This article is a brief but detailed analysis of real estate market in Nigeria and how it contributed to GDP based on the report of Nigeria Bureau of Statistics (NBS) report.
It is unarguable that the Real Estate market offers a great potential source of growth for Nigeria’s GDP. The real estate industry has been repeatedly touted as an undoubted goldmine by investors.
Following the recession in 2016-2017 and the ensuing financial crisis that followed, the real estate market suffered a big hit and this was discernible in it’s total contribution to the GDP during these years.
In the second quarter of 2017, the Nigerian Bureau of Statistics recorded a 0.77% increase in the country’s real GDP which was an improvement compared to the negative figures that were previously recorded.
This was followed by more positive figures; 1.40% and 1.92% in the third and fourth quarter respectively.
However, as the Nigerian economy grew, the real estate industry’s contribution to GDP dwindled.
Experts in the analysis of real estate market attributed this to the restrictions placed on the availability of foreign exchange that affected the construction industry, which is heavily import based, and the unstable economic climate which has affected the general willingness to invest in the country’s real estate sector.
The sector ended 2017 with a -5.92% contribution to the country’s GDP; a significant drop from the -3.1% recorded in the 1st quarter.
However even as finance still remains an obvious challenge, especially in Lagos where debt liquidity continues to hinder the sector’s growth, it appears that the market may be stabilized soon and activities in the sector return to normal.
The Nigerian Bureau of Statistics, NBS, a week ago announced that the economy grew in the first quarter of 2018 by 1.95% (year-on-year) in real terms .
In the last quarter of 2017, the Nigerian economy had grown by 2.11%, and this latest figure for the first quarter of 2018 marks a first decline in GDP since emergence from recession in the second quarter of 2017.
This however shows a stronger growth when compared with the first quarter of 2017 which recorded a growth of –0.91% indicating an increase of 2.87% points.
Compared to the preceding quarter, there was a decline of –0.16% points from 2.11%. Quarter on quarter, real GDP growth was –13.40%. Still on the first quarter of 2018, aggregate GDP stood at N28,464,322.01million in nominal terms.
This performance is higher when compared to the first quarter of 2017 which recorded a nominal GDP aggregate of N26,028,356.03 million thus, presenting a positive year on year nominal growth rate of 9.36%.
This rate of growth is however lower relative to growth recorded in Q1 2017 by –7.70% points at 17.06% but higher than the proceeding quarter by 2.14% points at 7.22%.
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To give a clearer depiction in our analysis of Nigeria real estate market, here is the current situation of Nigeria’s economy represented in infographics.
Analysis of Real Estate Market Contribution To GDP
In nominal terms, Real Estate Services in the first quarter of 2018 grew by –8.38%, lower by 18.94% points than the growth rate reported for the same period in 2017 and lower by 5.03% points compared to the preceding quarter.
Quarter-on-Quarter, the sector growth rate was –30.37%.
As was noticeable from the analysis of real estate market by the NBS, the contribution to nominal GDP in Q1 2018 was 5.87%, lower than the 7.01% reported in corresponding quarter of 2017 and lower than the 7.67% reported in the preceding quarter.
Real GDP growth recorded in the sector in Q1 2018 stood at -9.40%, lower than growth recorded in Q1 2017 by 6.30% points and lower by 3.48% points relative to Q4 2017.
Quarter-on-quarter, the sector grew by –30.57% in the Q1 2018. It contributed 5.63% to real GDP in Q1 2018, lower than the 6.34% it recorded in the corresponding quarter of 2017 and lower than the 7.03 % in the preceding quarter.
From the infographic above, it shows that the end of Q1:2018 marked the 9th consecutive negative growth quarter for the Nigerian real estate service sector and its worst quarter in over 5 years. Why?
To begin with, the Nigerian Bureau of Statistics (NBS) tracks the performance of the sector by recording the sum of fees and commissions for services rendered through data retrieved from tax authorities (FIRS) and also through informal household surveys.
For the most part, the figures indicate that the profitability levels of many real estate service firms currently trading is poor, and this may be largely driven by a slowdown in market transactions during the recession, especially in the luxury segment.
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The sector has been in the red since Q1:2016 and contracted by -9.40% in Q1:2018, worse than the -9.27% recorded in Q4:2016 at the heart of the recession.
This means that the real estate service sector is the worst performing economic subsector in over two years.
As the Nigerian economy recovers from a recession, the real estate service sector has refused to leave the negative territory.
Do you have an idea why?
We’d like to have a discussion in the comments:
- Is the data representative of the performance?
- Has it really been that bad?
- What else do you think might be driving this performance based on the methodology stated by the NBS?
Share your thoughts in the comment section.
I do appreciate your analysis. I doubt and wonder however if NBS is ever able to capture accurately the real fees earned by practitioners in the real estate sector. Most payment for transactions are not labelled. FIRS maybe able to capture transactions only if there is a witholding tax or VAT payments or stamp duty and registration fees payment for a transaction that may have happened several years prior. Inadequate information is a factor leading to this. Many practitioner may also be unwilling to complete or supply accurate transaction details to NBS for concern of been exposed to tax scrutiny. It does not however remove the fact that the market has witnessed slow growth due to the recession. With little cash at hand many investors played the caution game waiting to see which way the market will swing. I personally also believe that the advent or implementation of the TSA policy has significantly impacted on the market by blocking some of the sources of the funding for many real estate transactions. Amazingly property values has not nosedived but gradually repricing itself in reaction to real economic dictates driven by demand and supply. The upper end of the rental and sales market suffered greatly but gradually picking up.
Other factors that affect the market are insecurity, tax policies, alternative investments windows, foreign exchange rates