Slowly but steadily, the Nigerian property market is adjusting towards a positive trend as the economy of the country enters recovery territory, leading to increased activity in the real estate sector generally. The economy has, since the beginning of the second quarter of this year, been picking up.
There has been a relative stability in the foreign exchange market, which remained largely volatile for the better part of the last quarter of 2016 and the first quarter of this year.
The intervention by the Central Bank of Nigeria (CBN) in the forex market resulted in the naira appreciation, leading to a significant convergence between rates offered on both the official and parallel markets.
At the parallel market, the naira appreciated by around 26 per cent, from a peak of N516/US$ to N380/US$ as at the end of the first quarter of 2017. Similarly, headline inflation has dropped from 18.71 percent at the beginning of 2017 to 17.24 per cent as at April 2017 according to Nigeria Bureau of statistics, raising both investor confidence and consumer purchasing power.
The property market, which remained comatose at the peak of the 11-month old recession in the country with rising vacancy rate, subdued demand and falling prices, is now responding to the developments in the economy.
There has been a 4 percent improvement in the vacancy factor index (VFIX) as demand for properties picks up gradually. As at the first quarter of this year, the VFIX stood at 73.3 per cent. Bismarck Rewane, CEO, Financial Derivatives Company (FDC), estimates the index in the Lagos market presently at 69.3 percent. VFIX is an indicator of the state of the real estate markets in the upper class neighbourhoods of Lekki, Victoria Island and Ikoyi .
These areas are proximate to the central business district (CBD) or downtown areas of the Lagos metropolis. Rewane, who spoke at the July Lagos Business School (LBS) Executive Breakfast Session recently, noted that despite the slight improvement seen in the market, there are still some challenges such as the high cost of borrowing which limits inflow of external funds in the real estate market. Local investors are however doing developments. They are quite bullish in commercial office building which Rewane noted are on the increase.
A survey of active players in the market conducted by Ubosi Eleh + Co reveals that, over the next 12 to 24 months, approximately 98,960 square metres of office space are expected to come into the market with 63,640 square metres of them intended to have been added to the market by the last quarter of 2016. This segment of the market is still struggling with low demand and over supply.
Chudi Ubosi, Principal Partner at Ubosi Eleh + Co notes that in Ikoyi, asking rents for this class of assets are averaging $600 to $850 per square metre per annum, representing 2 per cent lower than Q2 2016 rents while achievable rents in this location are 8 per cent to 15 per cent below asking rents. “In Victoria Island, average asking rents follow Ikoyi pattern, easing by 6 per cent to $780 per square metre per annum in Q1 2017; achievable rents here are 10 percent to 20 percent below asking rents,” he said.