This is not the best of time for real estate developers in major Nigerian cities in Lagos, Abuja and Port Harcourt, as demand for housing has continued to shrink despite efforts by both government and individuals to bridge the nation’s housing deficit.
It was gathered that while the demand for new homes is sliding, a huge number of tenants are already defaulting in rent payments. Moreover, a lot of vacant residential properties still adorned Ikoyi, Lekki and Ajah enclaves of Lagos and some highbrow locations in Abuja. Worried by the development, housing experts are blaming the situation on a number of factors including rising unemployment, depreciation of the naira, scarcity of foreign exchange and inflation, among others.
According to findings, vacancy rates of property have remained high at 172 in July 2016 as against 100 in January. To mitigate the situation, some developers are now concentrating on marketing their existing housing stocks rather than building new ones, no thanks to low demand and rising cost of building materials. Developers such as Adron Homes and Properties, Forthright Property, Zedextra Limited, Nedcom Oaks Limited, Oak Homes Limited, POC, Tailor Bricks, The Address Homes Limited, and Property Mart have embarked on aggressive marketing of their products, putting in place flexible payment options, rather than floating new ones.
It was reliably gathered that the current anti-graft war by the Federal Government has further eroded patronage in the sector, as many potential buyers are afraid to play in the property market. While tenants have been pushing for lower rents as living costs rise, landlords have refused to yield to the request, leading to more vacant houses in Lagos metropolis. As a result of low disposable income, tenants are now moving from prime areas to more affordable locations on Lagos mainland and border towns areas such as Mowe, Sango, Ibafo and Ofada among others.
According to the developer of Chois Estate in Agbowa, Gen. Tunde Reis, over 80 per cent of the population are currently unable to afford a N4.5 million ($15,000) mortgage even with a 20-year ten-or due to their low-level income. Despite the rumoured fear, Managing Director of OAK Homes Limited, Mr. Olukayode Olusanya, urged developers to believe in what they do, adding that some products would sell themselves without necessarily running after the market. He advised them to look out for their products’ selling points, saying that their unique selling point will keep them in business.
According to estimates on “High Ratio of Housing Cost to Income” by First World Communities Limited, only 13.8 per cent proportion of current households in Nigeria can afford mortgages by subsidised plans such as the National Housing Fund (NHF). “Assuming no interest, no down payment and 45 per cent of monthly income as repayment, the cheapest house in the formal sector in Nigeria is N6 million ($20,000.),” it stated.
Painting the general outlook of the sector, Managing Director, Financial Derivative Company (FDC), Mr. Bismark Rewane, stated that the demand for housing would shrink more due to lower disposable income. According to him, developers and home seekers are expected to move from prime areas to more affordable housing locations (mainland areas), raising hope that new developments would come into the market. Rewane predicted positive changes in the sector from 2017 onwards, saying that demand for housing would grow through expatriates coming into the country. According to his report, vacancy factor index rose to 172 in June 2016, representing 4.2 per cent from I65 in March. He said Lekki had the highest vacancy rate at 65 per cent, adding that Ikoyi bridge was a major catalyst responsible for excess development in the area.
“Residential index rose by 6.8 per cent quarter on quarter, while commercial index remained flat at 148,” the FDC report stated. It added that this had reflected a slowed but continued deterioration in the real estate market. The report noted: “In many areas in Lagos, rents have remained very high despite the supply glut. Vacancy rates of commercial properties have remained stable, dollar denominated rents becoming less prevalent. “In dollar terms, rents are sharply lower.
The increase in inflation rate to 16.5 per cent is likely to reduce future demand for housing. Individuals will face budget constraints.” Also speaking on affordable housing, the Chief Executive Officer, Financial Reporting Council of Nigeria, Mr. Jim Obazee, urged both government and private developers to target low-medium income housing in their development programmes. He said: “This is one of the areas that will create a big cycle because the demand is very high and there isn’t enough supply.”
According to him, low cost residential project will have an impact on small contracting companies due to high overheads, which have limited large contracting companies to build low cost housing. While discussing with stakeholders recently, the Minister of Power, Works and Housing, Babatunde Fashola, noted that N35 billion earmarked in the 2016 budget for housing, when split across 36 states, would only amount to less than N100 million, which can build only a few houses.
To make affordable homes available to the target group, experts at the forum suggested the need for measures to prevent the rich from buying off potential low income houses. “We must also differentiate between affordable housing, social housing and low-income housing,” they said.
To bridge the nation’s housing deficit, housing experts urged the governments at all levels to get involved in deliberate housing provision. The stakeholders believe the government should be involved by providing land cheaply in order to reduce cost by 25 per cent.
They also believe the government can provide infrastructure to reduce cost by another 25 per cent while mortgage loans can be amortised successfully when deducted from source. Nigeria is Africa’s most populous nation with 180 million people. Currently, the nation has a housing deficit of 17 million, with current production of 100,000 units per annum. Estimates have revealed that 700,000 houses are needed annually to meet this deficit. According to Federal Mortgage Bank of Nigeria’s estimate, about N59 trillion is required to bridge the housing gap.
Government must ensure the implementation of every facet of the 2016 budget to boost the real sector for massive economic activities in order to improve disposable income of citizens and create job opportunities.