The slowdown in the Nigerian economy arising from low oil price, devaluation of the local currency, lack of clear policy direction from the ‘new’ government in the country, and some macro-economic issues, especially monetary policy decisions by the Central Bank of Nigeria (CBN), are impacting negatively on every sector of the economy including real estate.
However, despite this slowdown, activities are quite upbeat in the rental segment of the property market with searches and enquiries for houses for rent accounting for as much as 80 percent of the aggregate transactions in the market.
Experts say there are two major drivers of these activities which, they explain, are not affected by the delay or change in government, naming those factors as urbanization and unaffordable mortgage.
Nigeria is experiencing rapid urbanization and it is estimated that this trend has average annual growth rate of 4 percent which piles pressure on housing, pushing demand to a level hardly met by supply.
“Notwithstanding the delay in government, we have continued to see activities and increased demand for rental property”, Obi Ejimofo, the managing director of Lamudi Nigeria confirms, explaining that “these activities are resulting from the rapid urbanization in the country which is not going to stop because of government delay or market hesitation”.
Ejimofo, whose company is a leading online market place for property sales, renting and leasing, says also that, in terms of searches and enquiries, over 80 percent of these on their platform is for rental property and this is because affordability remains a big issue in the sales market.
“House prices are too expensive for most people and the mortgage market remains largely inaccessible and unaffordable. It does not make sense to take a mortgage loan at 21 percent interest rate. People need somewhere to live and so, they have to go for the affordable option and that is renting”, he adds.
Adekunle Oyinloye, the MD/CEO of The Infrastructure Bank (TIB) shares this view, noting that over 80 percent of residential real estate properties owned by high net-worth individuals (HNIs) are for investment purposes – rental income and capital appreciation—and these houses provide accommodation for 80 percent of the population who live in rented apartments.
Oyinloye, who spoke at a real estate investment forum in Lagos also noted that about 20 percent of residential real estate in Nigeria was owned by owner-occupiers, adding that less than 5 percent of these owner-occupiers purchased homes through mortgages.
Ejimofo pointed out in an interview with BusinessDay that as the rental market remained buoyant, rents were going up slightly and “there isn’t enough rental supply coming to the market to meet demand”.
“The cause of this could be traced back to the delay in setting up the government and lack of financing. If developers are not getting financing, they cannot build the houses and if this not happening, you won’t see new houses coming to the market”, he said that these activities are happening mainly in the middle and lower end markets–areas where people don’t have the affordability to buy.
To get out of the housing problem in the country, Ejimofo recommended that government should kick-start the core of real estate market which is the mortgage market, arguing that if the government could afford subsidy for the price of petroleum products, it could do so for the mortgage industry such that if the subsidy is removed from the oil sector as it is being called for, the best place to apply it is the mortgage market. He hoped that this would reduce interest rate on mortgage loan to single digit as it does not make sense to take housing loan at 20-22 percent interest rate.
Source: Businesss Day – Chuka Uroko