rate of 47.67 per cent recorded in the same quarter of 2021. NBS statistics further revealed that real estate services in nominal terms grew by 9.13 per cent, higher by 0.50 per cent points than the growth rate reported for the same period in 2021 and lower by 3.68 per cent points compared to the preceding quarter.

Specifically, experts, especially estate surveyors and valuers, town planners, builders and architects are highly optimistic of the new year.

They anticipate policy changes by the incoming government and seek support for the private sector to boost infrastructure and ensure affordable housing.

The Chairman, Association of Capital Market Valuers (ACMV), Mr. Chudi Ubosi, foresees a pent up demand for residential, especially the medium and low-income residential, while the luxury market will always be attractive and remains a store of value for investors. Student housing, which is a market that is underdeveloped and growing gradually would also be investors delight.

He told The Guardian that real estate would do well in the country owing to its huge population, and about 20 million housing deficit. “The Nigerian economy offers very few alternatives in terms of asset class for investments. With a population that is largely attuned to real estate investment demand for it will remain high. The demand for real estate will continue to be high as investors loosen up investment inertia and get back into the business of real estate, especially after the election.

“Lagos will continue to experience growth and influx of people. This will continue to put pressure on all facets of life in Lagos, housing, services and infrastructure. All in all the changes will be positive in many southern states and Abuja. If the security challenges in many of the Northern states are not dealt with, we will also see changes as investment in real estate will continue to reduce causing flight to safety by both persons and capital.”

The Managing Partner/Chief Executive Officer, Knight Frank, Frank Okosun, stated that the capital market would be the next destination for real estate investors. “In view of volatility in the equities market, real estate investors would be more inclined to invest in the capital market rather than keeping their funds unutilised.

“We expect to see a greater influence of digital technology on the delivery of real estate products and services. This will be evident in property developers becoming more interested in the supply of smart buildings, which are capable of lowering operating costs.

“Also, there will be increasing automation of real estate service processes as the proptech space continues to widen. The continuous rural-urban migration will increase demand for housing in the urban centres. However, affordability will remain a problem due to potential rising inflationary pressure, which might erode the purchasing power of citizens without corresponding income growth.

“With COVID-19 still a matter of worry in countries like China; together with the effect of the Russian-Ukraine war, there is a likelihood of supply chain disruption with respect to imported building materials. Thus, chances are high that there will be sustained price increases on the affected foreign building materials.

“We expect further expansion of e-commerce activities (online sales), which has the potential to reduce demand for retail spaces and conversely provide an opportunity to increase the supply of warehouse spaces.”

The President, Nigerian Institute of Town Planners (NITP), Mr. Nathaniel Atebije, also expressed optimism that the sector would improve far above successes recorded in previous years.

The NITP President expects over five per cent growth rate for the real estate sector, through commitment of the public sector. He said with the resilience the sector showed last year, there is hope for more improvement.

“What might inhibit that prospect is the monetary policy of the government, particularly, those coming with restrictions on how much money will be available to people. It is going to affect the sector. If the cash flow is low, investment might be low.

“Believing that we are going to have a new government that will be responsive to the needs of the people. I have gone through the manifestoes of some of the parties and if they are going to work by them, they have good plans for the real estate sector.

“Some of the manifestoes of political leaders are talking about providing houses, one of them specifically said that their administration, if voted, would activate and implement everything about the urban and regional planning law, which is to say that they want an orderly development to be set, ” he said.
Atebije said one of the challenges in the real estate industry is lack of planning and appropriate location for housing and infrastructure. However, he said if the incoming government will implement everything about planning law, it means goodwill.

“I also believe that because of the awareness, sensitisation and advocacy by professionals such as NITP, those in the political class are ready to improve and that their interest in the real estate sector has improved. We expect a predictable improvement in cash flow in the economy and that the private sector will invest more in the real estate sector. Although, this may be slow at the beginning.

For the President, Nigerian Institute of Building (NIOB), Prof. Yohana Izam, the estate sector would witness some expansion, arising from the factors of population expansion and need to progress estate developments initiated in the second half of 2022.

This expansion, he stated, may exceed five per cent as new administrations at national and state levels make quick interventions in housing.

Izam, who is also the Vice Chancellor, Plateau State University, Bokkos said: “There is, however, the attendant risk of high prices of construction inputs, particularly, material prices. The NIOB also hopes that the National Building Code Enforcement law will be finalised before the next administration.”

President of the Nigerian Society of Engineers (NSE) Tasiu Sa’ad Gidari-Wudil, said engineers believe in continuous improvement, as the estate sector could perform better this year, if private sector operators are encouraged through provision of enabling environment, particularly, financial incentives.

He said: “Definitely, we will not expect anything less than the previous year and there must be improvement in the sector. We have been encouraging the government and developers to support the real estate sector. It is our members that are fully involved in the construction industry and one of the parameters for development is active construction activity.”

Gidari-Wudil stressed the need for the government to provide support for private sector operators as a catalyst for development in providing affordable and durable infrastructure.

“If you are building an estate, you have to provide basically all the infrastructure. This means, you are doing the government’s work. There is a deficit for housing, infrastructure and roads. Most of the houses built are not really affordable for the masses. We are urging the government to always embark on affordable housing for the common man, especially the civil servants. We want the government to encourage more young people to come into the sector.

“We are involved in all forms of infrastructural projects and engage whoever emerged as president to ensure that the construction industry is given the right push,” the NSE president said.

President, Nigerian Institute of Architects (NIA), Enyi Ben-Eboh, said certain policies of the out-going government are likely to affect the climate within the real estate sector, especially proposed removal of fuel subsidy in June.

“The consequences of this directive on the short run will be the skyrocketing of the prices of virtually all building products and it may take a while to come to terms with the full consequences of that.

“On the flip side, it means there will be more revenue accruing to government, which if properly managed can lead to a gradual revamping of the economy and that of course will trickle down to the real estate sector. How quickly that would be, remains to be seen.

“Another critical determinant will be the stability of the exchange rate regime, as this will curb the current frequency of price fluctuation and outright uncertainty of the final cost of projects,” he said.

According to him, the real estate sector is often driven by such factors as commercial viability, security and the ability to pay for the finished houses since we have a demand far in excess of the available supply. It is expected that the major real estate hubs will continue to thrive due to their commercial viability and proximity to centres of high economic activities coupled with the perception of better security. The top five hubs of Lagos, Abuja, Rivers, Oyo and Anambra will continue to witness increased activities in 2023, as well as Ogun and Enugu.

Ben-Eboh stressed that the real estate sector is very sensitive to the state of the economy and for it to witness a turnaround, the economy must first and foremost be stabilised, and inflation brought to single digit limits.

Subsequently, the exchange rate would need to be stabilised and the dual exchange rate regime abolished to increase transparency and attract foreign direct investment into the sector.

“The issue of funding and access to long-term funds in the form of mortgages would also need to be enhanced to make funds more readily available to the generality of Nigerians and lastly, government at all levels must continue to live up to their responsibility of proving the enabling environment for the sector to thrive through the provision of all the requisite infrastructure to make a lot of these estates habitable and sustainable.”

NIA president urged government to strengthen partnerships with the private sector to drive policies and initiatives that will directly impact the citizens, create enabling business environment that will guarantee increased Foreign Direct Investment (FDI) and in turn, drive the real estate market growth, as well as evolve friendly government policies that will assist in developing the local building material industry.