Slowdown in Nigeria’s Real Estate Market

Proshare

Tuesday, December 08, 2015 9:39 AM / FBNQuest Research

Nigeria’s real estate market presents substantial opportunities as well as a number of risks for property investors. Existing problems such as poor access to credit and an underdeveloped mortgage market are areas the FGN would need to develop in the near future in order to move this sector forward. In Q3 2015, the real estate sector grew by 2.1% y/y compared with 5.9% recorded in the corresponding period in 2014.

The sector has been known to grow at a faster rate. In the past eight quarters it has expanded at an average of 4.8%. We attribute the sluggish movement to the current macro challenges.

Building cost in Nigeria is high when compared to other countries and this is usually passed on to consumers in the rental and real estate market. The cost of building a three bedroom apartment runs up to US$50,000, compared with US$36,000 in South Africa.

We expect the CBN’s fx policy which excludes certain items such as roofing sheets and steel- based construction materials from its official fx window to result in a further spike in construction cost.

Lafarge Africa has announced plans to construct housing units for low-income earners using aluminum shuttling technology to assist in reducing building costs. The project is set to commence next year in Abuja.



In its attempt to boost liquidity in the mortgage market in order to improve access to affordable housing, the Nigerian Mortgage Refinance Company (NMRC) issued an N8bn 15-year fixed rate bond with a coupon of 14.9% under a N140bn medium-term note programme. Proceeds are to be deployed for mortgage refinancing.

When compared to other countries, mortgage loans as a percentage of Nigeria’s GDP is presently low at 0.5%. This compares to that of the UK, US, South Africa and Botswana which are 80%, 77%, 31% and 2% respectively. Over the next five years, the NMRC hopes to increase mortgage loans as a percentage of Nigeria’s GDP to 2%.


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