The role played by the real estate industry to the economy of various nations cannot be undermined. Real estate investment has over time become a stable means of creating sustainable wealth. The real estate industry is observed globally as one of the most profitable sectors that offers individual, societal and economic growth and development to nations.
The real estate industry is, no doubt, one of the most important in any economy. It has contributed immensely to the country’s gross domestic product (GDP) and has maintained its fifth position on value creation chart, despite the enormous challenges confronting the sector.
Notwithstanding this huge potential, an Executive Director and Co-founder, Pertinence Limited, an investment firm, Mr. Sunday Olorunsheyi, said it will be difficult to project the fortunes of the sector owing to factors such as lack of clear and consistent policies from regulators and a high degree of uncertainty, especially due to next month’s general elections.
He explained that antecedents have shown that politicians, in their bid to score political points, tend to increase attention to funding infrastructure before elections and during elections. This, he claimed, impacts positively on the construction and real estate, but the key fundamentals that should deliver growth in the sector consistently are not in place.
According to Olorunsheyi, this has led to investors’ apathy and lack of confidence. “With this and the less than average results posted in last three business years, it can be said that the performance in the real estate sector appeared uncertain and as such, will require strategic positioning for players in the industry to change the narratives,” he said.
Given the harsh economic climate in the country last year, the Chief Executive Officer of Life page Group, an investment holding firm, Oladipupo Clement, scored the industry high. This, he explained, could be attributed to players in the real estate, whom he believed are difficult to find anywhere.
Clement said although much has been done, the nation’s housing deficit still remained at staggering 21 million. “More landed properties were sold and bought in 2018 than apartments and houses, due to high capital requirement and cost of fund,” he said.
Lifepage boss, who projected into 2019, was convinced that this kind of housing scheme and development are the direction for investors and industry players to go and beyond. He maintained that while land is a pre-requisite for property development, it is not scarce, only in short supply in terms of accessibility, affordability and acceptability for housing.
According to Clement, despite uncertainties, such as a decline in oil prices, political instability, inflation and a rising cost of funding, the industry will still thrive. To this end, landed properties in prime and near-urban locations, residential development, facility management and property agency like sales and short let options, will show the direction for the sector and thrive more in 2019.
For Olorunsheyi, there is the possibility for heavy liquidity in the economy, which ultimately, will drive the sector. He explained that with the increase in workers’ wages and more spending that comes with elections, there is a possibility for high liquidity in the economy and this may drive patronage in mostly residential and commercial sectors.
He explained that while these factors would almost certainly drive inflation rates upward, population growth and urbanisation are expected to increase demand for residential and commercial properties in major cities like Lagos, Abuja, and Port Harcourt. The Pertinence chief warned that the sector, largely driven by heavy investor participation, might suffer some setbacks due to low investors’ confidence and the ongoing capital flight.
Nevertheless, the market, Olorunsheyi maintained, remained the toast as a major investment destination in the sub-Saharan African market; hence, this all-important factor would rekindle interest in investors for the market.
In developed climes, the mortgage sub-sector plays important role in stimulating the real estate sector. While there has been several mortgage schemes and initiatives in the country, the impact has remained unfelt. Clement said the mortgage industry could make a big impact on Nigerians this year if its value chain is not bureaucratised and politicised, noting that much would not be achieved in the mortgage sector.
“With the current trends, I sincerely do not have confidence in our mortgage operators and regulators. I would honestly like to see a clear vision and roadmap here,” he said.
Pertinence Limited co-founder, who is also an Executive Director, Mr Wisdom Ezekiel, agreed. He explained that while real estate is capital intensive and requires a robust financial system to back its activities. To him, the mortgage system has remained at its struggling phase, thereby unable to solve the housing deficit challenge in the country.
Although he gave kudos to the Central Bank of Nigeria (CBN) for making mortgage loans available to the informal sector at the micro, small and medium-sized level, he, however, revealed that the hostile lending climate was still affecting access to the target segment of the population.
“As long as the mortgage sector lacks the capacity to close this huge gap, affordable housing may still not be accessible by many Nigerians. Mortgage rates will likely go up due to the anticipated increase in inflation and a high cost of doing business and this might also create a problem of affordability to the average subscriber,” Ezekiel said.
Indeed, while many new players entered the industry at the brokerage and marketing levels last year, the volume of transactions remained largely insignificant, thus incapable of impacting positively on the overall outcome.
After suffering a setback in 2016 due to major restrictions in the flow of foreign exchange across borders, stakeholders are upbeat that with an improved exchange policy frameworks, and going by recent reports, which place the real estate sector as the fifth largest contributor to Nigeria’s GDP, the possibilities for a higher GDP contributions by the sector in the year are limitless.
“I believe this industry will contribute even more to the GDP if there is political will to formulate and drive favourable policies that support indigenous enterprises, thus providing them a level playing field with their foreign counterparts, who get to develop the real sector by way of tax breaks and citizenship by investment, like you find in Dubai, United States, United Kingdom, Poland, Paraguay and a few other countries and more. If this is done in Nigeria, it would immensely stimulate economic growth, drastically reduce unemployment, eventually increase our housing stock and significantly reduce our housing shortfall,” Clement explained.
Ezekiel submitted that the sector would continue to maintain its good position in contributing to the GDP because demand is ever increasing due to increased population and a continuous influx of foreign investors to the country because Nigeria remains the toast of many investors, considering investing in the sub-Saharan African markets.
Clement, however, predicted a massive emigration of Nigerians, as well as some measure of illiquidity in the real estate market capable of distressing property sales in 2019. He listed illiquidity and a high cost of fund, both on supply and demand ends of the foreign exchange market, as top on the chart challenge for the industry this year. This challenges, he further explained, will make it increasingly difficult for consumers to buy properties without requiring lengthier and more flexible payment options.
Although Clement warned that developers, who do not have creative alternative sources of financing, especially long term fund, to build, will find the year more difficult. He, nonetheless, said the situation would, however, present unique opportunities to market players who are prepared.
But these problems are surmountable. Ezekiel, proffering solutions to these challenges, explained that the sector requires innovative approaches and strong collaborations among various operators and players in the sector, including the lenders, developers, brokers, marketers, property managers and those offering professional services.
SOURCE: THE NATION