The Pandemic and the Real Estate Sector


Wednesday, August 05, 2020 / 08:51 AM / FBNQuest Research / Header Image Credit: Real Estate India/Ecographics

Today we turn our attention to Nigeria's real estate sector. The underperformance of this sector is largely hinged upon the low level of effective demand for housing. Affordable housing seems unobtainable and given the squeeze in consumers' purchasing power, demand has remained soft. There is very little access to housing finance or mortgages at affordable rates. At the same time, the cost of construction finance is very high and feeds directly into property pricing. Developers are yet to adopt new building technologies that can assist with quality and cost advantage.  


The real estate sector has been severely hit by the current pandemic. Given the impact of Covid-19 on consumer pockets, as well as the steep pay cuts and in some cases, job losses, new home acquisitions are becoming less of a priority. Furthermore, the demand for commercial property is likely to soften, with many businesses expected to close while others struggle with cash flow problems.


Following the transition to remote work systems on the back of the lockdown, we expect businesses to incorporate more remote working options for their employees and review their space requirements at the time of their lease renewals, both in the short term and post-Covid. Essentially, office space requirements are likely to shrink to manage costs.


As for the residential market, a few defaults have been recorded among renters (particularly in Lagos) using flexible payment models. Rental payment cycles are still largely annual in Nigeria, hence retrenchment and layoffs are unlikely to have an immediate effect on the market performance.


GDP, real estate (% chg) y/y) 

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Sources:: National Bureau of Statistics (NBS) ; FBNQuest Capital Research


The national accounts for Q1 2020 released by the NBS show that the real estate sector contracted by -4.8% y/y in Q1 2020, compared with -3.4% recorded in the previous quarter. This is the fourth consecutive contraction. Over the past eight quarters, the sector has recorded growth just once (by 0.9% y/y in Q1 2019, and then off the back of positive base effects).


Aside from generally weaker purchasing power, we note that legacy issues such as the high cost of mortgages and building materials as well as land acquisition challenges remain major roadblocks to expansion in the real estate sector.

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