| Outlook For Real Estate 2008 |
 Where should your property investments be this year? Are you better off investing in high profile property, middle- income or low-income class property? At the start of each year, savvy investors get busy allocating their resources to investments they believe offer the best returns. For property investors, knowing the direction of the market and cashing out at the right time is key to superior returns. 2007 in retrospect Experts believe that real estate in Nigeria performed better in 2007 than in previous years. Chairman, Lagos State Chapter, Nigerian Institute of Quantity Surveyors, Wasiu Akewusola, declares that 2007 was an improvement on the past years but believes that reducing the cost of building materials is essential to the continued growth of the industry. “We hope to have a better deal in 2008,” he adds. President, African Association of Quantity Surveyors, Mr. Olusegun Ajanlekoko, reveals that 2007 brought tremendous increase in the housing stock but attributes this to funding from the banking sector. He, however, regrets that the bulk of new properties coming into the market are mostly for high-income earners. Other professionals also shared this view, but they pointed out some concerns that need to be addressed, particularly by the federal government, such as, the Land Use Act, planning and building laws, and affordable mortgage financing. The key drivers of the successes recorded in real estate in 2007 are attributable to: Banks’ recapitalisation This was a major development that brought a turnaround in real estate and the Nigerian economy in general. After the consolidation, banks were more willing to fund real estate projects and also partner with developers, due to huge capital deposits within their coffers. A number of property development witnessed last year are traceable to funding from banks. Recapitalisation also led to expansion of banks, resulting in the establishment of more branches. Thus demand for real estate by banks also witnessed a positive growth last year. Another effect of this was that jobs were created and incomes increased, making more money available to spend on homes or office spaces. Sale of federal government houses Though the exercise began in 2005 it was concluded last year. In Abuja, the monetisation policy, coupled with the demolition exercise, dulled real estate activities for a while, particularly in the private property sub-sector. Investors preferred the lower priced government properties to the more expensive private one’s, leaving the market with private property supply glut. Also, in Ikoyi, Lagos, some properties are still encumbered by the dispute between the federal government and the disputing family. Peaceful elections The peaceful transition to another democratically elected government helped real estate in 2007. Prior to the elections investors held tightly to their purses waiting to see the outcome. The success of the elections gave confidence to both local and international investors and led to more investment in the industry and the Nigerian economy. We now have more foreigners willing to invest in Nigeria and the real estate industry. Improved infrastructure Some parts of Lagos and other parts of the country had basic infrastructures restored. For instance, the upgrade of Lagos Island roads, Victoria Island, Lekki-Ajah road, provision of streetlights and others served to boost the property market. Other growth drivers were growth in income and urbanisation, which put pressure on demand for property in most commercial cities, especially Lagos. Outlook for 2008 Real estate analysts believe the industry will witness further growth this year. According to them, the drivers of growth, such as infrastructure upgrade, rising income and population growth, are still in place. Seyi Foli, surveyor and valuer, Hilltop Properties, forecasts that the growth – an average of 35% ROI – witnessed in the property market in 2007 will continue in 2008. He says there will be further developments and infrastructural improvements, which will further aid real estate business. Chima Odibo of Ubosi Eleh agrees. He adds that real estate will continue to be a money-spinner even beyond 2008. However, some have expressed doubts about the sustainability of last year’s growth. They fear a supply glut. Nnaemeka Eze of Nnaemeka Eze & Co. Estate Surveyors and Valuers says he foresees an oversupply of highbrow residential properties, especially in Ikoyi, Lagos. “Right now, there is an increased supply of developed property in Ikoyi, which in time will not be commensurate with demand,” he says. He believes demand may not catch up with supply, leading to a price dip. Our view We believe the opportunity for growth in the industry is still strong. This is based on two key factors: population growth, which will lead to more demand, and the willingness by banks to finance real estate projects, particularly through their mortgage arms. The annual projected growth rate of Lagos is about 5%, and 3% for the country, translating to roughly about 4.5 million people more yearly. Thus, we see a strong demand for properties, both residential and commercial, as population increases. Already, investors and realtors decry the existing property structure, which they claim is grossly inadequate in catering for the fast growing population. We expect to see more middle-class properties in the market, which some investors and developers are already targeting. Coupled with this is the fact that banks are more willing now to finance such projects. For instance, Intercontinental Savings and Loans is set to finance a 174 housing unit estate in Agege, Lagos. The estate, which is to be completed June 2008, will go for N10 million per unit. Also, First Salem Housing Estate, developed by Real Estate Emporium Limited, is coming up in Oregun, Lagos, and is financed by Lagos State Executive (credit and thrift). Upper income areas will continue to drive the market. Real estate practitioners reveal that development will continue in the east wing of Lagos (Lekki-Ajah territory), adding that more high income property will flood the market in that direction. Investors and developers only need to do proper research to capture the right audience. We also expect further growth in infrastructural development such as roads, streetlights and bridges, which will further boost real estate activity. The construction of a Fourth Mainland Bridge in Lagos, and upgrade of major roads in Port Harcourt, Calabar, and some other parts of the country should help open up the real estate industry this year. Our worry, however, is the rising cost of building materials, which has increased property prices. If this is not checked, it might lead to a supply glut as demand drops due to rising asking prices. Property prices will continue to rise with inflation, especially in the upper income areas. Research has shown that returns are higher and that properties go off the market faster in upper income areas than the middle and low-income areas. Mortgage institutions tend to prefer funding projects in upper income areas; this facilitates the repayment of loans given for such projects. Lagos Investment in real estate in Lagos this year will favour the Lekki-Ajah axis (look out for Lekki Phase II), Victoria Island and Ikoyi for high income properties. Although few new developments are going on on Victoria Island, investors are coming back to the bar beach area, which was formerly deserted because of frequent flooding from the beach. Bishop Oluwole and its link roads are getting hot, with companies like FUG Pensions, Nokia, Autoafriq, The Pool Shop and others coming around in 2007. Ikoyi is experiencing redevelopment and new constructions, especially in high-rise buildings; we see this continuing in 2008. For middle class property (residential and commercial) Surulere, Ikeja, Magodo, and some parts of Ajah are prospects. Other upcoming areas to look out for are Ikorodu, Ibafo and the boundary lines along Lagos and Ogun State, especially if you desire to speculate with land. Abuja In Abuja, with demolition and sale of government property put behind them, real estate is set to pick up. Owners of the recently sold government properties will be in business soon, especially those who are through with redevelopment. Investors and developers will trade on more secure ground now because of defined laws on building and property acquisition in Abuja. An investor can take a second look at the up market residential facilities in Wuse II, Maitama, Asokoro, and Gwarinpa. Port Harcourt In Port Harcourt real estate is still hot, in spite of militant activities. Realtors spoken with revealed that militant activities are limited to the oil facilities areas, away from the main town and so has little effect on real estate in the city. Places to look out for are the reserved areas such as GRA and its environs. Rumumuosi, Trans-Amadi, and properties around Shell will continue to bring good returns. Growth rate is put at between 50% and 60% this year. These three cities are likely to dictate the direction of real estate business this year. Over the last couple of years, real estate has consistently delivered fat returns to investors and has grown in line with the inflation. We believe this year is not likely to be different. |
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