Nige­rian prop­erty crash at­tracts brave in­vestors

Kuwait Times - - BUSINESS -

LA­GOS: A prop­erty mar­ket crash in Nige­ria of­fers op­por­tu­ni­ties for brave in­vestors bet­ting that Africa’s most pop­u­lous na­tion will de­liver high re­turns when it climbs out of re­ces­sion.

Rents for res­i­den­tial and of­fice prop­erty in the com­mer­cial cap­i­tal La­gos have dropped by around 20 per­cent, year on year, due to a sup­ply glut as projects planned prior to 2014, when oil prices started to fall, are now coming on­line. In­vest­ing in Africa’s largest econ­omy re­quires a will­ing­ness to nav­i­gate opaque land laws, cor­rup­tion and the prospect of hav­ing money held up in the bank due to cur­rency re­stric­tions.

The cen­tral bank has made it dif­fi­cult to repa­tri­ate prof­its as it seeks to avoid a col­lapse of the naira due to a slump of oil rev­enues, which has pushed Nige­ria into its first re­ces­sion in 25 years. But Nige­ria has a fast-grow­ing pop­u­la­tion that will re­quire more hous­ing and shop­ping malls in the long-term, and some in­vestors be­lieve the time is right to step in, par­tic­u­larly as banks are re­luc­tant to grant loans to other po­ten­tial buy­ers in the midst of the down­turn. Some pri­vate equity funds, mostly from South Africa, are in­vest­ing in La­gos and the cap­i­tal Abuja, bet­ting the spend­ing power of the coun­try’s 180 mil­lion peo­ple will grow.

“We be­lieve Nige­ria has mas­sive po­ten­tial in the re­tail area,” said Jan van Zyl, head of Nige­rian prop­erty devel­op­ment at South African fund No­vare Equity Part­ners. “The sec­tor is in its in­fancy and will only con­tinue to grow from a very low base.” In­vestors face the risk of be­ing caught in another de­val­u­a­tion as the cen­tral bank seeks to end a 30 per­cent spread to the black mar­ket-a goal it failed to achieve when it al­lowed a 40 per­cent de­pre­ci­a­tion in June.

But in­vestors can take ad­van­tage of their pur­chas­ing power as the coun­try is des­per­ate for dol­lars to re­place oil rev­enues which ac­count for al­most all the hard cur­rency in­come it needs to fund food and other im­ports. “What you are of­fer­ing as an in­vestor is liq­uid­ity. In the coun­try it­self, there is no liq­uid­ity,” said Jonathan Mil­lard, La­gos-based chief op­er­at­ing of­fi­cer at Troloppe Prop­erty Ser­vices. “If you’re look­ing at this on a five to 10 year cy­cle there are tons of op­por­tu­ni­ties.”

He said there were also op­por­tu­ni­ties in res­i­den­tial prop­erty, whose rents had, in dol­lar terms, fallen by up to 70 per­cent since 2009, which was driv­ing down prices. “Va­cancy is about 30 to 40 per­cent,” he said.

BUILD­ING BOOM

The south­ern megac­ity of La­gos has seen a build­ing boom in the last few years-real es­tate is a favourite des­ti­na­tion for those who get their hands on oil money. Two shop­ping malls were com­pleted within the last three months, bring­ing to eight the to­tal of such re­tail hubs in the city. With the cen­tral bank im­pos­ing hard cur­rency curbs and con­struc­tion ac­tiv­i­ties slow­ing in a dol­lar-starved econ­omy, for­eign cap­i­tal flows into Nige­ria fell by 61 per­cent, year-on-year, in the sec­ond quar­ter.

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