The real estate outlook

So as the new year commences in earnest, there is a trail of speculation in the real estate industry, as with all industries: What does the year hold, market wise? Will the real estate market experience a boom, or will it plummet and plunge? Is 2019 going to be a buyers’ market? Sellers’ market? What spots will be the hottest spots when it comes to migration, appreciation, emerging cities and spots, what type of properties are likely to do well: residential, commercial, industrial? Any mind-blowing, one-of-a-kind projects springing up?
These are questions looming large on every one’s mind.
It’d definitely be nice to have a forecast that’s somewhat as accurate as the weather forecast as a sure guide to what areas to pitch into, what areas to stay away from… However, it’s a known fact that the real estate market is hard and quite tricky to foresee. Nonetheless, here are some valid predictions by experts as found on the Vanguard Nigeria, Property.

Heightened uncertainty and eroding affordability are expected to cut into demand and contribute to a weaker real estate market in 2019, and 2018 harsh economic realities made the sector underperform in terms of yield and returns.

While demographic fundamentals remain strong, the economy remains weak, and a lack of clear policy in 2018 impacted negatively on prospective homeowners’ access to mortgage financing in the market. Mortgage interest rates are also on the rise, further reducing buying capacity, although these rates are expected to stabilise further into 2019, which may worsen borrowers’ ability to qualify for financing.

According to the National Bureau of Statistics (NBS) third quarter (Q3) figures, Nigeria’s annual inflation rate increased to 11.28 per cent in September, 0.05 per cent higher than the recorded rate of 11.23 per cent in August, and the second monthly rise after 18 consecutive months of a steady decline from January 2017, when it reached a 12-year high of 18.7 per cent.
A possible consequence is that a constant weakening of the nation’s reserves may lead to further depreciation of the naira against the dollar, further impacting on the real estate sector which is heavily reliant on the capital markets.

On the issue of performance of the markets in 2018, there were conflicting opinions by the professionals. Some say, the rate of sales for both new and existing properties are nose-diving; others noted that the sector has generally been fairly stable. Some experts maintain that residential is still in high demand but sales are very low, retail and office suffered significant value reductions.

The huge chunk of the blame goes to the non-performance of the economy. It slowed down and lacked liquidity. The illiquidity in the market is causing stress in this sector as investors pull back on expansion plans.

Interestingly, larger malls continue to reconfigure themselves to provide consumers with every recreational, entertainment, educational, fitness and shopping they would need.
Conditions in the office segment remained relatively stable; construction work on prime commercial properties is ongoing, although for some, activity has stalled.

Asking rents in Ikoyi and Victoria Island remain constant, with potential tenants who require larger spaces, having the added advantage of reasonable concessions in rent.
The experts agreed that the industrial sector has been very badly hit in 2018 with many premises coming into the market either for sale or lease without any takers in sight.

Expectations are also high on the Nigeria’s forthcoming elections. Many investors / decision makers are adopting a “wait and see” strategy and some foreign investors have withdrawn their funds in order to mitigate against any political risks that might lead to a loss of investments.

The outlook in 2019 is seemingly not so good. As it is, oil prices are falling with dire implications for the nation’s income. Politics and elections are around the corner, with the do-or-die mentality that Nigerian politicians bring to the table, it will jolt investments away and in the long run slow down the economy.

However as with all things looking bleak, a small shift or unforeseen happening can trigger a set of unexpected, hopefully favourable outcomes in a chainlike reaction. And so, it’s most likely best to keenly observe happenings in the first quarter and carefully interpret these happenings and their effects. Cautionary measures to provide cushion-like buffers reducing impact of negatives from the market would be the smart thing to do as we wait the waves to ride out, as they always do.