By AYOOLA OLAOLUWA
In Lagos, tenants are now kings, thanks to the nation’s economy which continues to stutter.The downturn has negatively affected the real estate sector and is currently threatening its viability.
While transactions in the Lagos real estate sector have remained sluggish, price of houses are falling each day and many facilities remain unoccupied.
However, there is a silver lining from the negative trend. Unlike in the past where landlords reign supreme, tenants, especially those in high-end neighborhoods, now largely dictate their tenancy agreements.
Checks by Business Hallmark show that Nigeria’s exit from recession has not injected the much-anticipated boost. Rather, the sector is still going through a tough time as the country grapples with a sluggish economy and a much-devalued naira.
According to the National Bureau of Statistics (NBS) in its Fourth Quarter 2018 Gross Domestic Product (GDP) Report released on February 12, 2019, the labor-intensive sectors, agriculture, construction and real estate under-performed, with real estate the worst of the pack, having contracted 4.74 percent in 2018. That’s worse than the -4.27 percent contraction recorded in 2017, meaning the fortunes of the real estate sector is growing worse. By this report, real estate joined trade, health and social services and administrative support services to rank among the worst performing sectors.
While the Federal Government says the nation suffers a housing deficit of over 17 million, operators in the real estate sector are recording low sales. In Lagos, unoccupied buildings have become common sight.
Industry experts told BH that the nation’s stagnant economy, which led to the collapse of many firms, as well as loss of jobs and revenue, are daily fueling the surge in the numbers of vacant houses, especially in upscale neighborhood of Ikeja, Surulere, Apapa, Victoria Island, Lekki, Ikoyi and Lagos Island.
According to data made available to our correspondent by informed industry stakeholders,the number of unoccupied spaces has risen sharply over the past three years.
The Financial Derivatives Company Limited in a recent report said that the number of vacant properties in the upper-class real estate neighborhoods of Lekki, Victoria Island and Ikoyi has risen by 72 per cent over the last 18 months .MD/CEO of Financial Derivatives Company Limited, Mr. Bismarck Rewane, blamed the surge in the number of empty apartments in Ikoyi on padded cost of construction and outrageous prices.
The drop in the demand for office and dwelling spaces has forced many landlords to lower their rents to outrageous amounts. For example, a businessman in Lagos who runs his business from a rented office apartment in Apapa, narrated to BH how he got agood bargain from his landlord who had earlier tried to evict him.
“I was given a quit notice by my landlord to leave his property for delaying in paying my rent. AsI was preparing to leave, the owner asked me not to bother again, but I refused. After a lot of persuasion, I told him I won’t be able to pay the N10million rent I used to pay.
“He then asked me how much I could afford. I told him N2.5million. I was shocked when he agreed to the new rent. Many buildings in Apapa are presently unoccupied. The landlord must have reasoned that N2.5m is still a good bargain rather than having a vacant and useless property in his hands”, said the tenant who did not want his identity disclosed.
The case of Apapa is worsened by the high number of trailers, tankers and trucks coming to evacuate goods and petroleum products at the ports, thereby making it very difficult to do business. The situation has led to business owners and residents in Apapa relocating to other parts of the city with easy access, leaving behind empty commercial premises and homes.
The same situation applies in several highbrow areas in Lagos. Rather than the owners, it is now tenants that now decide what they pay.A real estate expert, Architect Ogwola Inalegwu Dominic, attributed the development to the nation’s economic situation, which has inevitably hit the real estate sector severely.
“The reality of the effect of the downturn of the economy on the real estate is that the sector is running at a very slow pace now. Real Estate covers other sectors of the economy such as; health-care, dwellings for families and warehousing.
“A critical look will suggest to you that all these areas I mentioned are not doing well because the real estate sector is down. The middle and low-income earners, who feed mostly on construction companies, are suffering. It is a multiplier effect. Even the multinationals in the sector are retrenching workers.
“Investors are also afraid, as nobody wants to put his money in a place he is not sure of. I have properties to sell for the past six months, but nobody is pricing them”, he said.
A former President of the Nigerian Institute of Quantity Survey (NIQS), Mr. Akin Olawore, said the real estate sector in usually the first hit during economic downturn.
“This is because people don’t have money to pay their rent, or go into new leases. Breaking it down, you will discover that in the commercial sector, a lot of commercial buildings that have just come into the market are lying idle because foreign investors that are the primary targets of such properties are not coming.
“A number of them are idle and few people are leasing. That shows that the void is increasing, though it has been like that in the last three years, because of the volume of spaces that are being dumped in the market.
“You’ll find some of them reducing their space and rent. So, it is really affecting real estate business. On the other side, people are defaulting. They just can’t find the money to pay now, so the default rate has also gone up.
“The market is of demand and supply, and purely a business decision. So, when you need money and this is what you have, then you have to look at what the market can offer at that point, it is not as if you are selling. And even if you are selling, you also consider what you will use the money to do.
“Unfortunately, I don’t think the fault is from the current government, I think it is a cumulative issue. The country is just coming to grips with some of the challenges and bad decisions we created for ourselves. We all need to come together, take what is available and create a running market around every house. Having vacant houses lying everywhere is not helping the economy. “For instance, it is when I give you money to buy and you in turn buy from somebody else that money starts to go round to make more money. Nigerians need to start adjusting to make our economy bounce back. We don’t have foreign exchange now, and we have been depending so much on that”, Olawore said.
A real estate professional based in Ikeja, Mr. Jacobs Kalejaiye, said “Owing to the downturn in the nation’s economy, several cities, especially Lagos, have been badly hit. While many prime properties are wasting away unoccupied, the much-needed capital to turnaround the fate of the sector has taken flight. As it is, we now practically beg would-be tenants to pay what they can afford just to fill up spaces in other to pay up bank loans and sundry charges”, lamented.
A surveyor, Mr. Kolawole Ayoola, said this is the best period for tenants to secure good bargains and buyers to bid for property, stressing that many property owners are now disposing their asset at lower prices.
While blaming the lull on the nation’s sluggish economy, he said depreciation of the naira had a hand in the real estate crisis.
“I believe now is the period to buy property if the price and location is right because a lot of property owners are disposing some property to offset debts, execute projects and have ready liquid cash”, Ayoola said.
BH findings also revealed another reason for the high rate of vacant buildings in Lagos. It was discovered that industrial and manufacturing have shifted their focus to locations to states like Ogun and Oyo with lower rents and taxes.
Industrial giants like Nestle, Paterson Zhoconis (PZ), Procter and Gamble, Petals, China Plastics, among many others have moved their plants to Ibadan in Oyo State and Ibeshe, Ewekoro and Ogere in Ogun state. Several other companies have moved, while others like energy giant, Mikano, are daily building oustide Lagos in readiness to relocate their operating bases.
The lull in activities in the real estate sector also reflected in vacancy rates across the country. Vacancy rates in three of the country’s real estate hubs (Lagos, Abuja and Port Harcourt) in Q1’18 are as follows: