The real estate market is often the worst hit in times of recession and also takes a longer time to pick up unlike other sectors.Property developers as well as estate surveyors and valuers have said the real estate industry is still in recession despite the rebound in the economy.
According to experts in the industry, many houses were still vacant and there was still high rate of default on rent payment by tenants.
The National General Secretary, Real Estate Developers Association of Nigeria, Mr. Akintoye Adeoye, said investors, especially those in the residential sub-sector, had yet to feel the impact of a rebound in the economy.
He noted that despite several innovative options that had been made available to buyers, developers were still unable to sell off or lease properties.
Adeoye stated, “As developers, we haven’t felt any change in the economy. It is still the same as it was about one year ago when the recession was biting hard. Many houses are still vacant despite the fact that developers are becoming very innovative with offers to investors.
“We have come up with offers some of which allow subscribers to pay between 20 and 30 per cent deposit, move into the houses and spread the balance over four to six-year period. But despite this very generous offer, many subscribers are not forthcoming, because they are unable to come up with the deposits even on houses as cheap as N9m. So, in the real estate industry, we are still in a recession.”
According to Adeoye, the rental market is also not faring better as many landlords and tenants are in court over default on rent obligations.
“It has been a tenant’s market for some time now, but even that has not helped. As a lawyer, I can tell you that rent-related court cases are on the increase; tenants are defaulting and taking their landlords to court and vice versa,” he said.
He added that the top end and luxury markets in Lekki, Victoria Island and Ikoyi in Lagos, and some parts of Abuja, were the most affected.
The Senior Partner and Chief Executive Officer, Nelson Thorpe Alonge, a firm of chartered surveyors and estate surveyors and valuers, Mr. Victor Alonge, said it would take at least six months to one year post-recession for the real estate industry to pick up.
He explained, “As far as we are concerned in the industry, there has not been much change. In a recession, real estate is always badly hit; it is a cyclical challenge that real estate faces. And the key thing is that because real estate backs the economy, even when the economy is out of recession, it takes a while for that to be translated to the industry.
“Things have not changed as long as real estate is concerned; capacity is still low, uptake is still very low; we have very high vacancy rate and even where there are tenants, the rate of default is very high and landlords have had to take the heat.
“It will take a minimum of six months before the exit from recession reflects on the industry, because then, the economy will allow for planning, which will feed into other sectors. Evidence from places with robust data show that it will take about six months before we begin to see the effects; but the full effect will take over a year.”
Along said the recession had adversely affected practitioners as the traffic had been low and supply into the market constrained.
“No one wants to start a project that won’t be taken up. Prices have also nosedived and because of the challenges of having to spend more time and resources selling one property, our income has been affected and it has been challenging for estate surveyors and valuers and others too,” he added.
According to another estate surveyor and valuer, Mr. Akin Olawore, the recession within the real estate sector is brought about by high vacancy rates as the housing stock is excess of demand, while rents are being negotiated downwards due to low purchasing power, with high rent default rate.
“Tenants seem to have an upper hand at this time as landlords are usually caught in between increasing rent or retaining existing tenants in order to avoid vacancy,” he added.
The Principal Partner, Kola Akomolede and Co., a firm of estate surveyors and valuers, Chief Kola Akomolede, said it might take up to the third or fourth quarter of 2018 for investment in the real estate industry to return to normal, adding that this was also subject to a continued improvement in the economy.
He added, “Investment in real estate takes time to respond to economic issues. Like economists will say, demand and supply are inelastic. So, it will take time for the market to react to the economy’s exit from recession.
“For instance, if there is a shortage in supply, it takes time to improve on it and if there is a shortage of demand too, it takes time for it to improve. As far as the market is concerned, we are still in recession; tenants still owe rent.”
Akomolede, however, advised that this was the best time to invest in real estate as well as construction activities.
“Whoever has the capacity to build should go ahead with construction because when the market begins to boom again, they will look back and realise they made the right decision. Same goes for those who can afford it and wish to buy houses; there is no better time than now to do that,” he added.
Olawore said a time of recession meant there would most likely be reduced head-on competition in the space as some investors would prefer to back out and wait for the economy to pick up, adding that this was the best time for smart investors to come in.
“A time of recession is where the bravery and strategy of real estate investors are called upon,” he noted.