Analysts see bleak future for Nigerian real estate despite exiting recession
Despite the real estate sector getting out of the woods as it broke its 12 consecutive quarters of decline by posting a 93 basis point growth in the first quarter, analysts are sceptical that the industry will thrive in the near term.
Prior to last quarter, the industry had been on a consistent decline since the first quarter (Q1) of 2016 averaging a contraction rate of 5.4 percent within that period.
It is disheartening that after 58 years since independence the nation has not met on the physiological needs (shelter) of its people as postulated by the great management scientist, Abraham Maslow.
“It is good news that the sector moved to positive growth territory, but I am not sure if this growth can be sustained through the year end as Nigerians are becoming poorer, with economic growth still below population growth,” said Oluwadamilola Ijalade, Broker with PWAN Homes.
Nigeria, Africa’s largest economy, with 17 million housing deficit, has been hobbled by structural issues that have hindered it from delivering affordable housing for its teeming population.
Despite efforts by the Goodluck Jonathan-led administration to resolve acute housing challenge through the establishment of Nigerian Mortgage Refinance Company (NMRC), housing shortage sees no improvement in President Buhari’s first tenure as his administration failed to consolidate on the initiative.
With 87 million people living below $1.98 dollar a day, as evident by a GDP growth which is still below population growth, as well as increasing inflation that has undermined disposable incomes, owning a home in this part of the world is like passing the donkey through the eye of the needle.
High mortgage interest rates are a cut throat for a civil servant or workers in the private sector whose monthly salaries have been eroded by inflation.
This is why Nigeria has one of the world’s lowest mortgage to Gross Domestic Product (GDP) rate of about 0.6 percent, which lags behind Ghana’s 2 percent, South Africa’s 30 percent and crawls after the U.S and UK rates of 60 percent and 70 percent, respectively.
“High interest rates for mortgages as well as high cost of housing in urban areas particularly high brow areas would continue to pressure aggregate demand for real estate in the long run. Thus, we struggle to see any sustained growth in the real estate sector in the near to medium term,” said analysts at CSL Stock Brokers Ltd.
A savvy investor will not put his money in mortgage institution with a low interest rate when they can get up to 16 to 18 per cent returns in Treasury bill.
Investors and stakeholders, however, expect Buhari-led administration to come up with reforms that would drive affordable home ownership to an average Nigerian.