Despite efforts made by the Federal Government to revamp the economy, housing/construction activities are yet to resume fully in the real estate sector. The persistent macroeconomic headwinds slowed down construction activities throughout the first half of the year, while cost of building materials reached the roof top. Practitioners’ challenges are not limited to the difficult economic climate in the country due to major plunge in oil revenue, recent foreign exchange policy, anticorruption crusade, budget delay and low disposable income.
Although the federal authorities has long passed 2016 budget with a promise to inject N350 billion into critical sectors of the economy, the housing industry is yet to recover from the recession going by the high level of inactivity throughout the first half of the year. The situation has also been made worse by the poor financial status of some state government. As at today, some state governments are yet to pay six months’ salary arrears of workers to talk less of initiating housing projects to benefit home seekers in their respective states.
Speaking with reporters, some of the industry professionals enjoined real estate developers not to be discouraged by the current downturn but to rather reexamine their Bill of Quantities (BOQ) and make amends where necessary in view of rising costs of building materials. They noted that the wave of low disposable income negatively affected the demand for houses in the first half of the year, adding that challenges with transferability of title and weak judicial system also generated threats. According to them, some of the sub-sectors such as road and housing construction, mortgage and building materials suffered major setbacks within the period under review.
Until the second week in June, road contractors handling projects in the country were on strike for eight months over unpaid N600 billion owed contractors by the federal authorities. According to the President of Federation of Construction Industry (FOCI), the umbrella body for all high profile contractors, Mr. Solomon Ogunbusola, 75 per cent of the workers were laid off as a result of inactivity in the sector.
Within the period, construction works on Lagos-Ibadan, Shagamu-Ore, Lokoja-Abuja, Oshodi-Apapa, Enugu-Onisha, Enugu-Port Harcourt roads and Second Niger Bridge were suspended and abandoned due to scarcity of fund. However, due to persuasion and promise by the Federal Government to pay some of its debts and inject N350 billion into critical capital projects, the contractors are gradually going back to site.
For example, Messrs Julius Berger Plc and Reynoid Construction Company (RCC) have already commenced work on Lagos-Ibadan expressway. Also in April, Lagos State Government signed a Memoranda of Understanding (MoU) with a consortium of firms to construct the Fourth Mainland Bridge.
Major housing projects such as Eko Atlantic City, Ogun Plainfield Estate and Lagos housing schemes among others, lagged behind in the first half of the year due to scarcity of fund and lack of patronage by supposed home seekers. Although the Federal Government proposed to build one million housing units per year in partnership with states and the private sector, details of this project are yet to be out.
Throughout the period under review, a lot of vacant houses in high-brow areas of Lagos and Abuja remained unoccupied due to the harsh economy and high rental value. The macro economic challenges facing the country have shot vacancy in real estate to as much as 71 per cent in the last one and half years. According to the latest reports from FBI Capital and Financial Derivatives Company (FDC), a number of vacant properties have been on the increase in the last 17 months.
This scenario, according to the reports, reflects a continued deterioration in the real estate market. The reports blamed high vacancy factor in the property market on prevailing economic challenges, which analysts said had put immense strain on the country’s real estate sector and affected property market as sales dipped significantly. “Several completed residential buildings (particularly in Lagos and Abuja) have remained vacant,” the study stated.
The reports noted that despite the fact that national demand for houses remained very strong, affordability has been eroded on the back of economic slowdown, squeeze in consumers’ purchasing power and rising cost of imported building materials, which account for a considerable proportion of the final sales price of residential units. Although 10 states in the federation proposed to spend over N239.149 billion on housing provision, being the summary of their 2016 proposed budget allocation to the sector, Nigerians are yet to see signs of the initiative.
The states include Lagos, Kano, Sokoto, Kaduna, Taraba, Enugu, Ogun, Anambra, Akwa Ibom and Kogi states. Besides, Federal Government clampdown on corruption and money laundering has reduced money going into real estate, as some houses belonging to former public office holders under probe have been sealed in Lagos and Abuja by officials of the Economic and Financial Crimes Commission (EFCC). As a result, residential and non-residential building market has registered sluggish growth.
There was no serious mortgage activity noticed in the period under review. According to a reliable source, the apex housing financial institution, Federal Mortgage Bank of Nigeria (FMBN) has been finding it difficult to grant approvals to mortgage seekers under the NHF and Estate Developers’ loans due to current financial difficulties confronting it. The cash-squeeze, the source said, was being compounded by the inability of employers at both public and private sectors to pay salaries of their workers, who are major contributors to the NHF.
The source said: “Many state governments and private companies under the NHF scheme have not been able to pay salaries to workers in the last five months. Also, banks are laying off staff under the guise of difficult operating environment. “This has reduced the volume of cash flow to the National Housing Fund. The bank has been finding it difficult to grant loans to contributors and developers of housing estates.”
According to the source, the planned recapitalisation of the bank to the tune of N250 billion has been put on hold due to the current financial challenge. Speaking recently, the acting Managing Director, FMBN, Mr. Richard Esin, canvassed for an improved mortgage system to overcome the challenges of low income, high cost of housing delivery and high mortgage transaction costs.
He disclosed that as at March 2016, a total of N199.9 billion had been collected from 4.14 million registered contributors under the NHF scheme. He said: “In line with the provision of the Act, total sum of N5.9billion has been refunded to 118,284 individuals who met the conditions for a refund. “It is pertinent to mention that over 70 per cent of the cumulative collections were recorded within the last five years of operations.”
Managing Director of Financial Derivative Company, Mr Bismarck Rewane, noted that Eko Atlantic City and major ongoing commercial/office projects such as shopping centres struggled to gain attraction as domestic and international investors adopted a wait-and-see approach to the projects. He described real estate as the fastest growing sector in the third quarter of 2015, pointing out that as the nation’s Gross Domestic Product (GDP) grows in 2016 due to government expenditure, real estate would be a major beneficiary.
The immediate past Chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Lagos chapter, Mr. Stephen Jagun, confirmed that developers had not stopped expressing surprise about the situation in the sector. He expressed fear over shortage of low-income houses in major urban cities, urging developers to look at this gap as an opportunity for revamping the sector.
It has been established that over 68 million Nigerians are either improperly housed or not housed at all. A Lagos-based estate surveyor and valuer, Chief Kola Akomolede, said that the lull in property market would continue due to the low disposable income of ‘honest’ people. He wants government to deliberately allocate fund to the provision of low-income houses to revamp the economy.
Besides, he wants the restructuring of the mortgage system to enhance easy access, low-interest and home-ownership among Nigerians. Other experts urged real estate practitioners and investors to look beyond the current situation in the country and invest more in property. The advice is based on the 2016 budget, which has highest capital expenditure on infrastructure such as works, power and housing with N433.4 billion.
The real estate sector is expected to rebound before the end of the year with major increase in government spending, investment, infrastructural development and improved power supply.