Mr Kunle Awolaja, is a former West African Chapter Chairman, African Real Estate Society (AFRES) and a fellow of the Nigerian Institution of Estate Surveyors and Valuers. He speaks to DAYO AYEYEMI on challenges, needed reforms, opportunities and outlook in the real estate sector in 2023.
How will you rate the real estate sector in 2022?
The real estate market has actually flourished post COVID-19 pandemic. Development has sprung up massively since 2020 and a lot of investors are keying into the real estate business as a sustainable means of investment. Investing in real estate can be a terrific method to build a lot of wealth right now. Think about real estate as a long-term investment as the housing market is currently out of control due to high demand for eye-catching housing facilities in their varying forms and shapes. A good rental property should provide positive cash flow; the more, the better.
What can you point as major achievements in the sector?
Over the next 20 years, analysts expect that the value of global investable real estate will grow by an average of 5.2 percent annually to exceed $85trillion. The investment rationale for owning real estate remains attractive, macroeconomic shocks and political forebodings regardless. Statistics show that the real estate sector posted 3.85 percent growth in the second quarter of 2021, representing its highest growth in six years. In the third quarter of 2021, the sector expanded by 10 percent, despite the harsh economy and the rising cost of building materials. Despite these facts, experts forecast a rebound of the sector in the year. The Housing Development Advocacy Network (HDAN) predicts that the general outlook for the sector is bright, especially given its performance in the previous year where it recorded growth of 2.3 percent as against 1.9 percent. It predicts a 2.9 percent growth this year and going into the New Year.
What are critical concerns confronting the Nigerian property investment sector?
Nigeria, as the acclaimed “Giant of Africa,” has maintained its position as the country with the most real estate investment on the African continent for the past two decades and counting. This achievement is largely attributed to the country’s growing population of 200 million people. However, Nigeria, like most African countries, is plagued by numerous economic and political issues, which have had a negative impact on the country’s real estate market.
Here are some of the most critical concerns confronting the Nigerian property investment sector.
Expensive residences: The ongoing rise in the price of most Nigerian home projects posing a significant challenge to the country’s real estate sector. Most Nigerian cities are overpriced, which discourages potential investors. Rivers, Lagos and Abuja are the most affected cities, all of which are important commercial hubs. Furthermore, the exorbitant price tag has widened the social divide between different income earners. In short, there are some areas where a middle-income earner, let alone a low-income earner cannot afford to rent a home. Environmental, Social and Governance (ESG): ESG is a set standard that is used to evaluate the environmental and climate effects of housing units. In Nigeria, most apartments are characterised by pollution, prevalence of waste in public areas, lack of trash bins for proper waste disposal, and more. Another important factor that contributed to the exponential increase was the high proportion of healthy residents compared to the low rate of medical cases caused by environmental factors.
Naira Depreciation: The rate at which the Naira is depreciating is a major source of concern for all sectors of the Nigerian economy, including real estate. Nigerian real estate investors will most likely be purchasing construction materials at exorbitant prices, aided by rising naira depreciation.
Increased rural-to-urban migration:
One of the issues confronting Nigeria’s real estate sector is the increased rate of rural-to-urban migration. The large influx of renters from rural areas to urban areas has had a significant impact on property regulation in the country. As a result, most real estate managers and agents capitalise on this flow by raising house rents.
What should the stakeholders have done better and failed in the process?
Ineffective Property Protection Laws – Estate laws are generally not properly implemented in Nigeria, which has resulted in many cases where investors have been deprived of the land they legally purchased. This is common in developed areas of the country, such as Lagos, and is primarily orchestrated by a group of land thieves and grabbers known as omo-onile.
Poor building quality: Cases of collapsed buildings in various parts of the country indicate that the construction materials used by some contractors are sub-standard. In short, some of these building contractors in Nigeria lack the necessary educational credentials and professional experience.
What is the outlook of the sector in 2023?
All markets have continued to adjust to the pandemic, but each market has had to adjust in its own way and the real estate market is no exception. Over the next 20 years, analysts expect that the value of global investable real estate will grow by an average of 5.2 percent annually to exceed $85trillion.
The real estate sector is expected to continue its upward turn of events, as more investors will be looking into the prospect of venturing into the sector thereby harnessing the rate of return on investments that are available, given considerations to the indices recorded in the past years.
Do you foresee major reform in the sector?
I expect reform in the areas of registration and issuance of permits to real estate professionals nationwide;receiving and investigating petitions and complaints against registered real estate professionals; registration of real estate transactions nationwide; collation of data on real estate transactions; registration of tenancy transactions above five years; and formulation of real estate policies in line with global best practices.
What’s your take home advice?
The importance of real estate in Nigeria cannot be overstated. It is a major economic driver and has generated wealth for the country. However, despite being Africa’s largest sector, it has faced a number of critical challenges over the years. Building collapses, for example, have increased the number of human casualties, instilling fear in the majority of residents. These concerns have made the country’s real estate sector’s prospects less promising and likely to drive away potential property investors if not corrected.
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