| Property & Real Estate |    1086 VIEWS  |
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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.
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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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