 Ikoyi (including the Osborne Estates and Park View) is experiencing a pause after a rapid run up in property prices over the past few years. The question on every property investor’s lips is, 'are these prices likely to start rising again or will there now be a period of long term stability or, worse, a drop?'
We have spoken to a cross-section of surveyors and valuers operating on the Island to try to find out the answer.Demand Key factors that drive long term demand for property in Lagos appear to still be in place. The overall population of Lagos remains on the rise and is forecast to continue to grow at about 5% per annum (leading to a doubling of the Lagos population by 2020). Key drivers of growth are both a relatively high fertility rate and net migration into the area in search of jobs (ongoing rural to urban drift). Lagos, being the largest port, commercial and industrial centre in Nigeria, is where every 18 to 25 year old starting off in life dreams of coming to. The national economy has continued to deliver high growth, averaging about 6% per annum over the past four years. This level of growth is forecast to continue over the next three years, buoyed by high oil prices, increased foreign investment and improved efficiencies brought on by improvements in the telecommunications network and the privatisation of poor performing government institutions. The result is strong job growth and wage pressure, particularly with the more productive skilled (middle income) workers (above N80,000 per month income). Unfortunately, the many millions of young workers with weak skills still struggle to find employment. Lagos has captured a significant share of this growth and is likely to continue to do so. Ikoyi is one of the biggest beneficiaries and is likely to continue to benefit from this growth, which is currently skewed towards the higher income part of the economy. The bad news is that the transport infrastructure is not sized to manage the growth and the state planning departments seem incapable of executing the required improvements in the short to medium term. Result is increased traffic congestion in the area. This will hold back property values as people find living there to be less attractive. Indeed, nearby Victoria Island has become a place to avoid unless you have pressing business there. However, given that this is a nationwide problem (an estimated two million new car registrations in 2005), it is unlikely that residents will have any better choices. Security within all areas of Ikoyi remains the best in Lagos. Though there have been a number of high profile bank robberies in neighbouring Victoria Island, overall the security situation in the area (and indeed across the nation) appears to be improving - though slowly. Key driver has been better investment and training in the police and a more effective policing methods. Given the high number of people with power and influence who live in Ikoyi, it is likely to remain well policed and indeed the most secure neighbourhood in Lagos, further strengthening its property market. Supply Supply of new development land in Ikoyi remains limited, Banana Island and Osborne Estates probably being the last major landfill additions to the area within the next five years. However, neighbouring Lekki has vast amounts of developable land. The drift of commercial activity and residential units from Victoria Island down the Lekki Road is likely to be a moderating influence on long term property prices in Ikoyi. The moderating effect would be particularly strong if the security situation between VGC and Lekki were to be improved and the second access road running by the ocean is completed. Getting planning permission to build apartment complexes in Ikoyi remains easy (though perhaps a touch more difficult than five years ago). We doubt if there will be any single family homes left in Ikoyi in 20 years from now. The result will be pressure on land prices, but a moderation of unit prices. The amount of construction activity is high, though there was a drop in new construction started during 2005 (probably due to bank recapitalisation). It appears construction work is again increasing. This, we believe, will hold down rental prices in the future. The Market We are getting reports of a growing inventory of flats for lease. Most estate agents, surveyors and valuers we interviewed are reporting that even though they are seeing a rise in tenancy, they are seeing a bigger rise in new commissions and though rental prices have been more or less holding constant, the time it takes to rent has been increasing. We believe that the rental market has been overbuilt. However, landlords are preferring to sit it out rather than reduce prices. Unfortunately, the scope of this article did not enable us to measure the number of units under construction and compare it to the number of apartments being rented each month. However, our judgment is that the inventory overhang will take much of 2007 to clear, if indeed the growth of new units does not further increase and if landlords don't reduce prices. With regard to empty land our agents report a drop in the number of buyers looking to buy empty/development land. Though this is good news for landlords (we expect that this means less development of apartments in the future), it is bad news for sellers of land. A few of those interviewed claimed that closing prices had dropped; most reported that land prices had remained constant. Our conclusion We believe that the market is experiencing some short term difficulties, due primarily to overbuilding and that it should see its way out of them within the next 18 to 24 months. Real estate is always a long term play and in the long term we are bullish about land prices, unit prices and rents in Ikoyi. Key drivers being population and job growth, a booming economy and restricted opportunity for new supply. We believe these will outweigh concerns about traffic, the environment and a short term glut, though long term price increases may not be as large as they were in the early 2001 to 2004 period. Unless there is a sustained drop in oil prices below $45, which we do not expect till 2010, or sustained violence before and after the 2007 elections, we believe investors in the Ikoyi market will be rewarded for their patience. |
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