Real Estate Contribution to GDP Declines in Third Quarter of 2016, Says Ajayi
The real estate sector, at end of the third quarter of 2016, contributed 8.20% to the nation’s GDP, a decline compared to 8.74% recorded at the same period last year. Chief Executive Officer of Propertygate Development and Investment Plc., Mr. Adetokunbo
The operating environment of 2016 has been a challenging one for the country and businesses, said the Chief Executive Officer of Propertygate Development and Investment Plc., Mr. Adetokunbo Ajayi. “The list of difficulties appears openended with GDP growth of 2.24% negative at the end of the third quarter, inflation at record high 18.48%, falling national revenue, liquidity squeeze, decline in foreign and local investment, high interest rate, weakening currency and atmosphere of uncertainty amongst others.
“These have adversely impacted governmental performance, operations of many businesses and the well-being of most citizens. According to the Central Bank of Nigeria’s report of November, 2016, interest rate on prime lending to real estate activities from 26% of lending banks is between 24% and 29% per annum and between 18% and 23% per annum from 52% of lenders.
“The maximum lending rate from most of the lending banks (87%) was between 24%-36% per annum. Mortgage financing to property buyers did not fare better, with unpleasant consequences for dreams of potential property buyers and real estate operators.”
Ajayi, in an interactive session with the media at the weekend on how Propertygate has been able to weather the storm, despite the recession, explained that lack of good road network, power supply, sewage and water remain hurdles to be crossed in order to make the government’s mass housing project attractive to the beneficiaries.
He noted that the Central Bank of Nigeria’s report of November, 2016 did not show mortgage lending in 50% of the banks. “The prime lend- ing rate from banks that gave mortgage was 24%-29% per annum (42% of lending banks), and maximum lending rate was between 24% and 32% per annum (83% of lending banks).”
He said apart from the perennial problems that traditionally undermine the sector, rising production costs have added to the challenges. “Due to extreme volatility in the country’s currency and other economic challenges, foreign investment in the country, which has strongly benefitted the sector in the past, has slowed down considerably.”
He quoted Deloitte’s 2016 African Construction Trends Report, which says, “Africa suffered a decline from $375 billion in 2015 to $324 billion in 2016. Combination of global economic headwinds, low growth and lower commodity prices contributed immensely to this decline, according to the report. Transactional volumes of prime real estate in sub-Sahara Africa so far, this year was put by the report around $150million, compared to approximately $400m in 2015. The report noted a sharp contrast in the fortune of real estate markets in Central and Eastern Europe which are seeing record levels of international capital inflow.”
He said since real estate sector does not operate as a virtual universe, it was obviously impacted as stated above. “It is, however, pleasant to note that the sector has shown great resilience against all odds.
“It suffered a marginal decrease in contribution to GDP in the 3rd quarter of 2016 of 0.54% compared to same period in 2015. Though a relatively slow tempo was observed, substantial activities continue to be recorded in the year.”
As an asset class with a hedge against inflation, he said real estate continues to enjoy attraction from investors. “Unlike the capital market, the sector has not recorded major market volatility, thus positioning it as an asset of choice.
“The major, going for the sector, is the fact that the need for real estate across strata remains extremely strong. Opportunities will therefore continue to exist. Though challenging times pose difficulties for operators, yet they present opportunities for innovations which will ultimately benefit the sector.
“For us at Propertygate, we are privileged to have people who have seen boom and bust eras. We have continued to navigate the ship of the enterprise forward. Our domain expertise and disciplined management are some of our competitive edge. Without doubt, we see a better tomorrow.”
Structural Problems of Mass Housing... There are some structural problems affecting the government’s mass housing project and proposed measures to revamp them, Ajayi said.
The federal and state governments have over the years embarked on mass housing for all in order to provide affordable shelter for the middle class and those at the lower level as evidence of government’s sensitivity to the welfare of the people.
But the projects, according to Ajayi, require strategic plan for
enhanced implementation. He noted that the target beneficiary of the housing for all requires minimum facilities in order to take advantage of the opportunity.
“Our expectation as private operators is that the government should provide enabling environment in those areas in order to encourage the target beneficiaries to take advantage. The easiest item to get by the government is land. But beyond the land is the issue of facilities such as good road network, sewage, pipe borne water, electricity and a host of others that can bring about enabling environment,” Ajayi said.
He lamented that due to low income and weak purchasing power of the target beneficiaries; the rich still buys the low-cost houses and let them out to the poor, the ultimate beneficiaries.
Propertygate’s position... Speaking on Propertygate Development and Investment Plc.,
Ajayi explained that despite the tough operating climate, the company had consistently operated profitably due to factors such as corporate integrity, innovation, excellent customer care and strong and dedicated human capital.
According to him, Propertygate had executed many high-profile projects in the year. He however admitted that the Real Estate industry had experienced a lot of challenges as a result of the recessionary period.
“Most high networth clients could not make effective demand due to weak purchasing power. Real Estate operators’ ability to import some components of building has been moderated by the high cost of forex.
“Real Estate is a capital intensive business; hence, operators are at the mercy of banks due to high cost of funds and low profitability. Government should create an enabling environment for the real estate operators to enable us operate optimally. But creativity and adherence to quality products and services would continue to define our operational philosophy at Propertygate,” he said.