With the storm over the recent economic downturn yet to settle, government’s unfavourable policies have continued to dampen the property market making transactions to be down to 70 per cent.
The development, which began over 14 months ago, has largely been blamed on the decline in oil prices, and weak performance of commodities and geo-political conflicts.
The Guardian learnt that real estate businesses have nosedived and what was once considered as a viable sector last year is facing a glut, leaving both corporate and individual clients either renegotiating fresh terms or relocating to more affordable areas.
Specifically, the resultant effect can be felt in all nooks and crannies as several completed buildings are left unoccupied both in high end and the low-end areas. For instance, the market has witnessed 70 per cent drop in transactions. Beyond that it is taking a longer time to conclude transaction.
Experts believe that the Nigerian real estate market has witnessed its worst lull, a replica of what took place after the subprime mortgage collapse of 2008 in the global real estate market.
A recent report released by the Financial Derivatives Company Limited (FDC), showed an increase in the number of vacant properties in the upper class real estate neighbourhoods of Lekki, Victoria Island and Ikoyi.
According to The FDC’s Vacancy Factor Index (VFIX) for second quarter June 2016, the increase was by 72 percent over the last 18 months.
The report, which is based on the housing stock as at January 2015 attributed the rise in the number of vacant property to a combination of rising inflation, GDP contraction, falling consumer confidence and increasing unemployment rates contrived to lower demand for housing.
“Our urban real estate vacancy factor index increased for the second consecutive quarter as aggregate demand and supply forces remain in disequilibrium – a dynamic that continues to persist in the real estate market. The VFIX indicates a paradoxical phenomenon where supply continues to trend upwards but effective rents remain stubbornly high,” the company stated.
Specifically, the report stated that there was a 6.6 percent increase in vacant residential properties in the second quarter. “The residential VFIX has increased by 6.6 percent from 177 in March to 189 in June 2016.
A former president, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Emeka Eleh, said what we are experiencing is a reflection of the over all economic situation in the country.
According to him, there is no way it can be isolated from the real estate market both in sales and lease.
“You will recalled recently that the government has said, that Nigeria is technically in recession, therefore no sector of the economy is excluded from the poor running of the economy.
There is no sector that can do well, when things are running poor, the real estate is not an exception.
Eleh said the effect varies from one place to the other, he said the most hit is really in the high end areas especially Ikoyi.
According to him, the percentage in Ikoyi cannot be compared with that of Lekki, Mushin or Surulere, but there is a general drop in transaction both for private and corporate clients.
Also lamenting on the effects of the economic downturn on estate, Akin Olawore put the drop in transaction at 70 per cent, saying property in the high end suffer more rental value than those in lower end.
“There is now a dislocation of rent from the high end to the lower end. It now takes longer time to conclude transactions, while in some cases, there are renegotiations on rents.
Another issue affecting the rental value, he said is the location and security reason. “ There is a huge gap with what it has been in the past and now and what is happening is a mirror of the economy,” he added.
Another estate surveyor, Sam Eboigbe collaborated other views, “Right now a lot of companies are no longer employing, no more accommodation for staff as companies are no longer paying. Before Companies used to pay for accommodation for staff but right now such gestures have been monetised because the resources are not there anymore, individuals now collect the money and move to very cheaper locations to rent buildings hence, you have a lot of to-let buildings everywhere.”
On the obtainable price of buildings in places like Ikoyi, Victoria Island, he said prices of buildings rented at the rate of N12 million and N15 million per annum now goes for between N8 million and N7 million, depending on the location explaining that duplexes that were initially rented for N25 million have been reduced to N15million, N12million just to attract customers and clients.
According to him, the situation cannot be described as excess supply of buildings because it takes time to increase the housing stock in a particular time frame, blaming the situation on the fact that the resources are not there anymore to participate in the real estate sector.
“A lot of developers are just sitting down and looking for ways to move forward and participate in the sector but when you don’t have so much of government spending and activity as if everything has been in a state of comatose, one will feel confused ”, he stated.
Eboigbe stressed that the present situation behooves on real estate operators to obviously advise all stakeholders to really understand the present economic situation and continue to reduce what they are expecting until the demand and supply meet at the point of equilibrium.
“If initially I can afford to build a house for N85 million but at the moment I can only afford N65 million, we should be able to say, ok bring the money and there is transaction. We are hoping that government too should increase their allocation to the sector so that we can have participation at all levels of government”, he explained.
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