How luxurious real estate properties are staying untouched. A soft market?
There is a continuous disturbing trend of the inoccupation or emptiness of many luxury apartments and properties in the highbrow areas of Lagos. Hence, many of these properties and apartments are falling into a state of disuse for upwards of two, three years and more. According to statistics, vacant upper-class property in Lekki, VI, Ikoyi has risen by more than 72%. Huge, mind-blowing, gigantic edifices with no one living in them, nothing going on, just standing still, adorning the environs in which it is situated, that is if facility maintenance is kept up. Now this has served as a slight deterrent to developers who intend to embark on construction of luxury buildings, albeit some forge head on into the luxury real estate world. I guess these ones have marked and mapped out how they intend to get occupiers and takers for their buildings, they’ve probably done their homework, built a cream clout of connects, and have figured out a way to get the favourable outcome of getting occupiers and buyers, so they stay in business. The “tininess” section of ready and big buyers these developers cast their net in is an entirely different matter.
Many posit that a major cause of the high number of empty luxury apartments around Lagos is that most of the apartments are priced beyond the current economic realities. And the economic reality is that it’s going to take a while to find people who will pay rents as high as N15million-N25million per annum for an apartment. That is the reality of the moment. We’ve gradually stepped away from the era where people even pay for these apartments in foreign currencies.
In the past some landlords of these apartments will insist that their rents are paid in dollars or other foreign currencies but now that they are even willing to collect their rents in naira, as tenants are difficult to get for these apartments. It has become obvious and visible that potential tenants of these luxury apartments have already started to move into lower class environments where they can get similar apartments at cheaper prices.
Naturally, you find that potential Old Ikoyi, Banana Island and Victoria Island tenants have now started to move into cheaper neighbourhoods like the environs in/after Chevron, Victoria Garden City, and even developed, set up areas within the Ajah/Sangotedo environ. They understand that in these relatively cheaper neighbourhoods they will be able to get similar or close quality apartments that are about the half the price of what they would ordinarily have paid in Old Ikoyi, Banana Island and Victoria Island, and are also willing to pay the small price of a farther-off distance. In truth, it seems that the so the demand for these apartments has trickled down far less that their supply.
Even with a reduction in prices of these luxury properties, it still pretty much looks like an immovable situation. The luxury end of the property market has drastically moved from what used to be the LANDLORDS MARKET to what we now call the RENTERS MARKET. Desperate owners of such apartments now take rents that in the past would have been considered ridiculous just to ensure that the apartments are occupied. Despite that, what you will find in many instances are 50-70% occupancy rate. The era of 100% occupancy rate in these kinds of buildings are almost over. That is the sad reality.
Some share of the blame as to the reason for this trend has been apportioned to the use of substandard materials and construction execution in the luxury market. The inclusion of poor-quality homes arising from substandard constructions in the luxury end of the property market has been pointed to as one of the reasons for luxury property being in a stalemate situation. There are investors who are very discerning and pay strict attention to every detail. Added to this is the fact that there is a limited range of options to choose from with relatively cheaper prices, and so if a developer does a shoddy job in the luxurious segment of the property market now, it is only natural that such an apartment will remain unoccupied for a long time. When a developer is building a luxury apartment, everything in the apartment should be luxury and of the best and highest quality. The prestige and efficiency of a luxury property should speak for itself. As there is a supply glut and a huge deficit in demand, has now become” the battle of the most premium.”
And so summarily, for this school of thought, the argument for supply exceeding demand, as far as empty apartments in Ikoyi go, is unfounded. The posit that luxury apartments are in high demand, but poorly finished buildings with exorbitant prices are hugely responsible for the pile of empty apartments. With the plummet of major economies across the world, individuals and organisations no longer will throw money around. Prospective tenants demand full value for their hard-earned money. And so, the ‘quick fix, quick gain’ mentality just won’t cut it. Real estate developers who fail to understand that the current investors and real estate enthusiasts are upbeat about quality and finishing after having seen same from their travels around the world, will soon fade away, and be put out of business or just has to do better.
However, it’s hugely interesting to see that this is not just a Nigerian affair, the empty-occupier state of luxury real estate homes and properties. Countries such as the US and others seem to be having their fair share of the bite-back from this trend. The luxury property market is encountering some serious problems. An article from the Wall Street Journal recently highlighted this article:
“LA developers have a big problem: too many new mega mansions…Builders and brokers are throwing blowout bashes and testing an array of marketing stunts amid the areas spec home bubble”.
Developers of these luxury homes have had their properties sitting on the market for over a year and beyond, proving way longer than their realistic expectations of wait time for luxury properties. Recent indicators suggest that L.A.’s real estate boom may finally be cooling, which could mean a nine-figure headache for developers. In L.A.’s luxury sector, the number of sales in fourth-quarter 2018 was down nearly 20 percent from the previous quarter and down 7 percent from a year ago, according to the latest market report from Douglas Elliman.
Developers and property owners have even resorted to pulling off extraordinary stunts to show out these luxury homes at open houses and possibly sell them. Extraordinary spectacle has been created to drive attention to their properties from local but mostly foreign buyers, as in the case of this open house in L.A that featured dolphins, camels and S/M(Sado-Masochism) according to the Hollywood Reporter. Can you beat that? S/M?
These interesting properties go for as high as an asking price of 500 million dollars (as in the case of the price asking for “The One”, an almost-built mega mansion by an LA developer). The debt load for developers for these empty luxury homes can be substantial, it’s just sitting there empty, and now cash is burning through quickly, with the developer spending every month to keep the luxurious properties maintained and operated, with full time staff working for them, even though they are empty. There is also the inability to pay lenders quickly for those who intend to do house flips.
In the Hamptons where prices are above national and state average, homes that are not priced competitively are going to have to go through a series of price reductions, before they sell, with buyers seeming to stay on the side-lines. Prices are suffering cuts, as inventory builds. Some homes have even had to be slashed at a 50 percent off asking price, as is seen in the Hamptons mansion bought for 35 million dollars (more than half off):
The endless wait on luxury properties being on the market for years on end has proven to be an investors nightmare, as these investors anticipate or dream of minimal overlaps, from the time their properties hit the market to when they get taken up. In Australia, Sydney, a 66-million-dollar luxury penthouse has remained on the market for 12 months:
London homebuyers are getting the biggest discounts in at least 6 years, according to data from Zoopla. The residential real estate market in the UK capital has been stung in recent years by the introduction of new taxes and the uncertainty surrounding Brexit. This is happening globally. Prices rose so fast everywhere, and even those at the highest end of the market are possibly beginning to have a rethink and say, maybe these homes aren’t just worth the price they are going for, even though some people still are buying, but inventories are still shooting up.
So where are all the buyers, even with all the flash of money we see on the streets and all around us? Where are all the ultra-high net worth individuals to take up these luxurious properties? Now this paint a picture of and speaks to the luxury market and how that relates to ultra-high net worth individuals themselves. Perhaps they’re running into some kind of trouble themselves, perhaps they see something down the road and believe that these homes will be priced lower and more reasonably if they wait just a little bit longer. Perhaps they are playing the wait and see game. Nevertheless, there are economic aspects to this case, whether we readily admit it or not.