Potential investors are being forced to reconsider their decisions due to the poor expansion of Nigeria’s real estate industry, which is caused by a volatile currency rate and skyrocketing inflation.
In Nigeria, real earnings have not kept up with the surge in property values, which has slowed development and investment.
According to the National Bureau of Statistics (NBS), the construction sector’s share of the real gross domestic product (GDP) in the second quarter (Q2) of 2024 was 3.17 per cent. This is a decrease from 3.23 percent in the same quarter of 2023 and 4.01 per cent in the first quarter (Q1) of 2024.
Similarly, real GDP growth in Q2 of 2024 was 0.75 per cent, less than that of Q2 2023 and Q1 2024.
“The cost of maintaining existing properties is heavily impacted by inflation,” stated Ike Ibeabuchi, a financial markets analyst in Abuja.
Second, money has become more expensive. You need money to invest in real estate, and most of the available money is pricey. The speaker stated that real estate investments are impossible when businesses find it difficult to obtain capital.
A developer recalled that he had sold twenty-four semi-detached home units four years before roofing them.
He is constructing ten townhouses at a cost of N65 million each. Only two have been sold, and he’s almost finished developing them.
“When people are holding on to cash, it indicates that things are tough. A man who has N60 million is not ready to buy a house of N45 million because he does not want to hold only N15 million. Such a man wants to unwind and see what happens next,” the developer explained.
The real estate market, which was previously seeing rapid growth due to factors such as “unearned wealth,” foreign inflows, and remittances from Nigerians living abroad, is currently facing a lack of investment due to hyperinflation and unstable exchange rates.
The impact on the rental market appears to be greater, as this reporter was informed by a landlord in one of Nigeria’s upscale neighbourhoods that his property, which was previously valued at $85,000 year, had been reduced by 40% to $45,000, but he was still having trouble finding renters.
The chairman of Estate Links Limited, Gbenga Olaniyan, cautioned against investing or buying at this moment in the market.
“Those who are selling now will hold their funds when they sell off their units; those who do not buy now will only buy when it is more expensive, unless the market improves.”
According to analysts, positive changes have been observed in the real estate market. They also note that prices are currently being corrected by 20% for residential and commercial office developments, in addition to maturing and stabilising.
“Yes, what we are seeing now is a clear price correction,” Olaniyan said, recalling that at one point, Grade A office rent in Nigeria was only equalled by Angola, with rent in Nigeria being higher than that of Hong Kong, New York, and some areas of the United Kingdom.
“At that time, Grade A office rent was $1,100 per square metre. Now, we can’t be looking at anything more than $800 per square metre. Similarly, the prime land in parts of Ikoyi like Bourdillon, Gerard and Kingsway Road which was, at a point, selling for $330,000 to $350,000 per square metre, matching Banana Island price, has dropped because people who bought at the time did so to build three or four blocks of 24 flats each but these are no longer selling or letting because demand has dropped,” he added.
He pointed out that rents in Nigeria are three times more than those in Sandston, South Africa, where there are better-quality office buildings. He stated that individuals in that country were paying high rents because there was a near-complete shortage of Grade A office spaces.
