Noah Ibrahim is chief executive of Novarick Homes
Rapid growth in Nigeria’s economy has resulted in equally rapid growth in demand for real estate. However, the recent happenings in the world; that is the pandemic, have affected the Nigerian economy, in turn affecting the real estate market in the process. The Nigerian real estate market in the last few years has rapidly expanded and is recording exponential growth; steadily increasing foreign direct investment, fast urbanization, and strong corporate demand. According to a January 2015 report by CBO Capital, the sector was valued at 6.4trn naira ($39bn) and growing at 10% a year.
In the wake of the recent pandemic, the Nigerian real estate sector was one of the worst-hit sectors. Its impact has radically altered the industry’s long-term expectations. It was not felt immediately by stakeholders. Different sectors felt the effect of the pandemic on different levels, some more than others.
Currently, one of the biggest challenges the sector has faced in recent times is access to funding. With a growing middle-class population, rapid urbanization, and young demographics compared to stronger economies, Nigeria possesses all the key factors for real estate investment. Despite all of this, financing has remained a problem for property developers and prospective homeowners.
The cost of building materials has spiked in the past few months, owing to the devaluation of the naira, the Nigerian currency. This is because the Nigerian construction industry depends heavily on foreign importation for the raw materials and equipment they use for construction. With a devalued naira, the cost of purchasing these raw materials and equipment will rise. The devaluation of the naira caused a domino effect that led to inflation, hence making properties difficult to purchase for the average Nigerian. Currently, the real estate sector is facing a cost overrun. This rests greatly on the shoulders of customers, resulting in an increase in the price of properties and people losing their buying power.
The development and sales of commercial and residential real estate have been negatively affected, especially the commercial and hospitality sub-sector as a result of the fact that several businesses have evolved into digitalization. The effect of this is that commercial centers have less traffic, as everyone is trying to shield themselves from the virus.
The residential sub-sector has been a little tricky in terms of demand; more people are home due to remote working so there is more demand for rent. A large number of people can’t afford to buy properties and therefore people would rather rent. However since the inception of remote work, which has led to salaries being cut and people are being laid off, even the payment of rent has become difficult. Irrespective of these setbacks in the sector, the industrial property sub-sector has been a key focus among local developers during this period. A handful of global drug manufacturers and makers of fast-moving consumer goods would need a location to store products, benefitting local property developers thus increasing space demand for warehouses.
Currently, in the country, the borders are closed. Nigeria is a consuming nation, hence it has proven to be a rather difficult task to import building materials from China and other foreign countries. What this means is that the available materials in the country are almost inaccessible and highly expensive. As the prices of materials increase, the price of real estate increases too. The cost of construction materials was also affected which has, in turn, caused a chain effect by affecting the real estate industry. Some investors and stakeholders don’t understand the magnitude of the economic situation, but the economy was slowly crawling out of a recession before the covid-19 struck.
Despite a range of pressing challenges, Nigeria’s real estate sector is set to continue expanding in the future, albeit at a slower pace than over the past decade. The way forward for investors looking to invest in the market would be through the residential and industrial sub-sector. There will always be a need for shelter, hence the residential marketing will still thrive.
The industrial aspect will thrive during this period because of warehousing and storage facilities. A lot of small and medium scale businesses will need places to store their products. One certain thing is that covid 19 will eventually pass, as this is not the first pandemic or crisis, although it might take a while for the commercial and hospitality sectors to bounce back. Hotels are being reopened gradually and people need to showcase their products but developers and industry watchers are not expecting a very positive outlay of investments in the commercial sector.
The covid-19 pandemic has become one of the biggest tipping points for the demand for retail stores, office spaces, and homes. The threat of e-commerce on brick-and-mortar retailers isn’t a new topic, but the pandemic may have accelerated the discussion. The stay-at-home policy imposed in Nigeria has driven people towards online shopping, causing the demand for retail stores to drop. Affording rents for stores might become very difficult as gaining people’s trust enough to drive patronage is not an easy feat.
With regards to offices, this is the worst-hit sector in terms of demand. Many companies have found themselves operating in unprecedented ways to continue conducting business. Many corporate offices have not been keen on the idea of working from home. However, a large proportion of employees are working away from the office in the wake of covid-19 for an extended period. This sudden change in business practices has affected the hospitality sector. With the restriction of business travel, companies have discovered that video conferencing can be as effective as in-person meetings. And international travel might fall off if businesses increase their reliance on domestic supply chains (which could boost demand for warehouse and manufacturing space). Generally, the demand for office spaces is low. However, there is an expectation for a bounce-back in this sector but things would never be the same. The need for office spaces is almost irrelevant. In terms of demand, it’s quite low.
Developers can’t afford to take a wait-and-see approach to the coming changes in the real estate sector. There is a need for property developers to shield their business against the effect of this pandemic. One of which is the construction of functional spaces that would accommodate the work from home policy. In terms of the property prices ,developers are at the short end of the stick because the more devalued the naira, the harder it is to build affordable properties. Support from the financial institutions and access to land would go a long way for developers during this period.
Justin Malonson is the Founder of LyfeLoop a 16+ year tech innovator, investigative media researcher and host of the Freedom Not Control Podcast live on Voice America. Justin is a highly sought-after tech entrepreneur, industry speaker and winner of the coveted Business Achievement Awards “Top Digital Marketer” award. With 16+ years of demanding experience, Justin has worked with over 3,000 businesses including amazing clients such as Blue Cross Blue Shield Association, Sotheby’s International Realty, Duke University, White House Black Market,Tiffin Motorhomes, Bass Pro Shops and Beazer Homes USA.