Prime residential property remains weak on low demand

A volatile economy  and high political risk created a cloud of uncertainty which weakened demand in the real estate market for the first quarter of the year, according to Business Day investigations.

Consequently, it was all struggle for the operators in the market which showed greater sensitivity to macro-economic changes seen through the collapse in global crude oil prices, rising inflation rate, increase in monetary policy rate (MPR) from 12 percent to 13 percent and the depreciation of the naira after its devaluation by the Central Bank of Nigeria (CBN).

“The heightened political risk leading to the just concluded general elections meant that there were few transactions over the first quarter,” Reports MCO Real Estate (‘MCORE’), a focused real estate investment and advisory firm that prides itself for international perspective and local expertise. 

The firm, in its Q1 Real Estate Market Report,  further observed that property prices were generally stable, explaining that the prime residential property market was particularly weak, with low demand because this year started on a volatile note, characterised by a collapse in global crude prices and the depreciation of the naira.

“The few buyers who ventured out to buy, found themselves dealing with motivated sellers and were rewarded with prices at a considerable discount to prevailing market value”, said Munachi Okoye, Mcore’s CEO, corroborating BusinessDay’s earlier report on distress sales in the property market during this period. 

The report which quoted Omochiere Aisagbonhi, the President/CEO of the Lagos-based Omais Investment Group, disclosed that politicians, desperate to raise money to prosecute political campaigns, discounted their property by as much as 50 percent of their market value in order to stimulate demand and find ready buyers.

Prime residential properties in Abuja, the Federal Capital Territory, are likely to take a further bashing when the in-coming government takes off, and according to Okoye, that bashing would be coming on the back of expected plugging of leakages within the government system, more so, as that market had its sensitivity towards government spending.

The top of the Lagos market, he pointed out, was generally undergoing challenges with demand falling below supply, due to contraction caused by a reduction in corporate patronage.

It is pertinent however, to point out that the lower and middle end markets were quite active within this period and, according to the Mcore report, this segment of the market was quite upbeat for properties with prices between N12 million and N25 million for the low and affordable housing, and N25 million and N120 million for middle market housing.

“While the high end market continues to suffer from a lack of demand, the lower end market continues to benefit from the demand pressures of a rising demographic of consumers with rising disposable income, seeking housing in which to live”, Okoye explained to BusinessDay, citing projections by the United Nations which say Nigeria would be the world’s fastest growing country over the rest of this century, making it the world’s third most populous country after India and China. 

This growing population, he reasoned, would continue to support housing growth at the bottom end of the market, adding that overall, the market was within this period, impacted by the CBN’s monetary policies, and more than anywhere else, real estate financing was badly affected by the apex bank’s continued fiscal tightening. 

“The raising of bank-to-bank lending rates (MPR) to 13 per cent, the forced reduction in the fees banks charge on fund transfers and the recent depreciation of the naira against the dollar, had placed upward pressure on lending rates, making it more difficult for local developers to access funding for projects. The naira depreciation has also put at risk, projects financed by dollar loans where rental receipts are in naira,” Okoye observed. 

Similarly, prime commercial office rent across Victoria Island and Ikoyi, in Lagos, which have risen through 2011-2013 were also impacted by the economic headwinds of the last quarter and were so flat that prime office rents went back to about $1,000–$1,200 per square metre. Demand for prime office was subdued and the expectation of a considerable supply between 2015 and 2016 might prevent any upward pressure on rents. 

Ikoyi, especially along Alfred Rewane Road (old Kingsway Road), which Obi Nwogugu of African Capital Alliance (ACA) described as Lagos preferred destination,  is the new zone for commercial office development, with projects coming on stream in 2015-17 including Actis’ Heritage Place and BAT Tobacco’s Rising Sun development on 13 floors, due for delivery in 2015. Others are ACA’s 6,600 square metres 12 storey HQ (formerly Kings Tower) due in 2016 and Kingsway Tower on 15 floors due in 2017. 

Victoria Island developments coming on stream in 2015 include Kanti Towers with 6,500 square metres of lettable space, Civic Centre Towers with 11,350 square metres of lettable space and Victoria Island Towers, Nest Oil’s new Head Quarters with 7,500 square metres of lettable space.

CHUKA UROKO