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Nigeria’s property market on growth path

The Nigerian real estate sector was valued at $39bn and growing at 10 percent a year
The Nigerian real estate sector was valued at $39bn and growing at 10 percent a year

A large housing deficit and an increasing demand for residences in Nigeria have set the Nigerian real estate sector on course for a period of sustained growth.
According to a report by Lagos-based  investment advisory and project development firm, CBO Capital earlier this year, the sector was valued at $39bn and growing at 10 percent a year. Even though local and foreign developers have carried out a large number of projects in recent years, in most segments demand has outpaced delivery.
In Lagos, the country’s largest urban area and one of the fastest-growing cities in the world, around 70 percent of the population lived in informal housing and slums as of early 2014, according to Lagos State authorities, while government data estimates an enormous total housing deficit at 15m-20 million units as of late 2013.
There are challenges on the horizon, with forecasts of slower GDP growth in Africa’s largest economy in the near future, and a weak currency that risks pushing up the cost of new developments. But the sizeable shortfall means that developers should have no shortage of potential buyers, particularly in the lower- and middle-income segments, over the coming years.
A recent report by Deloitte found that real-estate-related building work represented a significant piece of Nigeria’s construction activity, not just in terms of new builds but also in terms of associated infrastructure, such as roads and utility mains. According to its African Construction Trends survey for 2014, released in March, 11 percent of the $36bn invested last year in Nigeria’s infrastructure projects was linked to work in the property sector. This represents almost double the 6 percent African average.
Nigeria’s property market has also benefitted from the emergence of new financing initiatives for home buyers, with the Nigerian government in January 2014 announcing the establishment of the NMRC, a state entity that will provide long-term, low-interest financing to local lenders, to encourage them to ramp up their mortgage offerings for end-users. Prior to this, the NMRC secured a World Bank-approved concessional $300m 40-year interest-free International Development Association loan. The new firm is the latest in a long line of affordable housing initiatives the government has launched since 2011.2015-Real-Estate-in-Nigeria
So far, demand has been high, with figures showing that the NMRC received over 65,000 applications for the initial tranche of 10,000 homeowner mortgages in its first month of operations. The group’s CEO Charles Inyangete said in February that he expected the agency to facilitate up to 450,000 mortgages on homes in the mid-price range bracket over the coming five years. Loans on low-cost housing units are expected to reach similar, if not higher numbers, he added.
The long-term forecast for Nigeria’s real estate market is fairly rosy, although a cooling of the economy could weigh on both demand and sales in the coming year. In its Africa 2015 report, real estate consultancy Knight Frank pointed out that the short-term outlook for Nigeria in particular has weakened. The IMF expects Nigeria’s economy to grow 4.8 percent this year, below the government’s anticipated 5.5 percent, and down from an earlier projection of 6.4 percent at the end of last year. The slowdown is due in large part to weakening global oil prices.
Alongside lower oil prices, in March, ratings agency Standard & Poor’s lowered its assessment on Nigerian debt to B+, four levels below investment grade, in a move which is expected to push up borrowing costs for banks.
Property developer Ekwe Ogbonna says rising prices and increases in borrowing costs will lead to a lull in the market that could last beyond next year. ‘Many houses may be available for sale, but investors may not to rush to buy,’ Ogbonna told local media earlier in the year. ‘Another reason why it might slow down is that mortgage rates are high and there may be more expensive home prices as well as newer constructions.’nigeria rwal estate.2
Nigeria also continues to present a number of broader operational challenges for developers. In the World Bank’s 2014 Doing Business report, which studies business regulations around the world, the country ranked 147th overall out of 189 countries, down from 138th in 2013, with poor performance on a number of specific metrics: 151st for ease of obtaining construction permits; and 185th for property registration and electricity access, the latter being a major concern for makers of construction materials as well as building owners and managers.
Still, if developers are able to ride out the macroeconomic headwinds and ensure their stock is accessible for homebuyers, the upsides could be significant.

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