Macro Challenges Put Immense Strain on Real Estate Sector

Proshare

Tuesday, June 14, 2016 10:55AM /FBNQuest Research

Nigeria’s prevailing macro challenges have put immense strain on the country’s real estate sector and have affected the property market as sales have dipped significantly. Several completed residential buildings (particularly in Lagos and Abuja) remain vacant.

In as much as notional demand remains very strong, affordability has been eroded on the back of the economic slowdown, the squeeze in consumers’ purchasing power and the rising cost of imported building materials, which account for a considerable proportion of the final sales price of residential units.

The latest national accounts from the NBS show that in Q1 2016 the real estate sector contracted by -4.9% y/y, compared with growth of 0.8% recorded in the previous quarter.

Although the 2016 budget has been approved and signed off, we understand that funds for existing housing projects have not yet been released. Based on our channel checks, there has been mass retrenchment in the construction sector due to the economic downturn. The construction sector contracted by -5.0% y/y in Q1 2016.

The inflation data for April show that housing, water, electricity and gas segment prices rose by 13.7% y/y, compared with 12.8% recorded in March. This component has a 14.7% weighting in the index.

We gather that the Federal Mortgage Bank of Nigeria (FMBN) recently stopped its estate developers’ loans scheme due to paucity of funds. Recapitalisation of the FMBN may be required to meet estate developers’ needs.

Last month, the minister of power, works and housing, Babatunde Fashola, directed the FMBN and the Federal Housing Authority (FHA) to expedite action on the delivery of 1,000 affordable housing units over the next one year.

To this effect, the FMBN, which was established to provide liquidity to the Nigerian mortgage sector and affordable housing to the low and medium income segment, has now signed an MoU with the FHA.

The two public bodies are jointly exploring options for housing delivery through a number of on-going schemes such as the Accelerated Housing Scheme for selected federal MDAs and the Federal Integrated Staff Housing Scheme for federal civil servants.

In developed economies like Hong Kong, China and the US, housing investment focused policies have been identified as a strategic tool deployed in stimulating the economy. We hope that, subject to its obvious fiscal constraints, the FGN will explore this option to drive growth.

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