The Nigerian real estate sector is growing at a rate of 8.7 percent, which is faster than the average GDP growth rate of 7.4 percent, according to a new report by accounting and auditing firm PricewaterhouseCoopers (PwC). In the report titled, “Real Estate: Building the future of Africa”, PwC also projected the country’s real estate investment to rise by about 49 percent, from $9.16 billion currently to $13.65 billion in 2016. It attributed the expected increase to a number of factors.
“This is driven by a growing middle-class driving demand for residential property development and, indirectly, retail, industrial and commercial real estate development. High net worth individuals (HNWIs) invest 25 percent of their assets in real estate compared to 18 percent or less in equities and other instruments.
Continued government reforms have created an enabling environment for property development and financing. Increased allocations of funding to the asset class by local and foreign investors are also key drivers of projected growth in this sector,” it stated.
The availability of office space is improving and several A-grade projects are underway. Rental figures in Lagos remain among the highest in the world, with achievable rents at more than $85 per square metre per month. The report also indicated that there is considerable room for profitable investments in the real estate sector due to the huge housing deficit in the country. “It is estimated that Nigeria has a housing deficit of 17 million houses estimated at $363 billion.
This number is expected to increase by two million houses per year at the current population growth of 2.8 percent per year.” It noted that if the growth pattern is sustained and improved on, numerous jobs will be created in the process and the housing deficit will be bridged sooner than later. The PwC report however highlighted the problems facing the real estate industry. The report cautioned that in spite of the substantial opportunities existing in the Nigerian real estate market, there a number of specific risks for property investors.
“There are existing problems with access to finance; with a lack of long-term debt financing and an underdeveloped mortgage market, with mortgage loans representing less than 1 percent of the nation’s GDP. Cumbersome and time-consuming processes for land acquisition and ownership documentation can make acquiring land difficult, while land in urban areas is expensive. Building materials and construction costs are also high and there is a reliance on expatriate workers resulting from a shortage of expertise in the local construction industry.
Security considerations as a result of local unrest should also be factored into investment decisions. A dearth of infrastructure presents difficulties for potential developers, as non-availability of basic services such as water and energy has forced developers to provide these amenities, adding up to 30 percent to total development costs,” it stated.