Rise in unsold units, vacancy rates trigger property glut
The scenario is not a surprise to property watchers as Nigerians have long been complaining about the skyrocketing property prices over the past few years.
The increase in property prices is due to speculative investing as well as the surge in number of developers jumping on the bandwagon for the past few years, whereby government and bankers’ responsibility cannot be absolved.
The phenomenon of property glut prevalent today did not get better despite many developers’ efforts in pushing sales which include rebates and lowered down payment.
Studies show that affordable housing is becoming increasingly out of reach for many low- and even moderate-income renters in the nation’s urban centres and their surrounding suburbs, as supply did not keep pace with this growth in demand, vacancy rates decreased, the average number of people living in a rental unit increased, and, in most areas, rents rose.
The situation is heightened by the recession in Nigerian economy, worsened by different monetary, fiscal, and political policies that hindered overall business activity, job creation rates and GDP performance as well as Central Bank of Nigeria’s tightening of restrictions on foreign exchange, which prevented easy access to non-naira denominations.
The Guardian gathered that the policies of the Federal Government are also undermining the sector and regulations have created “unprecedented levels of uncertainty” for the high-end home market. For instance, the directive by the Economic and Financial Crimes Commission (EFCC) to estate firms to report transactions has frightened prospective investors.
In most Nigerian cities, like Lagos, Abuja, Kaduna, and Port Harcourt, the story is not different, existing vacancy rate in residential and commercial market have continued to double. Most developers are now building affordable homes, which often proves to be unaffordable to low and medium income earners.
Whilst many rents have remained stable, tenants prefer cheaper product offerings with basic amenities.
The incentive to improve on these offerings has been hampered by the high cost of land, the uncertainty in the larger economy and the issues surrounding the supply of power and poor infrastructure.
Specifically, the glut in the property market is getting worse with banks, pension fund administrators and politicians offloading their assets into the market.
Some of the property has remained in the market for several months without any buyer.
As the elections draw near, experts believe that market will be saturated with many more property. Recently, two prominent banks have advertised some of its assets located across the country through bidding process.
The rental market has also faced similar fate, especially in highbrow areas in Lagos, Abuja, Kaduna and Port Harcourt.
For instance, in Ikoyi and Lekki Peninsula, some well-finished multi-storey buildings with some “stylish houses for rent,” that should appeal to tenants are still empty several months after completion.
In the last few years, developers have brought down bungalows and maisonettes in several choice locations like Ikoyi to construct high-rise buildings that can host dozens of housing units.
The rapid construction of high-rise apartments, which was encouraged to enable the Lagos deal with housing shortage as landlords get good returns, may not have paid off for most of the owners.
In fact, the expensive properties have been oversupplied.
Experts say, the supplied properties are not affordable and does not match to people’s demand; some developers of unsold units are facing cash flow hiccups and finding it difficult to service its financial liability; wages and salaries of workers are almost stagnant for several years while mortgage banks have not been able to meet expectations.
NIESV president, Mr. Rowland Abonta confirmed the development. He said the real estate sector is capital intensive.
“The impact of recession dealt directly on the sector. People are struggling to eke out a living and hardly think of heavy investment now.
“We say, Nigeria is coming out of it, but the reality is that quite a lot of people are passing through difficult experiences.
Usually the informal sources of funding in the market have really closed up because the activities of EFCC and investment in the sector are drastically reduced.”
Abonta said: “Prices have considerably dropped in the rental market. I have reduced rents up to 30 per cent in Abuja. The vacancy ratio in the market is so high now. “
He advised that government should allow free circulation of funding, pay contractors and consultants.
“Government should encourage new developments in real estate sector, ensure access to mortgage financing and infrastructural development, which will create more employment” he said.
A former chairman, NIESV’s Faculty of Housing, Mr. Biodun Odeleye traced the problem to over supply of properties, which has outstripped demand.
He said, “there must be access to mortgage, adding that the cash and cash transactions should be stopped.
“The economic system should be overhauled so that we should have a good leeway. If the economy does not improve affordability will continue to be an issue.”
But, the Second Deputy President, Real Estate Developers Association of Nigeria (REDAN), Akintoye Adeoye do not agree that there is glut in the sector. “We have many unsold properties but not really a glut,” he said.
He said there is need for off-takers data. “With such a data, developers will develop based on area of demand and type of houses desired and location.
“We need an enhancement of the mortgage industry. Successful home ownership can only become a reality with enhanced mortgage that guarantees single digit interest rate and tenure not less than five years. Definitely, this will enhance demand.”
He further urged government intervention by providing fund to Federal Mortgage Bank of Nigeria (FMBN).
Adeoye called for the rejuvenation of land policies by government from allocation/acquisition to titling and approvals.
“Government should provide reasonable external infrastructure to make project locations accessible,” he added.
Lagos NIESV Vice Chairman, Dotun Bamignola disclosed that, “there is clear caution in purchasing property.
Property prices have not really moved northward as usually anticipated by speculators.
Most of them are still locked down into their expectations,” he said.
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