Ahead of the 2023 general elections in Nigeria, experts in the real estate sector have predicted that things would get worse in the real estate industry due to unfavourable government policies and the high level of inflation in the economy.
The level of inflation has risen to 17.7 per cent in the past six months, with the naira going down against the dollar at N615 in the parallel market and N415 at the international market. The building and construction industry that is heavily reliant on the importation of some important building materials has been exposed to price fluctuations.
The astronomically high costs of building materials forced many developers and independent builders to abandon projects as political actors are putting more funds to electioneering campaigns than investing in critical sectors like housing, while many infrastructural projects initiated by the government are technically stalled, starved of critical funds.
Looking at government at the state level, only a few state governments are still in the pursuit of delivering housing units while others have shifted focus to winning the 2023 elections in order to remain in office.
Since this year began, many developers and institutional investors have slowed down on investment in housing due to political instability and fear of the unknown. The confidence of investors is currently very weak as they await the outcomes of the 2023 general elections.
Buying capacity has drastically reduced as interest rates rise, eroding interest in long-term funds for property development etc. Taking a critical look at the real estate value chain, access to land has been difficult and finance for affordable housing is a big issue as the sector is encumbered by high mortgage rates.
The odds notwithstanding, the real estate sector shows resilience in the first half of the year according to the National Bureau of Statistics (NBS) report. The sector contributed 5.34 per cent to real Gross Domestic Product (GDP) in Q1 2022, higher than the 5.28 per cent it recorded in the corresponding quarter of 2021.
The Gross Domestic Product (GDP) reveals sustained positive growth and an improvement in economic performance for the sixth consecutive quarter since the recession witnessed in 2020 when negative growth rates were recorded in quarters two and three of 2020 respectively.
Nevertheless, housing supply remains in a state of constant undersupply as population and demand continue to outpace supply with a deficit as high as over 17 million in the affordable segment of the market.
Speaking on the situation, Prof. Austin Otegbulu, council member of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), said the housing sector is highly influenced by property market dynamics, which oscillate in response to economic or business cycles.
He said the nation’s political system is unpredictable; hence there is always the notion that the general election could trigger violence and an unfavourable investment climate.
He observed that many people will want to sell their property and relocate, adding that politicians vying for electoral positions and those sponsoring candidates may need to raise the required fund by selling houses with the hope of buying new ones if they win the elections.
“The cumulative effect of this is that it changes the market by creating an imbalance due to oversupply. The effect of supply and demand imbalance coupled with a decline in economic activities leads to decline in property prices.”
“They prefer to keep their money in the bank. Some school of thought is of the opinion that the property market will bubble under this scenario. I believe that such views run against logic as most foreign and local investors will avoid investing under conditions of uncertainty and political instability. We must realise that we are part of the global property market,” he said.
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Gbenga Ismail, former chairman, Royal Institution of Chartered Surveyors (RICS), Nigeria Chapter, said: “I have not seen any one of them yet unveil plans for housing but we hope when the campaigns start in full, we will see that. I want to see how they will tackle the affordability issues and easy access to property and mortgage finance and development. It is important for them to identify how they would make people have access to housing because it is a big problem that needs necessary action. The same way that we say power is a problem, housing is also a problem.”
Similarly, a former chairman of NIESV’s Faculty of Estate Agency and Marketing, Mr. Sam Eboigbe, said the electioneering period has obviously affected the real estate sector in some notable way as campaigns attract a huge flow of funds.
This dimension of injection of funds in local and foreign currencies, Eboigbe said: “Real estate sector contributes a huge flow of funds to campaigns since most of the participants and their sponsors are investors in the real estate sector. For ease of liquidity, prices respond to the market and adjust downwards as the volume of listings in terms of the gamut of the supply chain are far in excess of demand.”
“It is an economic principle that prices will realistically adjust themselves in relation to demand over time. Also, lack of confidence as no one could predict the direction of the economy. So much anxiety as people expect a major shift in governance and policies. At the moment, the fluctuating nature of the naira against the dollar is also making the sector lose confidence.”
“When there is a lull in business activities and the trend is consistent over time, this will generate a lack of motivation for developers or investors in the market space. There is this issue of capital flight as stakeholders create room for the inevitable. They throw their properties into the market space. Upon consummation of transactions, the proceeds are deployed to purchase the dollars or reinvested elsewhere until such a time they feel it is safe to acquire properties. lt is usually not unlikely to find investors halt activities on site leading to the abandonment of projects.”
“Some investors use the electioneering period to acquire properties, and take advantage of the opportunities, especially those offerings and listings below the market value.”
“They understand the market dynamics and have analysed the market over time to know the specific and choice locations and type of listings to increase their portfolios. These categories of investors are usually not many,”
“When we exit the inflationary trend and the naira is strong, then issues of housing and interest rate will similarly and ultimately adjust accordingly. I think no serious political candidate can afford not to have a realistic policy on the recovery of the housing market.”
Mr Lookman Oshodi, Project Director, Arctic Infrastructure, said: “Electioneering period impacts housing as governors who are seeking re-election will want to increase the production of new housing units to convince the electorate on their sincerity to do more after re-election. Not many low-income earners will become new homeowners but the impact will be more among the medium-to-high-income earners since the mortgage system is not yet a mass appeal.
“Real estate investors who want to hold assets on a long-term basis are generally conscious of political risk and often take back seats in this period. Instalment payments approach for assets and lending with real estate collateral are usual at this period.”
“Investors want to be sure that the number is backed up by adequate purchasing capacity, which the next government needs to address. Regeneration of brownfields in our large cities must be a priority, as this will create viable markets for investors and a sustainable housing system for the people. ‘Win-win’ situation for the stakeholders.”
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