Nigerian property crash attracts brave investors
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.
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.