The real estate sector as at end of third quarter 2016-recorded 8.20 per cent sectoral contributions to Gross Domestic Product (GDP), a decline compared to 8.74 percent recorded in the third quarter of 2015. With lending institutions facing their own troubles, lending to the sector was anything but cheerful.
According to the Central Bank of Nigeria’s report of November 2016, the interest rate on prime lending to real estate activities from 26 per cent of lending banks is between 24percent -29 percent per annum and 18per cent-23per cent per annum from 52 percent of lenders.
The maximum lending rate from most of the lending banks (87per cent) was between 24percent-36percent per annum. Mortgage financing to property buyers did not fare better, with unpleasant consequences for potential property buyers and real estate operators.
Apart from the perennial problems that traditionally undermine the sector, rising production costs have added to the challenges. Due to extreme volatility in the country’s currency and other economic challenges, foreign investment in the country has also slowed down considerably.
Opinions were strongly divided on the 2017 outlook. While some specialists don’t see the light at the end of the tunnel, others were cautiously optimistic.
“The major, going for the sector, is the fact that the need for real estate across strata remains extremely strong. Opportunities will, therefore, continue to exist. Though challenging times pose difficulties for operators, yet they present opportunities for innovations which will ultimately benefit the sector,” according to Managing Director, Property gate Development and Investment Plc, Mr. Adetokunbo Ajayi.
But the International Real Estate Federation (FIABCI) Africa President, Mr. Chudi Ubosi, told The Guardian that the biggest challenges in 2016 were investor confidence both local and international. “It does not look as there will be increased confidence in 2017, if that remains the same, we will most likely witness an economy that will remain stagnated as in 2016 and may possibly perform worse.
“The values: rental and capital will remain at the same levels of 2016. A lot of dollar-denominated rents will continue to drop further as landlords seek willing tenants. Commercial rents will also drop as people struggle with businesses that are held down by the economy.
“A lot of the dollar denominated commercial rents for the new A Class developments will be further reduced by as much as 30/40 percent as tenants are sought.
“The sector with a glimmer of hope is the retail sector. The fundamentals in Nigeria remain strong concerning the development of the retail outlets and what we may witness is a situation where the development of the malls may continue but at a reduced rate and possibly undertaken in phases.”
Former President, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Bode Adediji, said the real estate landscape has been dominated by governmental pronouncements without tangible result, the property market itself has suffered an unprecedented glut as thousands of properties across the country remain unsold, abandoned and uncompleted.
He traced the problem to the era of cumulative bad governance, endemic corruption, disruption in the oil industry, and absence of any revolutionary economic blueprint. “Mass homelessness is now a common feature in all metropolitan areas, and infrastructure problems continue to escalate,” Adediji said.