North Court 2020 Outlook Forum: Stakeholders Discuss Nigeria's Real Estate Sector

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Friday, January 10, 2019 / 06.00AM / Nifemi Taiyese for WebTV / Header Image Credit: WebTV

 

The Prospects for Nigeria's economy in 2020 and the growth of the real estate sector came to the fore at a breakfast meeting hosted by North Court, a leading real estate firm in the country.

 

In his opening remarks, the Chief Executive Officer of North Court  , Mr. Tayo Odunsi, said that the real estate sector is still in a state of depression but should see improvements in 2020, as the sector grows marginally.

 

Speaking further, he outlined the following  as factors that will  affect the industry in 2020:

  • Politics: reduced political spending.
  • Economics: increased access to finance (mortgages and construction finance), but low purchasing
  • power.
  • Social: reduced activities of High Net Worth Individuals (HNIs), migrations are creating more
  • investment property and less use property.
  • Technology & Environment: sustainability requirements will be on the rise and adoption of technology
  • in real estate will increase.


Speaking on the outlook for 2020, he noted that there would be some increased level of regulation in the residential segment of the market in 2020.

 

On the Finance bill, once it becomes operational, Odunsi, believed it would favour indirect real estate investments, including REITs (Real Estate Investments Trusts).

 

He also projected that the recapitalization of mortgage banks and insurance companies would create traction in property markets, which would have positive knock-on effects across industries. However, construction costs will rise by mid-year as development activities will increase with more intentional entrants in the retail, hospitality and property market space.

 

US-Iran Hostilities and Oil Prices

Keynote speaker at the event and CEO of Graeme Blaque Mr. Zeal Akaraiwe said with the US-Iran hostilities it is more likely that the international crude oil price will fluctuate, but regarding the budget  2020 outlook, Nigeria's worst-case scenario is that oil prices will be stable in the year.

 

According to him, what the US has done to Iran opens a brand-new door for volatility in the international energy market, and anything except oil prices going down can happen.

 

"Even if Iran does not respond, the market will price the probability that they will respond and so oil prices will scale up unless new events occur," Akaraiwe said.

 

Speaking further, Graeme Blaque's CEO pointed out that reserves have been dropping consistently over the last couple of months, and if the Oil prices stay stable, the probability that they will rise is very high.

 

He acknowledged the fact that the Nigerian government needs a whole range of financing options to sustain fiscal stability which explains the proposed $30bn new debt proposal, which he was sure the 9th Senate would support.

 

Understanding FIRS Revenue Expectations

Looking at revenues in 2019, data from the Federal Inland Revenue Service (FIRS) showed a target of N8trn, but looking at the first three quarters of 2019, it would be likely that the authorities achieve revenue of N5.5trn.

 

In terms of revenue, Akaraiwe noted that the FIRS ability to increase FGN income is limited, and so the Federal Government through the  Finance Bill increased the Value Added Tax (VAT) from 5% to 7.5%.

 

"A  lot of people would think increasing VAT  revenue is for the federal government, but it is not and that is one of the implications I would like to discuss. Why did the federal government increase VAT to 7.5%, the assumption is they want to get more money? But when you understand the VAT share to the Federal Government is 15%, for every 1trillion in VAT, FIRS collects the federal government gets 150billion"." He said

 

Akaraiwe added, "So when you calculate the entire FIRS revenue, that's PPT, none-PPT tax, VAT collection specifically for 2019 will end at just about N1trn, they average about 300billion a quarter. So let's even say they average N2bn in the whole year, by increasing VAT to 7.5%, that's a 50% increase, so your N2bn goes to N3bn. So that extra N1bn the federal government is going to get 150billion, the state will get half, the local government will get about a third and federal government gets about 15%".

 

Looking at it further he said it was not a revenue driver for the federal government, but a palliative to the states, because if the federal government wanted to increase revenue to the state without hurting the citizens, the federal government foreign exchange budget would not be at the peg of  N306/$.

 

The Problem With Subsidies

He identified three subsidies that are currently hurting the economy as follows;

 

  • Petrol subsidy that costs the government about N1trn, which means if you remove petrol subsidy, direct revenue into the government coffers will be N1trn, and that equals the entire 2019 VAT collections just by changing one policy.
  • The Second subsidy is Power, the difference between petrol and power is that if you remove a power subsidy, it is not likely that it will have a direct impact on government revenues. Power consumption can be controlled by individuals and organisations, and so the amount of money generated from power consumption is indeterminate.
  • The third is the foreign exchange subsidy which is very unclear to most people, speaking from a recent study he carried out, from 2017-2019, the Central Bank of Nigeria has spent between N5trn and N6trn subsidizing foreign exchange.


He highlighted  four things which he believes is extremely important for the Nigerian economy in the new year;

  • Economic Policy Stability
  • Election Cycle
  • Oil Price
  • Foreign Reserves


He stressed the fact that going into 2020, the federal government needs to generate more revenue, and hence businesses will be made to pay more or higher taxes.


Giving his perspective on the tax waiver for businesses with turnovers below N25m in the Finance Bill,  Akaraiwe noted that it was part of the strategies of the Federal Government to support the growth of Small and Medium-sized Enterprises (SMEs) in the country.

 

2020's Uncertainties

In his words, 2020 looks Volatile, Uncertain, Complex and ambiguous, all of which provide significant opportunities in the economy. He said the people that will benefit from 2020 are those that make prompt decisions. Entities that have a long decision-making process may lose out in the year because things will change quickly.

 

For the fiscal policymakers, he called for realistic targets as the Economic Recovery and Growth Plan (ERGP) growth projection of +7.00% in 2020 is unreasonable, especially considering that Q3 2019 achieved a growth rate of +2.28%.

 

The Lagos Property Market In Review

The Chief Operating Officer of North Court Real Estate Advisory, Mr. Tayo Ibaru in his 2019 performance review of the Real Estate sector said the following key developments shaped the previous year;

 

  • Overall, prices either declined or remained unchanged (e.g. Yaba, Surulere, Gbagada) some locations however  realized price increases (e.g. Old Ikoyi)
  • Real estate developers and service providers now consistently focus on products and services more in tune with effective demand
  • Developers became much more flexible on payment plans and significantly revised their product types and prices to accommodate their target market.
  • There was an informal emergence of the co-living trend as a response to tenants with the insufficient supply of studio and 1-bedroom apartments.
  • Average vacancies in Grade A offices dropped mildly but could still be high, Malls in tier 2 locations generally struggled.
  • The Lagos State government secured a $629m loan for the completion of the Lekki Free Trade Zone.


He acknowledged the vital role technology and data were increasingly playing in the real estate industry and was optimistic that they would have a wider impact in the year 2020.

 

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