Post elections: Where real estate investors can pitch their tents

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Despite the tension associated with the Nigeria’s general elections, no thanks to the slowdown in the economy, Naira swap crisis, scarcity of petrol, volatile forex, high inflation and wait and see attitude of investors, experts have predicted a rebound of the real estate sector before the end of the year.

While many said, the sector would recover in value gradually between six and nine months in the short term, others said it might take two years in the end.

Even though they recognised the fact that a few investors (local and foreign) have put on hold their developments/investments until the general election is over, some of the experts said the situation was not as gloomy as being painted.

The experts are of the opinion that the real estate sector is far more important to the Nigeria’s economy than what is being offered presently.

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“The market is likely expected to rebound by the second half of the year,” majority of the experts said.

They listed student-housing, health care, multi living units, rental housing, micro houses, scalable housing projects, warehousing and logistics as areas of opportunities.

The experts, who spoke at the a conference organised by the Real Estate Committee of the Nigerian-British Chamber of Commerce (NBCC) in Lagos, agreed there was a connection between the general economy and real estate.

The conference was themed: “Real Estate Outlook: Pitching Your Tents Post 2023 Elections.”

Guest Speaker and Managing Director, B.Adedipe Associates Limited, Dr. BiodunAdedipe, who spoke on; “Understanding the Nexus between the Economy and Real Estate Sector,” pointed out that a focused government would give proper attention to the property market, availing as many incentives as could be creatively emplaced for the entire real estate ecosystem.

The financial analyst is of the opinion that housing development is a driver of investments that stimulate an economy and serves as a major source wealth and job creations.

He noted that there was a correlation between the Nigerian GDP growth rates and real estate growth rates during the first quarter (Q1) 2016 to third quarter (Q3) 2022.

He emphasised that real estate sector was one of the six major contributors to the Nigerian real GDP in the last 11 years.

“Despite all the challenges coupled with the COVID-19 pandemic in Nigeria, the housing market (house prices, commercial and residential rents) has remained relatively stable, with few marginal rises.”

According to him, the sector has some peculiarities that included being one of the six sectors that contribute the most to the Gross Domestic Product (GDP).

“That is, along with agriculture, trade, ICT, manufacturing and mining & quarrying. They have jointly accounted for between 77 per cent and 82 per cent during 2012 to 2022,” he said.

However, the financial expert said, “Its growth has been trending downwards in the last decade. There is dearth of long-term funds, causing a mismatch between funding and the assets created.”

Sector’s challenges

He enumerated real estate sector’s challenges to include high construction costs, liquidity from the perspective of the developer, declining consumer purchasing power (about 90 per cent of property acquisition is funded by individual savings), high mortgage rate, land registration process ‘Omoonile’ menace; weakening currency, poor infrastructure and multiple taxation.

Drivers

Adedipe listedreal estate’s drivers as growing and rapid urban population, expanding middle class, supply and demand factors, demand for real estate assets and institutional investors seeking opportunities in the sector for strong returns,innovation in building technology, eco-efficient buildings,business model that leverage technology for digital sales and leasing purposes.

Others include increase demand for warehouse spaces, alternative real estate investments such as student housing, multi family, co-living and co-working; rising demand for service apartments and facility management.

On where investors can pitch their tent post 2023 elections, Co-Founder Alitheia Capital Limited,MrsOlajumokeAkinwunmi, said that affordable housing remained the best option.

She pointed out that affordable housing’s execution would rely on both the public and private sectors’ collaboration, to do more.

She noted that availability/access to data has been bridging the accommodation gap slowly asboth sectors are agreeing to a common understanding

Talking about the four stakes to the next tangible milestone, she stated that this would include a permanent source of funding, a clear signal to the entire housing system and to increase the building stock.

Besides, Akinwunmi said that a planning/permitting/title transfer system that expedites affordable housing projects, ensuring timely delivery and pricing would be required.

Others, she said”Creating institution(s) (including for profit housing associations) as the primary long-term owner and manager of affordable housing under sale/rent combo models.

“Sustainable sources of finance –debt and investment capital—that recognise the low-risk attributes of affordable housing as an asset class. Scale and certainty of programs and certainty of programs.”

Senior Partner, Knight Frank, Mr Frank Okosun, expressed caution that some sectors of the economy, real estate sector inclusive would experience slow growth occasioned by a watch-and-wait approach from investors and other major industry’s players.

According to him, property market may see a pent up demand in post-election, and “thus investable long-term capital seeking expression through the market.”

He said “The market is going to slow down six months after the Presidential election.

“It’s going to be gloomy. We are going to have short (6-9) and long (two years) terms period. It is going to impact real estate.”

According to the property guru, office segment of the real estate market would witness absorption of rates, mostly affected by the performance of the economy, adding that most expansion projects would be kept on hold.

“Vacancy rate will continue to rise in the office segment where most companies are begging to downsising especially oil and gas companies. Grade ‘A’ landlords we begin to make adjustments and allowances,” he said.

On where investors can pitch their tents, Okosun listed student housing, health care, warehousing and logistics as areas of opportunities.

According to Okosun, ideally, manifestos of the political parties should give a direction of what to expect post-election.

However, he said it was unfortunate that experiences should make people and investors wise to moderate their expectations with respect to campaign promises of the major political parties, which included- “high capital intensive mass housing without clear roadmap on how the funds will be sourced and a land reform promise that maybe threatened by lack of political will eventually.”

“Thus, a need for conscious optimism as campaign promises are common features of election cycles that hardly survive campaign periods.

“Also worth noting is that this Presidential election would be a transitioning to a new democratic regime and there are three months apart from announcement of result and handover.

“It is inevitable that governance will henceforth be distracted by handing over activities and many unfinished business which means that some sectors of the economy, real estate sector inclusive will experience slow growth occasioned by a watch-and-wait approach from investors and other major industry players,” Okosun said.

“It is however expected not to be all gloomy, as we expect the new government upon sworn in to be proactive enough that create short to medium term measures that will help resuscitate the economy and at least endear in the heart of the populace the legitimacy of the government.

“This implies from a real estate investment perspective that the property market may see a pent up demand in post-election, and thus investable long term capital seeking expression through the market.”

Okosun said that it was expected that the general election would have both the immediate short-term impacts and longer-term impacts on property segment.

“Whatever the effect of these sector-specific impacts maybe, they are still less important for real estate industry than the risk of the country going into recession, unless the Nigerian government implements counteracting policy measures,” he said.

CEO, Octos Holding Limited, Babajide Odusolu, remarked that though the country has houses but the units tend to be deficient.

According to him, Nigeria’s housing deficit cut across the entire strata.

“That is why our housing tends to be over priced and price out of the market, hence the empty houses we see,” he said

He pointed out that the nation has a growing middle class that could afford housing between N6 million and N30 million, stating that Epe-Ibeju-Ikorodu axis, Agbado-Badagry axis and Isheri-Magboro-Lagos-Ibadan Expressway axis portend huge housing opportunity for investors.

According to him, 680,000 persons being 40 per cent of the Lagos’ labour workforce could afford houses priced between N6.8 million to N25 million, especially dual income households.

Unlike the past, the developer said the present generation home seekers required small houses, advising would- be investors to take the advantage and invest in multi living units, rental housing, micro houses and scalable housing projects.

The Octos boss said the emergence of digital platform/protech solutions have provided opportunities to optimise supply chain, simplify credit and aggregate demand in the real estate sector.

He urged participants to take advantage of the available technology, saying this remained the easiest way to monitor their investments.