How private developers stave off lull in property market

Since the marginal recovery from the recession last year, the real estate sector is still lagging behind general economic performance because of an uncontrollable micro economic index.

According to the National Bureau of Statistics, the sector contracted further to –9.4per cent in Q1’18 from -5.92per cent in Q4’17 and -3.1per cent in Q1’17.

High borrowing costs, low demand for properties, rent service charge defaults and low construction activities have slowed activities in the sector and hindered growth rate.

The real estate sector is still feeling the pinch of high borrowing costs and dwindling consumer demand across board.

Demand in the office sub-category remains driven to a large extent by co-working spaces as developers offer flexible prices and terms, while industrial market has shifted focus to locations with lower rents and taxes in places such as Ogun state even though there are still need for certain infrastructure developments to be in place to fully maximize this demand. 

Currently, the four real estate and mortgage companies listed on the Nigerian Stock Exchange -UPDC, UAC Property, Union Homes and Skye Shelter Fund have their own share of the woes in the market.

Amid the lull in the market, property developers, who are worst hit in this milieu, are adopting survival strategies to weather the storm.

These strategies aimed to stave-off the lull and stay in business while awaiting a rebound in the sector, range from joint ventures, managerial, planning and pricing mechanism.

In the residential market, developers have also started reducing plot sizes, car parks in a bid to intensify land use.

For instance, the Managing Director of Propertygate Development and Investment Plc, the developer of Catembe Court, Lekki, Mr. Adetokunbo Ajayi, said his firm has an advantage of not borrowing to do its developments.

He noted that since developing finance approach has higher interest, it is always devastated for developers to borrow because they cannot concentrate to think when the financing cost is going up.

“Fortunately for us, we are not exposed to facilities,” he said.

Explaining further on the dynamism of this financial approach, he gave an example of the UAC properties, which lost N50 billion in their financials last year.

“You can see how devastating they are because the banks must collect their money, you can only get the money if people are buying but people are not paying.

Ajayi stressed that developing is cost intensive the lull means that if you are not getting revenue and your cost has remained constant, you have to pay staff, you have huge loan at interest at about 22 to 30 percent, and you are a goner.

To weather the storm, he said his firm runs a lean system to ensure that they are not bottled up unnecessary from human resources point of view.

“ We use implementation strategy by out- sourcing for many of the things we do as a result of that.

“For instance, some development companies do the construction themselves and have a whole bunch of the paraphernalia of a construction company.

“When there is a down turn what will happen to them. We use outsourcing strategies in that area.

Basically, if there is no work, we don’t engage you. So we are not incurring any cost. We need to pay on work basis”, he said.

Beyond, Ajayi said his firm is also very selective in their development approach.

According to him, many people often come with various suggestions, especially when there is land for joint venture but we are very selective because it may appear that it is good in fact, they are going to be cheap but, our thinking is that where is the market?

Even if they dash you the land for development, then what are you going to do if there is no market.

So we are very selective if we see that the market is very dicey for you to get returns in investment, and then what you do is better for you not to commence any development on them.

Added to this, Ajayi said his firm is also encouraging Installment payment arrangement for people.

“People are getting facility from conventional lenders that is also difficult, the interest is high and getting loans is also difficult for a lot of will be buyers.

If you are insisting on 100 percent that will be a disincentive for them.

“Installment arrangement that is also rational for us because you will also look at that, if you are not careful as you give installment arrangement that do not make so much sense to you.

When you start at the beginning as the construction goes on, you are making payment all along unlike when the house is completed.

We also do off plan payment, while construction is going on, it is easier for people to spread as you construct.”

Also, the Managing Director of Realty Point Limited, Mr. Debo Adejana said the survival strategy is cutting down on cost and restricting on existing projects in Abuja and Lekki.

Lagos-based property development firm, Messrs Tetramanor Limited is offering incentives for prospective subscribers in its 40-unit TM Meadows project located at Ebuta-Metta in Lagos.

The Chief Executive Officer, Tetramanor Limited, John Beecroft said: “We are offering a promo, if you make a deposit now you get a fully expense paid trip to Dubia, not lottery.

Others are doing rams, groundnut oils and rice but we believe that our customers are more than rice and ram.

“The Full trip to Dubai comparable to what you can get anywhere in the world and there is no better incentive than that.”

Beyond that, the firm has through strategic planning, managed its target market by moving to the Mainland.

According to Beecroft, right now, over 80 per cent of the construction is in the Island because of this, there is a lot of competition with too much supply leading to more unsold properties.