Nigeria is rapidly approaching an economic crisis as the COVID-19 global pandemic has put the world on lockdown and sent Brent crude oil prices to a 20-year low. Spurred by lower global demand and reliance on oil exports for 90% of its foreign exchange income, Nigeria’s economy and her fragile currency are being pushed to their breaking point.
In this report, we will focus on the impact this pandemic will have on the real estate market in Nigeria. So far, key themes include mass concessions, re-negotiation and restructuring activity, slowed decision making, stretched out project deliveries due to the lockdown and more. After outlining the potential property sector losers, hospitality and retail most especially, alongside potential winners (industrial and healthcare), we discuss the impact of the COVID-19 pandemic on individual property sectors and the direction of rentals, capital markets and more.
Within this uncertain environment, we recommend that market participants including asset owners, real estate service providers and others stress test their businesses at varying levels of reduced income, use the downtime for market research to validate investment cases and focus energies on property sectors that are more resistant to shocks.
Why rents increased by 30% in Lagos, border towns
Factors responsible for the hike are rising cost of building materials, lack of transparency between asking and achievable prices.
Rents across Lagos (Mainland and Island) and Ogun State have increased by over 30% between December 2020 and April 2021.
Findings by Nairametrics revealed that while rent had increased by over 30% in some Lagos border towns like Sango-Ota, Arepo and Magboro, property owners across Yaba, Magodo, Ikoyi, and Lekki axis also inflated their rents by about 33% within the same period.
For instance, rents for one-bedroom (self-contain) and two-bedroom apartments, which are the most sought after in Magboro (one of the Lagos border towns) have increased from an average of N120,000 and N160,000 to N200,000 and N260,000 respectively. This represents a 33.33% and 30% increase respectively.
Similarly, rents in some key areas in Lagos Mainland are not cheaper. In Magodo phase 2, property owners charged between N1 million and N1.2 million for a 2-bedroom apartment, but now, a potential tenant is required to pay between N1.3 million and N1.56 million as rent (depending on how old the house is), an increase of approximately 30%.
Though rents appear relatively cheaper in Surulere, especially around Aguda, they also increased within the period under review. While rent on two-bedroom apartments and three-bedroom in Aguda has gone up from N850,000 and N1 million to N1.2 million and N1.4 million respectively, around Ogunlana drive, two-bedroom apartments that were let out at N950,000 now cost about N1.2 million.
Meanwhile, rents around the Lekki axis have also gone northward, as new tenants are forced to pay more before occupying houses. A 4-bedroom semi-detached house without boys quarters in Lekki Phase 1 and Ajah, which used to cost N3.8 million and N2 million, has risen to N4.5 million and N2.5 million respectively.
In Sangotedo, rent on three-bedroom flats has also increased from N1.2 million as of December 2020 to N1.6 million.
Why the rise?
Industry experts, who spoke with Nairametrics in separate interviews, explained that there are several factors responsible for the development and agreed that some of the reasons are not fundamentally strong.
Paul Bamigbola, Chairman, Nigerian Institute of Estate Surveyors and Valuers (NIESV), Lagos Chapter, told Nairametrics that a significant factor responsible for the hike is the rising cost of building materials.
According to him, property owners now spend more to build houses, as the cost of cement, iron rods, sanitary wares and tiles, among others, have all risen significantly.
For instance, the cost of steel, which was sold at N234,000 per tonne as of March 2020, had increased to N380,000 at the end of March 2021. This represents a 62% increase within the period under review.
Dangote Cement increased from N2,600 to N3,800 (though it is sold at N3,600 in some areas in Lagos), Lafarge Cement and BUA Cement increased from N2,400 and N2,250 to N3,600 and N3,250 respectively within the same period.
Bamigbola said, “The high cost of acquiring land, including the actual cost of building, also adds to the reasons property prices in Lagos are high.”
But when our analyst pointed out to Bamigbola that the hike also affected old houses, he said, “To also increase the rents, most of the owners of the old house renovate the houses a little before letting them out. They do that to increase the rent to about N400,000 if the owners of new houses charge N500,000.”
Another factor responsible for the hike, especially in Lagos, is the lack of formal housing. With over 3.8 million households in Lagos, up to 2.1 million households are without formal housing. This presents a supply gap of over 55%.
Chief Executive Officer, Richfield Limited, a real estate company, Samson Odegbami in a recent interview with Nairametrics said, “As typical in every market, excess demand drives up prices. This could make landlords, who frequently get requests for their available spaces, increase the prices and let out or sell the property to the highest bidder.”
Estate Intel, in its report, stated that the lack of transparency between asking and achievable prices was also another factor.
It added that the multiple agents and developers involved in marketing properties typically list these properties for significantly higher amounts than what they are willing to accept.
It stated, “We expect developers or agents to aim to achieve the highest possible price, with a window for negotiation, leaving a wider than usual spread between asking and achievable prices.
A large spread between asking and achievable rent makes average market rent seem artificially high and encourages other developers to hold fast on those artificially listed prices, keeping average rents or sale prices high.”
Based on the experts’ views, the rent prices could be very misleading, especially because most of the properties on the listed platforms in Nigeria are priced well above what is achievable.
Lagos commences enforcement against building collapse, substandard materials
The state government has moved to actualize its vision of zero tolerance for building collapse.
The Lagos State government said that it has commenced aggressive enforcement against quackery in construction to end building collapse in the state as it called for the support of building professionals.
This is as the state government has moved to actualize its vision of zero tolerance for building collapse.
This disclosure was made by the General Manager of Lagos State Materials Testing Laboratory (LSMTL), Mr Olufunsho Elulade, at its inaugural stakeholders’ conference with the theme, ‘Construction, Material Quality Control and Assurance in Lagos State, on Tuesday in Lagos.
According to a report from the News Agency of Nigeria (NAN), Elulade identified the use of substandard building materials and lack of adherence to quality assurance standards as the major causes of building collapse in the state.
He said the agency will immediately start standard enforcement in the building construction value chain to ensure the use of the right materials.
Elulade said, “We are, hereby, using this medium to state the terms of operations with all our stakeholders across the state; we want to partner with you to move the state forward in order to have safer Lagos for the benefit of all.’’
He emphasized the importance of doing away with the menace of quackery, substandard materials and corruption in the construction sector.
The LSMTL boss outlined the various services offered by its laboratory which includes soil tests, water quality assessment, calibration, destructive and non-destructive tests, among others.
While launching the new logo of the agency, Elulade, pointed out that it was a strategy to eliminate quacks and private laboratories using the agency’s old logo to impersonate its operations and mislead the public.
Also, the Public Relations Officer, Nigerian Institute of Builders (NIOB), Lagos Branch, Mr Olusesanayo Philip said the institute would sustain its public sensitisation campaign adding that the institute was also partnering with LSMTL to sensitise the public on the need to engage professional builders to tame the monster of building collapse in Nigeria.
What this means
The enforcement against quackery and the use of substandard materials in the construction value chain by the Lagos State government will come as a huge relief to residents and a boost to its fight against building collapse.
There have been numerous building collapse incidents in various parts of the state with attendant human casualties, due to the use of substandard materials or non-compliance with the state’s building planning laws and standards.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- UACN Property Development Company Plc appoints Ojo Odunayo as new CEO.
- Unilever Nigeria Plc reports a loss of N492 million in Q1 2021.
- Nigerian Breweries publishes names of over 100,000 shareholders who are yet to claim their dividends.
- 2020 FY Results: Sovereign Trust Insurance Plc records a 37% increase in profit after tax.
- CSCS Plc posts profit after tax of N6.93 billion in FY 2020