Economy: High end properties struggle for tenants

The real estate sector is believed to be a sector which responds fast to the tune of any economy. This invariably means that the sector derives success or failure from the state of the economy. This is what inspired the view of Mr. Chude Obosi, the African President of International Real Estate Federation (FIABCI) who expressed that high end properties have difficulty getting tenants due to the slowdown in Nigeria’s economy.

He expressed that there is not much going on in the real estate sector. In his words, “There is a slow down because the take up rate is slow. The high end market has a problem. Because the economy is not expanding, the high end properties, including the $60,000 to $100,000 per annum apartments, are struggling for tenants. In the expatriate companies, very few of them are Nigerians. And as Nigerians, even if your organization gives you that kind of money, you will think of using it to develop your own property instead of paying it as lease which is like a wasting asset.”

“In terms of sales, there are still some transactions going on and the fact that some transactions are going on does not mean that the economy is good, because even in times of war, there are still some level of transaction. If the economy is good, we would have more than 20 times what is going on now.”

Speaking on what he thinks of the reports that our economy is growing, he said “I don’t think that the economy has grown. When there is economic growth, you will see industries springing up; you will see people asking for office space. The situation now is that demand for office space has dropped significantly. A lot of people have chosen to remain where they are. Nobody wants to change address; people move into new offices when they are growing or when they expect growth. What is happening is that there is growth in what is called ‘virtual office’ where people take up a room, put a table with laptop and telephone, and there work goes on. It is difficult to ascribe any growth to real estate—residential, commercial or even industrial.”

On his view about the GDP rebasing exercise which states that real estate is the fastest growing and the sixth largest sector of the economy today, he opines that the discovery may be within the Lekki Peninsular stretch—from the First Roundabout down to Epe.

“When you look at that stretch, what you see are on-going private developments. The people doing these developments are providing their own infrastructure—roads, electricity, water etc. They are sand-filling to reclaim land from water because the whole of that area is water-logged. That stretch, unarguably, is the fastest growing real estate market in Nigeria. When the government is talking about the economy growing 6-7 percent, that growth is simply coming from activities in the service and oil industry. And my problem with the so-called growth is that it does not trickle down to the average Nigerian.”

He also commented on the reviewed Lagos state land tax from 13% to 3%, saying “The drop in those charges is fantastic for the state and the country as a whole. This is because taxes and land charges account for over 10 percent of the state’s revenue. As much as we know that the state is making a lot of money from real estate, I can tell you that they are just scratching the surface of real estate transactions because only about 30 percent of land transactions in the state end up in Alausa for formalization. People try as much as possible to avoid those charges by just holding onto their title.

So, if those charges are now reduced by as much as 10 percent, it is a plus for the real estate industry and also for the state because it will bring much more revenue than before. It is also good for everybody because it will encourage more people to go to government to formalize their documentation. This has the advantage of enabling a property owner to take the document to a bank and get loan facility and put money back into the system by setting up business, setting up a factory and create jobs. The whole exercise has great multiplier effect.

Another reason why it is a good development is because virtually every state in Nigeria takes a cue from what Lagos does. So, if Lagos has reduced its land charges by 10 percent, other states are likely to take a cue from it. In the long run, it will be good for all stakeholders in the real estate transaction.”