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The plans by real estate developers to construct office properties which were initially thrown under the carpet are beginning to see the light of day owing to stable exchange rate, and exit from recession, industry players have said.
Nigeria’s macro economy experienced significant impulses over the last few years. The Gross Domestic Product (GDP) of Africa’s most population nation nosedived into the worst recession in 25 years.
Affected by the plunge in crude oil prices, decline in oil production, and the reduction in non-oil exports, Nigeria’s economy entered its worst phase in 2016 and as such resulted to the scarcity of foreign exchange.
The real estate sector, among others, was hit the most during the contraction period when naira-dollar exchange rate reached its peaks in the history of the country’s existence.
“Any new project that you see now is not fresh development that people are executing as a result of high demand; rather they are projects that have been on hold”, Dolapo Omidire, Founder of Estate Intel, a real estate research firm, noted.
“The new project you are seeing now is a result of past years of planning just that they are beginning to execute the projects and it is not as a result of resurgence of large commercial activities, Omidire said.
A recent survey by BusinessDay revealed that almost 80 percent of the materials used by real estate developers in constructing properties are sourced from outside the country, which is why most developers were unable to carry on with their projects when the naira weakened against the dollar.
Omidire’s views were shared by Olurogba Orimalade, Chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Lagos State Branch, who said that the commercial offices that are being developed now were conceptualised 3-4 years ago but are now been almost completed while others are done already.
“Unfortunately, around the period those developers planned to execute their projects, there was recession and the real estate development was the last thing anyone would want to think of during and immediately after the economic contraction,” Orimalade said.
Real estate developers are in search of viable alternative sources to funding real estate projects in a country where cost of funds has made bank credit inaccessible, unaffordable and unattractive to the sector.
Figures by the National Bureau of Statistics (NBS) for the third quarter of 2018 as analysed by BusinessDay revealed that the property industry was among the least attractive industries to the country’s commercial banks as it got one of the smallest portions of loan in the review quarter.
Real estate sector only attracted N710.2 billion credits from banks in Q3 2018 as against the N744.56 billion and N784.2 billion it got in Q2 and Q1 in 2018 respectively.
“If exchange rate is increasing, it will automatically impact on the end users of the real estate products, as they will incur all the cost because the key components to even build a two or three bed room apartment are imported,” Orimalade said.
He added that most of the developers who already embarked on the various projects could not back out half way even when they were negatively impacted by the high exchange rate. “Some of them took loans, even dollar denominated loans.”
Unlike other sectors of the economy, Nigeria real estate plunged further into recession in Q4 2018.
After showing signs of rebound for two consecutive quarters through to Q3 2018, Nigeria’s property market turned southward, falling deeper into contraction mode.
The figures released by the National Bureau of Statistics (NBS) show that in real terms the sector contracted by 3.85 percent in Q4 (year-on-year), which is 2.07 percent points better than the -5.92 percent recorded for the fourth quarter of 2017.
Although on quarter-on-quarter comparison, the contraction reported for the review quarter was lower by -1.17 percent points relative to the -2.68 percent for Q3 2018.
This is despite the fact that Nigeria’s GDP grew by 2.38percent in real terms (year-on-year) in Q4 2018. An increase of 0.27percent points when compared to the fourth quarter of 2017.
Further analysis of Nigeria’s property industry, which requires more than 17 million housing units to solve some of the accommodation challenges, showed that it contributed 6.60 percent to real GDP in Q4 2018, higher than the 6.50 percent it recorded in the preceding quarter but lower than the corresponding quarter of 2017. The activity accounted for 6.41 percent of total real GDP in 2018.
The exchange rate has however remained largely stable at the FX markets with evident convergence continuing across all segments. At the Bureau De Change (BDC) segment, there has been significant appreciation of the naira from over N525/$ in February 2017 to about N360/$ in May 2019. Rates at the Importers’ and Exporters’ (I&E) window also appreciated from nearly N382/$20 in May 2017 to just over N360/$.