THE COVID–19 EFFECT
In these unprecedented times, it is certain that all industries are shaken by the novel Corona Virus (Covid-19) Pandemic.
As the virus continues to spread, the fear increases day by day as to how long the world would be at a standstill, as economic and global activities have either been completely halted or slowed down drastically, and with most of the world on some form of lock down and restricted movement or the other.
Experts in the Nigerian real estate sector as at December 2019, were quite optimistic, because 2020 was projected to be a great year for the real estate sector in Nigeria. Momentarily, the complete opposite is happening, as the implications of this surreal time and economical uncertainty on Nigeria’s real estate industry is imminent.
What factors drive the market prices of real estate in Nigeria?
According to the International Monetary Fund (IMF), in 2018, Nigeria’s economy expanded by 1.9%, an improvement from a minute growth of 0.8% in 2017, and a contraction of 1.6% in 2016 supported by improvements in manufacturing and services, the continued recovery in the oil sector further bolstered the Economy. In 2019, Nigeria’s Property Market was said to have experienced some stability notwithstanding the negative impact the recessions had on it in the last four years, albeit Nigeria’s real estate trajectory has risen and fallen with international oil markets.
Several factors affect the real estate market in Nigeria, some of these include:
- Oil prices
- Government policies
- Interest rates
- Foreign Exchange
- Demand & Supply
Further to the Federal Government’s introduction and executive order on Ease of Doing business in Nigeria, and Nigeria being ranked as 131 on the World Banks Doing Business 2020 index as at October, 2019, it was projected that investors would begin to regain their trust in the Nigerian economy and possibly invest in the real estate sector of the economy. It was also envisaged that there will be an increasing demand for residential real estate development in Nigeria, especially in the commercial hubs such as Lagos, Port Harcourt and Abuja.
Uncertainty is the new normal as every industry is uncertain of the impact of these COVID-19 times. With the stock market crashing, foreign exchange sky- rocketing, exports from China drastically reduced and loss of jobs and pay-cuts, property sales is projected to take a hit in the very near future. The plausibility of a decline in the demand for news property development is high, as intending real estate investors have taken a back seat to study what is about to unravel and the best time to re-enter the market.
There is so much apprehension, as property owners and developers are contemplating what to do with their properties, whether to sell, keep them, increase the purchase prices or panic sell at discounted prices. All of these are the trepidations for property investors in Nigeria.
Off-plan property investors are agitated due to the effect of high exchange rate and its impact on cost of building materials, the procurement process and delivery timelines for completion.
Amidst issues of Force Majeure lingering as the big elephant in the room, these are untold times and Force Majeure is now a hush hush topic, with parties waiting for the other party to raise and initiate this clause in their property contracts.
With the demand for oil being at its lowest in a very long time, it is most certain that the impact on the Nigerian Economy would be enormous, if the Nigerian Government does not take drastic measures to boost the Nigerian economy and capitalize on the current downtime.
Real estate experts are uncertain and divided on the long term effect of Covid-19 on the real estate sector of the economy. Although, some are optimistic and of the school of thought that its effect would be positive in view of the lower interest rates and Naira devaluation, others argue it would have a negative effect, as a section of the economy would have to prioritise their earnings due to loss of jobs and lack of income. Some of the speculated impact of Covid-19 on the real estate sector of Nigeria as discussed above, are further highlighted:
Delay in conducting due diligence on properties due to the lockdown / eased lockdown;
Setback in processing & registration of land titles, which will eventually create a backlog of applications, which existed prior to the lockdown; Dawdling in construction and delivery dates of properties, reduced staff capacity on site, as well as contractual issues between buyers and sellers, and banks and construction companies; Constructions companies who have taken out bank loans to construct, the delay in construction means they would have to pay interest for a longer term; and,A seemingly reduced demand in commercial real estate properties, due to the adoption of tech solutions and working from home policies by different organization.