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Property value and the Nigerian economy

The fact that no economy can develop without a successful private sector has made the lingering glut in the nation’s property market more worrisome. The bleak outlook of the housing sector has further threatened the survival of the businesses of housing developers and realtors in the country.

The nation’s two distinct arms of private sector are in business either to make money by adding value to the country’s economy or to make money at the expense of the society have been churning out housing units in different parts of the country.

Unfortunately, as country’s economic woes become more biting, they have raised the alarm that they have no buyers, thus making the supply of unsold homes in the country to increase astronomically. The present economic reality and parameters betray a slowdown and a preponderance of government’s recurrent expenditure. Again, construction costs have gone up and had since hardened rentals in the housing industry. This trend experts say has impacted negatively on house prices and rentals, making it impossible for many people to buy an apartment.

Available sales data collated from housing developers and realtors showed that most of the enquiries they receive continually come from first-time buyers, who hardly return back to the professionals after making enquiries. Other informed stakeholders in the sector who painted a gloomy picture about the scenario said there are no signs of turnaround in housing sector as there are hardly any sales in all strata of the market.

Thus, Asset Management Corporation of Nigeria’s (AMCON), recent resolve to lease out properties seized from companies that failed to repay loans tacitly showed the extent of excruciating effects of cash crunch in the nation’s economy.

According to the chief executive officer, AMCON, Mr. Ahmed Kuru, the corporation is considering the option of introducing real-estate investment scheme by the end of the year to raise money to meet its bond repayments and might sell the properties when the economy improves so that the assets can attract fair value. It is not limited to houses seized from AMCON. Most housing units built by developers in urban cities in the country are in limbo with trillions of naira tied down.

For instance in highbrow areas in Lagos like Ikoyi, Victoria Island and Lekki which over the years has been the toast of the super-rich and choice areas for expatriates most properties there now carry the “to-let” or “for sale” tag and the tag has been on them for months or years with one asking questions about the properties.

Beyond Lagos, Abuja the nation’s Capital Territory is not exempted from the glut. Although it is often described as one of the fastest-growing cities in the world, most of the houses and estates in high-brow areas like Asokoro, Gwarinpa, Maitama, , Wuse II, Utako, Katampe districts are unoccupied years after completion as a result of the high cost of renting or leasing.

LEADERSHIP Sunday checks showed that houses and estates in Gaduwa, Apo, Dei-Dei, Gwarimpa, Lugbe, Kubwa, Gudu, Life Camp, are also in economic limbo as a result of no buyers or renters.

Whether the buildings were built or owned by public officials, politicians and wealthy businessmen who embark on housing construction in order to avoid anti-graft agencies’ searchlights, the fact remains that they could not sell or lease the properties because of the biting Nigerian economy.

Amid the ravaging economic recession in the country, LEADERSHIP Sunday checks in Lagos reveal that rental value or outright sales of block of flats, detached duplexes and town houses are on the high side, as a three-bedroom luxury serviced apartment on Banana Island costs $60,000 per annum; a detached duplex goes for $75,000 per annum, a five-bedroom, with a single room boy’s quarter in Victoria Garden City (VGC) goes for N70 million.

The same applies in Victoria Island where luxury flats go for between $40,000 and $50,000 per annum. Our correspondent learnt that rent for a four-bedroom bungalow in Wuse, Maitama, Asokoro, Garki and Utako goes between N3million and N6million a year, while those who long to live in the same types of apartments in satellite towns like Karu, Gwarinpa, Kubwa and Lugbe pay between N800,000 and N1.5m for the apartments.

The prevailing economic hardship has also seen rent of a two-bed apartment in areas such as Maitama, Asokoro, Wuse II going between N2.5 million and N3 million . While One-bed room apartment costs between N1million and N1.5 million and three-bedroom apartments cost between N3 million and N6 million per annum depending on the finishing, location and security of the area.

Not amused by the bleakness portended by the prevailing situation, the chief executive officer, FESADEB Communications Limited, Festus Adebayo said most of those who built the estates not occupied in Abuja particularly are looking for buyers, but cannot get buyers.

Adebayo reasoned that, ‘‘they cannot get buyers apparently because the houses are not affordable; obviously, the purchasing power has gone down. When a two-bedroom apartment is put at N14 million, how can it be affordable, and even when you are asked to pay 20 per cent or 30 per cent of the amount, it is still not easy for many people to afford.

“I think the government should do something about the cost of building materials, which is affecting the cost of building, the cost of acquiring land and the cost of processing land title documents should also be checked. I can tell you that if government does that, the cost placed on housing in Abuja will definitely be forced down. I am seeing serious danger in Abuja.

“The danger is this; these too many houses that are standing without buyers due to lack of purchasing power, the prices of houses may crash. According to simple law of economics, when the supply is high and demand is low, prices will be forced to crash. Some of the owners of those estates that are not being occupied got the money from somewhere.

“I must be very candid, it is not all of them that are public treasury looters, and some got the money from banks, so they cannot continue to hold the banks’ money, considering the high interest rate while the houses are standing.

“So, I foresee prices coming down. Another way of handling the issue of those idle estates is for governments to begin to impose taxes on the properties, right from the time you are getting approval for your building, there should be clauses indicating what the tax will be for buildings that exceed a specific period of time without being occupied.”

On ways out of the woods Adebayo said, ‘‘Take, for instance, when you have a law stating that a house must be occupied within a period of six months or thereabout after being completed or there will be tax imposed on it. I think that will prevent the developers from putting too exorbitant prices on their developed properties. So, imposition of taxes is one veritable instrument that any serious-minded government can use to regulate the kind of situation we have in Abuja and few other cities in Nigeria.”

For Mr Shola Fatoki, a frontline estate surveyors and valuer the current property glut is an indication of the downturn in the economy. He explained that the effects of the economic meltdown manifests in the movement of some residents from the upscale areas to places such as Gbagada and Ilupeju, while the former residents of those middle class abode have since relocated to Ogba, Agege and Mowe/Ibafo , a suburb in Ogun State.

Fatoki said the best way out of the woods is for the government to tackle issues relating to land acquisition, mortgage, land speculators, family land holding, funding and cost of labour. He argued that Nigerians would always find it difficult to rent available houses due to paucity of funds and, by extension, would find it difficult to own their own houses.

Fatoki identified high cost of construction and the lack of patronage of local building materials as some of the reasons some upscale properties have been without tenants, affirming that as far as incomes do not improve, there would always be houses without tenants. He noted that the high cost of acquiring titles in Lagos and Ogun states remains a limiting factor to home ownership in these states.

Some prospective home buyers who spoke with LEADERSHIP Sunday are optimistic that if the glut persists there is bound to be a crash in price of the properties, just as they called for an overhaul of the country’s mortgage system to phase out the idea of paying cash out rightly to purchase property.

Simon Adele , a pharmacist noted that houses in Lagos, Abuja and other major urban cities are over-priced, thus encouraging people to own property outside the country like in Dubai where return on the investment are guaranteed.

Adele a reasoned that it would be difficult for an average Nigerian making  between N50,000 and N100,000 to moot the idea of purchasing the properties built for the rich.

He lamented that, “ The other major constraint is that builders only build for the rich, not the poor. The concept is not to be around poor people. These environs are exclusive. Unfortunately the rich they are building for are no-longer here in Nigeria they are hiding the looted public funds in investment outside the country. So who is going to buy?

“Let us face reality, Bannana Island in Lagos where people are paying fortunes to buy land is nothing compared to Mahattan in prices. That is why those living there are expatriates, oil workers, senators, governors, high class bankers, actors, embassy staff, foreigner companies, Lebanese, and Asian. Unless there is intervention by the government and relevant stakeholders through injection of funds into housing development and other construction activities to boost the economy and prosperity of the people, 2016 property market will be as dull as that of the previous years.”

Mr Bode Adediji, chief executive officer of Bode Adediji and Co, a firm of real estate practitioners and consultants, is skeptical on the possibility of the market rebounding soon. According to Adediji, the property market thrives on the fortunes and misfortunes of other sectors of the economy, saying that until there is an overall turn around in the economy, the real estate market will exhibit features of worst recession ever experienced in the past decades.

“In any economy, a period of mass disengagement of staff is always followed by a prolonged property crisis. Those laid off will default in rent payments. The cost of developing houses and property will escalate while at the same time the purchasing power of the populace may crash to the lowest ebb in recent history,” Adediji said.

Adediji argued that house values and rentals is bound to continue to crash in some regions while the same factor will push up the demand and prices in destination locations. As bad as the situation seems to be, the dark cloud in the nation’s housing sector may eventually have a silver lining if assurances from minister of Power, Works and Housing, Mr. Babatunde Fashola is anything to rely upon. While unveiling the federal government’s plans to deliver mass housing for Nigerians, Fashola said plans are afoot to build 360 houses in three states through public private partnership (PPP) arrangement in the first phase, develop “rent to own” housing scheme for those who cannot afford mortgage and incorporate a new housing model into the National Building Code.”

Fashola argued that there is urgent need for the country to increase funds allocated for housing development, lamenting that the N36 billion appropriated for housing sector in the 2016 budget is grossly inadequate.

“We look at the N36 billion as the fund with which we will build the concept and if the concept is successful, then we can roll it out more massively because it is not going to solve our housing problems. Affordability lies at the heart of what we are doing,” he stated.

Source: Leadership

August 18, 2016

1 responses on "Property value and the Nigerian economy"

  1. Interesting read, quite expository.

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