Analysts express concerns over 2017 budget on real estate sector

For investors in the real estate sector, there seems no light yet at the end of the tunnel as the impact of Nigeria’s economic situation, which is already crippling the sector, may not end any time soon.

This, analysts say, is as a result of dwindling income of would-be home owners on one hand, and weak currency that make companies and personal income continues to shrink in response to inflation.

Available data shows that real estate is eight per cent of the Nigerian economy which is now in a recession following two consecutive quarters of GDP contraction. In addition to this, real estate has been in decline, and has contracted so many times.

Highlighting the dilemma, Doyin Salami, a lecturer and member of faculty at Lagos Business School, who was guest speaker at this year’s Annual Business and Award Dinner organized by the Nigerian chapter of the International Real Estate Federation (FIABCI), last week, noted that real estate has been shrinking and that what will happen to it in 2017 will depend largely on what happens to the economy generally, upon which its success or failure rested.

“Looking at the budget proposal of 2017 presented by the Federal Government, what one will see is the projection of economic growth at about 2.5 per cent for 2017 and with the Nigeria population growing at about 2.8 per cent annually, 2.5 per cent actual growth still represents a reduction in per capita income.

“If you combine the rate of inflation in 2016, which ended the year at about 19 per cent meaning that anything that started the year with 100 ended at 119, with another 12 per cent inflation which government has projected, Nigeria is in excess of 131 for what was 100 a year ago,” he said.

He argued that if incomes do not rise at the same pace, it means the real value of income continues to shrink and therefore, the capacity for demand/spending continues to diminish, and once the capacity of spending diminishes, demand falls.

Salami faulted the often quoted 17 million housing units deficit, saying, “The figure seems not to change since more than 10 years ago even with the growth in population; it just leaves a bit of concern about how accurate the data is.”

He reasoned that given the state of the economy and the sector in particular, it was much better to buy a government treasury bill now than to build a house because treasury bills will give 20 per cent returns and no risk while houses are associated with a whole lot of risk such as government approvals and consent, non-payment of rent by tenant and managing the house as a whole.

“Having said that, capital appreciation in housing is one of the slowest; it’s long term and not something that is rapid. It may take another two years for the housing market to become productive, looking at the present economy and the rate at which already built houses up for sale or rent are not occupied,” he said, advising that the housing sector needs to look at how to capture more information and data to help those who want to invest to have a holistic approach to the sector.

In his remarks, Gbolohan Lawal, Lagos State Commissioner for Housing, while aligning with Salami’s position, stressed that “the sector really needs to be awakened because we have noticed no growth in the real estate industry.

“As a government, we have decided to inject private capital into housing delivery in Lagos, and we are building capacity and creating the enabling environment to make this happen,” said Lawal.

Earlier in his welcome speech, Joseph Akhigbe, the FIABCI-Nigeria President, had explained that the theme of the dinner, ‘Real Estate 2017: It’s All About the Economy’ was carefully chosen in the light of the prevailing economic situation as it affects the real estate industry.

“I am sure that in this brief period, since the economy took a downturn, we have all witnessed the good, the bad and the ugly side of the devaluation of the Nigerian currency, rising inflation, and excess supply of property as a result of the economic situation.”

The FIABCI-Awards Dinner is an annual event through which the federation provides insights on real estate and contributes to national economic space. This year’s edition which was meant to promote creativity and good business environment recognised and rewarded finance, architecture and design, public private partnership, journalism, and development/urban planning.