| Property & Real Estate |    3165 VIEWS  |
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January 16, 2020 / 06:00PM / Northcourt
/ Header Image Credit: Northcourt
Nigeria's
economic growth in 2020 will
depend on far sighted fiscal and monetary policies and prudent management of
public debt, which currently stands at over N25Trn. Most developing countries possess effective
formal budget systems that work but turn out ineffective because they lack disciplined
budgets, effective programs or efficient operations. Solving this does not
solely depend on the improvement on budget procedures but also on the
Government's adherence and its attitude towards fiscal rules.
Nigeria and neighbouring countries Benin and Niger have agreed to set up a joint border patrol force to tackle smuggling, promote intra-regional trade, and ensure migration policies are enforced. So far experts estimate that N6Trn has been spent by the CBN in dollar injections, defending the currency. This is more than the capital expenditure spend in the 2020 budget and includes N4.5Trn used to pay interest on OMO bills and N1.5Trn used to pay settlements on FMDQ. The CBN has rightly decided to amend its policy regarding investing in Treasury bills to exclude retail/individual buyers.
Related Link: The 2019
Performance of the Nigeria Real Estate Market - January 08, 2020
It
is worth considering that the currency fluctuations will not be an issue if
there is a focus on finding economical solutions in partnership with local
investors rather than foreign investors. This could be easier if interest rates
in the banking system is reviewed by the government. In all likelihood,
disposable income will be affected next year by reduced oil prices, difï¬cult
but necessary economic decisions taken by the current administration, or a mix
of both. Experts maintain that the increase in VAT might not be
the best
solution to generating revenues opting for an adjustment in the exchange rate.
LAND
Towards
making land administration effective, a number of states have begun
implementing the Systematic Land Titling and Registration as part
of a broader plan of growing investment. The use of technology in land
administration is paying off in states like Edo and Anambra and other states
are considering the adoption of same. With more registered titles being issued
in shorter timeframes, there is a growing case for long term investment
especially in states outside the leading cities of Lagos, Abuja and Port
Harcourt.
RESIDENTIAL
Modular construction is contesting to be the future of
the building construction. The benefits over traditional construction should be
huge: lower costs, accelerated schedules, greater predictability of both time
and cost, and improved building quality. However, the modular supply chain is
promising, and benefits of the approach are largest where there is a degree of
repetition well beyond individual, large projects.
Industry fragmentation, a one-off approach
construction projects, and a ready supply of manual labour kept the need for
productivity improvement below that of other industries. Incumbents and
investors are realising the potential of technology to accelerate projects,
reduce costs, and embrace sustainability.
Building relationships with modular suppliers will be crucial.
Developers should aim to form strategic partnerships to commit a pipeline of
repeatable projects over several years - as opposed to one-off projects.
Landlords with large room developments (4+) near the
city centres will turn to co-living and more flexible payment plans to
compensate for the state of the economy and the earning capacity of the
individual. Since 2017, there has been huge demand for real estate from
Nigerians in diaspora and this is expected to increase in 2020. There will be
products designed specially to attract diaspora investment. Locally, financial
institutions are launching products that will enable renters make quarterly
payments.
RETAIL
Proximity to densely populated areas, accessibility,
parking and entertainment facilities remain key factors to the growth and
success of the retail market. The grounds gained by family features and
entertainment options as success factors in ensuring retail success are
expected to deepen with more retailers now aware of its role in sustaining
footfall. Having tested the mid-range sized mall concept albeit vicariously
through the likes of retailers as Blenco and Ebe Ano in Lagos, investors are
warming up to this development type, adding strong entertainment features for
good measure.
Source: Northcourt
RETAIL
Research into Global Real Estate Benchmark Indices as
it relates to Nigeria's commercial real estate market show an average yield of
3.4% for foreign direct commercial real estate investment. This falls short of
the global benchmark of 5.7%. This was as a result of the fact that the growth
in rental value of the properties was not commensurate with the high capital
growth rate of 16.5%. Again, the performance of FDI in Nigeria's commercial
real estate sector compared favourably with the global benchmark given a higher
10-year annualised capital growth rate and mean total returns for FDIs.
The supply of co-working spaces is rising to meet up
with demand. The growing population in the CBDs will accentuate the demand for
well-maintained multi-level parking facilities mixed with retail facilities.
High vacancy rates are expected for Grade A offices, at least until a firm
direction for the economy (and the currency) is determined. Landlords will need
to be flexible and accommodating of tenant's preferences to keep vacancy rates
manageable.
Source: Northcourt
INFRASTRUCTURE
New technologies fuelled by start-ups throughout the
infrastructure supply chain have emerged, in areas of pricing, measurement,
funding management, augmented and virtual reality. These new technologies now
emphasise data gathering and supply chain efficiency. Such start-ups will have
an impact on every aspect of infrastructure, from materials to contracts to
design and simulation.
A renewed focus on domestic infrastructure with
stimulate growth in the manufacturing sector in the country. The growth in
ecommerce with customers demanding shorter delivery times will expand the
opportunity for Grade A warehousing facilities close to consumers. If managed
well, Nigeria's leading cities can do more to drive the country's economic
growth. Lagos still struggles with standard city problems - overpopulation,
infrastructure decay and insecurity. The positives of urbanisation are yet to
fully contribute to the growth of the city. Putting the right infrastructure
before population growth should be a primary objective of building smart
cities, i.e. technologically advanced, green and economically vibrant
locations.
Student Housing
There's still a capacity challenge as Nigeria's
university system, which holds over 150 schools, is mostly over-populated. As
such, only one in four Nigerians applying to university will get a spot. A
possible first step to fixing Nigeria's tertiary education problems would be to
increase budgetary allocations to between 11% and 15% which will provide the
funding required to partner developers on hostels and off campus accommodation
development.
The public and private sectors have to create an
enabling environment and work together with the higher education sector to
achieve the country's development goals. This is the path taken by developed
countries. Over the next five years, student numbers are expected to continue
increasing significantly. An additional 72M Africans will be aged 15-24 by 2028,
with the highest growth - 13M in Nigeria.
HEALTHCARE
Demand rests in availability of primary care services
which creates demand for mid-sized birthing centres staffed by nurses and
midwives. Asides a comprehensive maintenance framework, urban areas require
emergency centres, specialised maternity and pediatric care, as well as
improvements to existing facilities. Need and demand, however apparent, do not
provide motivation sufficient enough to attract investors.
Investor-friendly legislation and initiatives which
may include the introduction of a well thought out insurance system, more
government partnership structures, technology-based healthcare initiatives such
as telemedicine in remote areas and help with visas for specialist staff. One
of the biggest healthcare opportunities involves working with developers who
are creating new neighbourhoods and incorporating modern healthcare facilities.
Evidence points to greater footfall and higher rents. The demand for better
healthcare facilities is clear and the role for private investment to play in
servicing this demand. In Nigeria the attempt to reach a bed-to-population
ratio in line with the global average would require 32M sqm of new medical
facilities, representing an investment of more than $82Bn.
In 2001, all 54 members of the African Union committed
to spend 15% of their state budgets on health. Few have met that commitment.
Kenya currently spends $36 per person per year, or 7% of its budget, on health.
According to WHO at $86 per person per annum governments of low-income
countries can fund primary health care.
To stretch the healthcare budget, PHCs can invest in digital health, managerial innovation, and improve supply chains. This would ensure that the right products are available at the right prices and delivered to the right places at the right times. Experts however suggest that priority be given to the development of reproductive health centres.
General Notes
Watch Video
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Disclaimer
The information contained herein is of a general nature and is not
intended to address the circumstances of any particular individual, entity or
property. Although we endeavor to provide accurate and timely information,
there can be no guarantee that such information is accurate as of the date it
is received or that it will continue to be accurate in the future. No one
should act on such information without appropriate professional advice after a
thorough examination of the particular situation.
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