Due to the poor conditions that have ravaged Nigeria’s economic space over the years, recession now ravages the housing market with real estate developers clamoring for a review of the major drivers of the sector. According to the National Association of Home Builders’ index, the confidence continues to fall for the eight consecutive month. The National Association of Realtors (NAR) report also indicated a decline in home sales for the sixth consecutive month. This situation has however, dubbed professionals from these associations to declare a recession in the housing market. An increased interest rate and construction costs are two poignant factors that have driven the housing market recession.
Globally, the pandemic supply chain slowdown was a driving force for the substantial increase in the cost of construction implements. However, there has been no significant reduction in the costs of these materials post-pandemic. In fact, the growing inflation that has ravaged the economic space has caused a monumental increase in the cost of these materials. These factors are recorded to have restricted numerous potential homebuyers from purchasing. This case is no different in Nigeria, as the National Bureau of Statistics (NBS) reported a growth in the real estate sector in the preceding two quarters of 2022. Per comparison, the Gross Domestic Product (GDP) rate for the first quarter of 2022 was 4.44 percent, higher than the recorded 2.67 percent of 2021’s first quarter.
Experts raise different opinions about the certainty of the recession.
The sector added 5.34 percent to the country’s GDP in Q1 of 2022, higher by 0.6 percent when compared to the 5.28 percent of the corresponding 2021 quarter. Q2 also recorded a 4.42 percent growth, adding 5.33 percent to the GDP. The National Bureau of Statistics, in its Consumer Price Index, reported that Nigeria’s headline inflation, on the year-on-year basis, had reached a new peak of 20.52 percent in August, a whopping 3.52 percent higher compared to the 17.01 percent recorded rate in August 2021. With this, the inflation rate grew astronomically in August 2022, with the price level at a 3.53 percent higher rate when compared statistically to August 2021.
However, experts have raised different opinions about the certainty of the recession. Though some professionals believe that the housing market has plunged into a recession, other experts are convinced that in fact it is the dynamics of the economy that has deterred it, as the inventory is tightened and rising prices across the country. Mr. Chudi Ubosi, a member of the Nigerian Institution of Estate Surveyors and Valuers (NIESV) and a former president of the International Real Estate Federation (Africa chapter), describing a recession state as one where there are more sellers than buyers. He asserted that despite the data churned out by the NBS, he was personally convinced that Nigeria was in a recession and real estate transactions slowing down. He noted that numerous investors have become risk averse, as a result of the socioeconomic and security deficiencies that have ravaged the country.
Huge population, the only drive of Nigeria’s real estate industry.
He further described Nigeria as a sellers’ market, where properties are being sold for as low as 20/25 percent below the market value. He noted that the only drive in Nigeria’s real estate industry presently was the huge population that has increased the demand. The Vice Chairman of NIESV, Lagos branch, Gbenga Ismail also indicated that there has been a massive increase in the prices of houses in Nigeria, evidently with a high demand. He asserted that there has been an over-valuation of houses, predicting an impending bubble but not a housing recession. Austin Otegbulu, a Professor of Estate Management and Environmental Valuation in the University of Lagos noted that there was an evident under-supply of houses in Nigeria and with the economy down, developers are likely to slow down their activities too. He said that the supply of housing will contract, causing a market equilibrium.
Dr. Yemi Adelabu, the Managing Director of Nigeria Integrated Social Housing (NISH) Affordable Housing Limited stated that it was unlikely for a housing recession where supply falls short of demand but rather a price adjustment and decline in quality, due to the high cost of materials. He further explained that the high mortgage rate would also not concretely lead to a housing recession, as Nigerians purchase houses using other financial options. He stated that due to the fact that Nigerians in diaspora are taking advantage of the low valuation of the Naira, real estate for the rich will continue to thrive, at the detriment of a widened housing deficit in the middle-income real estate market.
Experts advice government to enhance mortgage creation in Nigeria.
Adelakun however suggested that increases in prices should be expected, as a result of the imbalance between the demand and supply. Also, the Managing Director of Propertygate Development and Investment PLC, Adetokunbo Ajayi explained that the fact that there was no robust mortgage system in Nigeria has insulated the housing market from high interest rates, as people have become used to funding for housing projects with sources outside financial institutions. Experts however have suggested that the government must enhance mortgage creation at a reasonable rate, as well as creative incentives for manufacturers of building materials and developers.
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