Business

Recession looms in Nigeria’s housing market

Published

2 years ago

September 19, 2022

Recession looms in Nigeria’s housing market

Following the economy’s poor performance in the last few years, Nigeria’s housing market has lurched into recession, with professionals and property developers seeking review of major drivers of the sector.

An index by the National Association of Home Builders found builders’ confidence falling for the eighth straight month; and a report by the National Association of Realtors (NAR) also found home sales declining for the sixth month in a row in July 2022.

This might have spurred experts at the two organisations to dub the situation a housing recession. Two main forces are driving the housing market recession: increasing interest rates and increasing construction costs. In an environment with better mortgage system, with higher interest rates, buyers are always reluctant to purchase new homes.

Also, the cost of construction materials increased, substantially, during the pandemic supply chain slowdowns. Post pandemic, these prices haven’t returned to normal, as widespread inflation has driven prices of goods even higher. The combination of these forces has driven many would-be homebuyers from the real estate market.

In Nigeria, the situation is not different, as report from National Bureau of Statistics (NBS) indicates growth in the real estate sector in the last two quarters of 2022. Real Gross Domestic Product (GDP) growth for the Q1 of 2022 stood at 4.44per cent, higher than 2.67 per cent points recorded in the first quarter of 2021, and higher by 2.96per cent points relative to Q4 2021.

It contributed 5.34 per cent to real GDP in Q1 2022, higher than the 5.28 per cent in the corresponding quarter of 2021. Q2 recorded 4.42per centgrowth and contributed 5.33per cent to real GDP in the period.

NBS, last week, said Nigeria’s headline inflation climbed to a new high of 20.52 per cent in August on a year–on–year basis. This was 3.52 per cent points higher compared to the rate recorded in August 2021, which was (17.01per cent). This is contained in the federal statistics office’ Consumer Price Index (CPI) report for the month of August 2022.

The report showed that inflation rate increased in the month of August 2022 when compared with the same month in the preceding year (August 2021). Meaning that in August 2022, the general price level was 3.52per cent higher relative to August 2021.

On a month-on-month basis, inflation rate in August 2022 was 1.77per cent, which was 0.05per cent lower than the rate recorded in July 2022 (1.82per cent). This means that in August 2022 the headline inflation rate (month–on–month basis) declined by 0.05per cent.

The percentage change in the average CPI for the 12 months period ending August 2022 over the average of the CPI for the previous 12 months period was 17.07per cent, showing a 0.47per cent increase compared to 16.60per cent recorded in August 2021.

Specifically, industry professionals differ on the certainty of the recession. While some claim that the housing market has already plunged into recession, others say, the dynamics of the economy has deterred it, as inventory remains tight and prices continue to rise across the country, with many homes being sold at the best price.

Fellow of the Nigerian Institution of Estate Surveyors and Valuers (NIESV) and a past President of the Africa Chapter of the International Real Estate Federation (FIABCI), Mr. Chudi Ubosi, said: “I am of the opinion that the Nigerian market is already in a recession. Unfortunately our NBS churns out different data but in reality, real estate transactions have slowed to a crawl.

“Decisions are being deferred and with a combination of the poor economy, the nature of our aggressive politics and political fall out, growing insecurity and poor currency rates a lot of investors have become risk averse. Despite our lack of a mortgage industry, real estate transactions could easily be 300 per cent higher than what they are now nationwide.”

For him, housing recession generally means more sellers than buyers. A recession indicates the inability of homeowners, especially those with mortgages secured their properties to meet those monthly obligations.

A recession means lower valued properties where by homes are selling at as much as 20/25per cent below market value. A recession means no takers for developed real estate because the economy is not growing and people are losing their jobs.

“Right now in Nigeria, we have a sellers’ market. It is important to state that the real estate market is most dynamic in three locations – Lagos, Abuja and Port Harcourt.

“Other cities come after with varying degrees of dynamism. Even in a recession, many markets may not be really impacted as it is generally felt. A lot of up market locations and properties may not be that impacted, for instance Ikoyi and Maitama,” Ubosi said.

According to the managing partner, Ubosi Eleh and Company, what drives the Nigerian real estate market today is primarily the huge population giving rise to a lot of demand. “There is also the uneven distribution of infrastructure that forces demand in urban areas and city centres as people struggle to live close to their work locations to limit transportation and commuting costs, as well as have a fair access to basic services and facilities,” he said.

The Vice Chairman, NIESV Lagos State branch and Vice Chairman, Lagos Chamber of Commerce and Industry (LCCI), Gbenga Ismail, said something strange is happening in Nigeria since December 2020 to date.

He said: “We have experienced a massive jump in house prices and with evident effective demand. The market may slightly be over- valued, so, there may be a bubble in the near future but not a housing recession.”

He explained that there is a housing deficit, and as such, demand outstrips supply in many segments of the housing sector, adding that the main drivers of the market are housing deficit, high inflation and restriction of capital flow.

A professor of Estate Management and Environmental Valuation, University of Lagos, Austin Otegbulu, explained that real estate activities operate within an economic environment and are hence susceptible to economic dynamics of booms and bursts. These booms and bursts are consequences of economic and property cycles.

“There is under-supply of housing in Nigeria and when the economy is down developers will slow down, their activities. Housing supply will contract and there will be market equilibrium. Recession is more likely in the upper end housing market than in the lower and middle end property market.

“It’s cheaper to buy property during recession because of price contraction. The only problem is that money is also scarce during recession. There’s currently no recession in the housing sector, but contraction in the upper end housing market.

“In places like Surulere, Ikeja, Yaba and Maryland, housing prices are going up but do stay longer in the market due to high prices and scarcity of fund. These areas are built up and new construction is rare. Outside Lagos the housing market is dull but prices are not low.

“A major problem of the housing market is that it operates outside the banking sector, and is, somehow isolated from economic shocks. There’s need for government to introduce a healthy mortgage system with single digit lending rate. This will make the housing market more active with respect to demand and supply,” Otegbulu added.

The Managing Director, Nigeria Integrated Social Housing (NISH) Affordable Housing Limited, Dr. Yemi Adelakun, said housing market recession in Nigeria, where supply is far short of demand is most unlikely. “There may be price adjustments and a decline in new developments due to rising costs of construction; an outright housing market recession is most unlikely.

“Another important factor determining whether housing recession will occur is increase mortgage rate. Interest rates have been generally high in Nigeria and there is no hope of any improvement. The percentage of mortgage creation is abysmally low as most Nigerians buy houses using other financing options. As such, this may not necessarily be an indicator of housing recession,” he said.

According to him, Nigerians in diaspora are taking advantage of naira depreciation to invest in purchase or building of properties. Real estate market for the rich and upper income will continue to thrive while the housing deficit in the middle and lower income real estate market will continue to widen.

Adelakun said price increases should be expected due to increase in costs and the demand and supply imbalance. “The critical inputs that drive the current real estate market, include access to and cost of titled land, availability and cost of housing finance, supply and prides of housing materials, infrastructure and utilities,”Adelakun said.

The Managing Director, Propertygate Development and Investment Plc, Adetokunbo Ajayi, said there is also no sign that housing construction activities are waning or interest of developers dwindling in major Nigerian cities.

“The absence of robust functioning mortgage system in the country, in a way, makes the housing market almost insulated from high interest rate. People have become use to funding real estate substantially outside the financial institutions. The investment options available in the market space are also limited, with the equity market having a weak showing. It is just of recent that money market is showing some attraction.

“The soaring inflation is however, watering down the appetite of people for the money market, as they do not want their investment significantly degraded, while waiting for slightly high interest rate returns. Real estate, therefore, becomes one of the investment destinations during inflationary period.”

The experts advised government to promote mortgage creation at affordable rates and provide incentives to developers and building materials manufacturers.

Adelakun said government might consider improving access to land, which Is a critical factor in the real estate market, as well as facilitate issuance of bankable off takers guarantees to encourage interested developers to invest in affordable housing and promote innovative and less expensive housing finance options such as, crowd funding, cooperative housing and equity financing.

He said government should also compel PENCOM to implement existing policy that allows pension contributors to access 25 per cent of their Retirement Savings Account (RSA) balance for housing. “Access to 25 per cent pension contributions will invigorate the real estate market and consequently jumpstart the economy.”

Ubosi equally urged government to create the enabling environment for businesses to thrive, review the Land Use Act to ease access to land and title, as well as invest massively into infrastructure.

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Business

Businesses count losses amid power outage in Bauchi, Gombe, and Jigawa

Published

3 weeks ago

October 28, 2024

Matthew Eloyi

Business owners in Bauchi, Gombe and Jigawa are recording losses due to week-long blackout ocassioned by vandalism of the power transmission line in parts of northern Nigeria.

The sudden disruption in electricity supply in the past days, also affected essential services such as water, sanitation, street lighting and healthcare delivery as most hospitals have been operating without light.

Some of the affected businesses including shop keepers, millers and artisans, who spoke while reacting to a survey by the News Agency of Nigeria (NAN), described the situation as “pathetic”.

The survey examined the perennial collapse of national grid and the need for alternative power supply in the country.

Rice millers in Gombe had decried the impact of the erratic power supply on their businesses.

A Miller, Musa Arab, at Nassarawo Industrial Layout in Gombe, said the trend was crippling their operations as they relied on electricity supply from the grid to process paddy.

He said the mills were not operational power outage as they could not afford exorbitant pump prices of petrol or diesel to run their machines.

This, he said, reduced the volume of rice supply to the market and posed serious challenge to food security.

“We must invest in power because it is the biggest determining factor for industries to thrive.

“I have over 20 workers in my mill, and we have 100 mini rice mills here, so you can imagine those who have no jobs for the past 10 days.

“Government must go tough on those responsible for the perennial grid collapse because some persons may be benefitting from it,” he said.

Also, Yusuf Ibrahim said the situation might trigger the already fragile inflation, as prices of local varieties would shot up ocassioned by the diminish supply.

He said that some had jerked up their charges to cover the expenses on diesel thereby affecting rice prices.

A check by NAN at the Gombe Main market showed that a 100 kilogramme of rice was sold for between N120,000 and N160,000, as against N110,000 and N150,000, before the blackout.

Mr Usman Sani, a rice dealer, attributed the hike in price to low supply of the produce to the market in spite of the number harvest recorded this cropping season.

He said the prices had decreased slightly at the onset of the harvest, however, it showed sprawling increase due to power outage.

“The price of rice is already dropping as a result of harvest but the trend reverse since the blackout in the past days “ he said.

Ugochukwu Daniel, a bartender in Bauchi, decried the epileptic power supply in the country, adding that lack of durable energy supply would retard Nigeria’s quest to attain social and economic greatness.

Daniel said that she spent much on fuel to run power generator for refrigrator and lightening the beer parlour, to enable her to keep the business running.

He said that businesses could only thrive in an enabling environment with stable electricity supply, to enhance wealth creation and reduce poverty among Nigerians.

“My trade is about chill drinks and it survives on electricity to operate otherwise you will out of bussiness.

“Without electricity there is nothing you can do, and not only business but about everything. We depend on it,” he said.

Similarly, Samuel Adamu, said the persistent power outage had forced him to patronised charcoal for ironing clothes in spite of its high cost and cumbersome processes.

He said that most cleaners in the area had resorted to fabricated iron charcoal in spite of hike in its prices which suddenly jumped from N5,000 to N15,000.

Adamu said the situation also encouraged division of labour in laundry to cut cost and make some gains.

“Presently, I do wash the cloth, and engage someone for ironing. The charge is N300 per set as against N150”.

While advocated development of renewable energies to enhance power supply in the country, Adamu urged security agencies to entensify efforts towards electrical installations in the country.

In the same vein; Mr Muhammad Adamu, Chairman, Jigawa State House Assembly Commitee on Power and Energy, said the Jigawa Electricity Law 2024, made sound provisions to improve power generation and distribution in the state.

This, he said, was an offshoot of the devaluation brought about by the 5th alteration of the constitution, where removed power from the executive legislative list and to the concurrent list.

“It empowered the state houses of assembly to enact laws on power.

“The committee has also carefully pursued the bill and reviewed its structure and the promise it holds for the state power sector, infrastructure and the overall economy of the state.

“The new law will pave way for the establishment of Jigawa Electricity Commission, to regulate the state’s electricity market,” he said.

According to Adamu, the law will protect residents and investors in the energy sector through ensuring prepaid meter installation and possibility of recouping investor’s funds as well as address vandalism.

“The law will lead to provision of reliable, affordable and sustainable power, essential for development of all sectors of the economy, particularly in rural areas,” Adamu said.

“Vandalism will be over because we pay Kano Electricity Distribution Company (KEDCO) money for powered supplies, but whenever there is problem of damages or broken down transformers, it is either the communities or individuals that pay for the repairs”.

Business

Mercedes urges delay of EU tariffs on Chinese electric vehicles

Published

1 month ago

October 21, 2024

Matthew Eloyi

Mercedes urges delay of EU tariffs on Chinese electric vehicles

The head of German luxury carmaker Mercedes-Benz, has called for the European Union to de-escalate the dispute with China over tariffs on electric cars.

“We need more free trade instead of new trade barriers.

“That is why it is important to find a solution that suits both the EU and China,” chief executive Ola Källenius told the Monday edition of Bild newspaper.

“The negotiations for this take time. In order not to jeopardise them, the EU should postpone the enforcement of the planned tariffs,’’ he said.

At the start of the month, a majority of EU countries paved the way for additional tariffs of up to 35.3 per cent on battery-powered electric vehicles imported from China.

Germany, however, voted against the measure amid concerns over retaliatory actions which could hurt the country’s giant car industry.

The European Commission had pressed for extra tariffs after an investigation accused Beijing of subsidising domestic electric car manufacturers, and thus distorting the market in the EU.

But whether the import tariffs would actually come into force at the beginning of November is still up to the commission.

The plans can still be dismissed if Brussels reaches a solution with China at the negotiating table.

Business

ACCI moves to promote business connections, balance work-life

Published

1 month ago

October 16, 2024

Matthew Eloyi

ACCI moves to promote business connections, balance work-life

The Abuja Chamber of Commerce and Industry (ACCI), is taking innovative steps to enhance professional relationships and promote a healthy work-life balance.

The President of ACCI, Dr Emeka Obegolu, said this in a statement on Tuesday in Abuja.

Obegolu said ACCI was committed to creating environments where professionals could connect beyond the confines of traditional boardrooms.

He said the upcoming “Business Meets Golf’’ Tournament epitomises this vision.

“Scheduled for Oct. 18 to Oct 19 at the IBB Golf Club, the tournament will gather industry leaders, top executives, and key decision-makers for a unique networking experience.

“This two-day event aims not only to strengthen business ties but also to foster partnerships that can drive economic growth.

“The ACCI’s initiative reistates the importance of maintaining a balance between professional achievement and personal well-being.

“By encouraging corporate cultures that prioritise relaxation and self-care, the Chamber acknowledges that such balance is vital for productivity and overall success,” he said.

According to Obegolu, the event will feature a range of activities designed to facilitate both business engagement and relaxation.

“Highlights include a Business-to-Business (B2B) cocktail on the first day, followed by the golf tournament and additional networking opportunities on the second day.

“The tournament will culminate in an awards ceremony recognising outstanding golfers among the participants.

“‘Business Meets Golf’ exemplifies our dedication to fostering innovative networking opportunities.

“We aim to create spaces for meaningful discussions that can lead to impactful collaborations,” Obegolu said.

The ACCI boss said in addition to promoting business connectivity, the council aimed to restate the importance of relaxation and a balanced lifestyle.

Obegolu said through events like this, the Chamber continued to play a pivotal role in supporting trade and industry in Nigeria while driving sustainable growth within the private sector.

He said to raise awareness about this landmark event, ACCI was partnering with the News Agency of Nigeria (NAN) and Media Trust Limited, to ensure broad visibility and engagement from leading brands.