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The role of the real estate sector in reshaping the economy

Despite the downturn in the economy, no thanks to the dwindling revenue from oil, crash of the naira and apprehension over government policies, economic experts have called on would-be investors in the real estate sector to take advantage of this depression and buy into property of their choice to expand their portfolio.

For many developers that are already holding onto property investments, the experts advised them to divest to make more money. Speaking on the topic, “The 2016 Budget – The role of the real estate sector in reshaping the economy,”during a dinner organised by the International Real Estate Federation, FIABCI-Nigeria in Lagos, renowned economist and Managing Director of Financial Derivatives Company (FDC), Mr Bismarck Rewane, advised real estate practitioners and investors to look beyond the present situation in the country and invest more in property.

He hinged his advice on the 2016 budget, which has highest capital expenditure on infrastructure such as work, power and housing with N433.4 billion allocation and transportation with N202 billion.

He described real estate as the fastest growing sector in the thirdquarter of 2015, pointing out that as the nation’s Gross Domestic Product (GDP) grows in 2016 due to government expenditure, real estate would be the beneficiary. He stated that government might need to borrow to finance the budget, but that its spending would have an impact in real estate before the end of 2016, saying “this is the best time to buy property.”

Rewane said: “As GDP grows, people’s revenue will grow and there will be spending for real estate. If GDP growth is going to be function of government expenditure, the nation needs to borrow. Government expenditure will have an impact in the end of 2016 towards 2017. This is the time to invest. Please, develop courage. Developers should divest to make more money.

“As economy becomes more efficient, real estate value becomes realistic,” he said.

Growth areas

Rewane explained that there would be rebound in construction activities after budget funds have been released and contractors’ arrears paid He said that government might likely set aside court order and commence the reconstruction of Lagos-Ibadan Expressway Lagos and other major highways to impact positive change. “Infrastructure development will make real estate more attractive. Clearer policy direction will boost confidence levels of private investors and reduction of the benchmark interest rate to encourage borrowing for buyers and property developers,” he said.

Options available

He talked about Value Capture Model, saying there would be adaptive reuse as people might likely convert residential properties to office space and warehouse to shopping malls. He stated that properties with the right pricing, suitable location, good finishing would not stay in the market for long.

Drivers of growth

He said that increased government spending, sector investment, infrastructural development and improved power supply would serve as drivers of growth in 2016.

Possible outlook

The FDC boss said that residential and non-residential building market would register sluggish growth in 2016, adding that government funding for housing would be restricted due to the fall in oil revenues.

Due to this, he pointed out that Eko Atlantic City and major commercial projects such as shopping centres may struggle to gain attraction, while domestic and international investors would likely to adopt a wait-and-see approach to their projects.

According to him, the scale of potential would warrant a longterm bullish growth outlook, saying there was still unmet demand in the commercial, industrial and residential sectors. He said: “Growth will remain consistently strong especially in Lagos, Abuja and Port Harcourt.

Real estate to benefit from large and growing population, rising numbers of middle class Nigerians, strong fundamentals will facilitate a stream of projects led by the construction of cement and refining facilities. “As the economy recovers, so will the demand for quality real estate.”

Rewane foresees the payment of contractos’r arrears, release of funds for new project as oil price improves, adding that infrastructure development would make real estate more attractive. On the other side, he explained that lower oil rents would limit government spending to priority sectors, saying there would be more abandoned projects as revenues of government dry up.

Exchange rate policy

As the Central Bank of Nigeria (CBN) is stubbornly holding on to exchange rate controls, according to Rewane, economic realities would force an adjustment.

He argued that the spread of N105 between official and parallel market won’t be sustainable. He pointed out that as people took mortgages from banks to buy properties abroad, such venture would become ‘underwater’ investments.

He foresees CBN expanding the forex trading band before the Monetary Policy Committee (MPC) meeting in March possibly to N185 – N220n saying that if this happens, state and Federal Governments would have more money on devaluation.

Besides, he stated that rental prices would stabilise, thereby stimulating demand for properties, while cost of building materials would be reduced with removal of exchange rate controls

Threats

The economic expert stated that persistent macroeconomic headwinds would slow down construction activities, adding that continuous forex restrictions might increase cost of building materials.

He also said lower disposable income would be negative for demand for property, adding that challenges with transferability of title and weak judicial system were also threats. “Clamp down on corruption and money laundering means new money going into real estate will reduce. Shortage expected in two to three years,” he said.

On his part, FIABCI World President, Danielle Grossenbacher, said there was no better time to grow the real estate investment in Nigeria than now. Chairman of the occasion, a renowned estate surveyor and valuer, Chief Joe Idudu, said the nation needs positive change and that many real estate investors have been waiting to see Nigeria move forward.

President, FIABCI-Nigeria, Mr Joseph Akhigbe, said the forum was seeking solutions to the nagging problems in the real estate sector through the sharing of minds, ideas, intellect, experiences and expertise.

He said it was meant to chart a new course and to create a new vision that would guide professionals into the future.

Conclusion

Investors should look into the future and invest in property now as the economy promises better outlook later in the year as government spending increases.

Source: New Telegraph

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