Property owners and developers are having a hard time selling their upscale properties as recession hits the market in Lagos, Abuja and Port Harcourt findings by Daily Trust have shown.
Besides, properties meant for sale are increasingly being converted to rent in areas like Banana Island, Lekki, Ikoyi and other highbrow areas as confirmed by many developers and estate agents privy to the development.
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The development is attributed to the COVID-19 induced recession, which has hit every sector of the economy.
Daily Trust reports that the half-year 2020 Nigeria Real Estate Market released by foremost real estate investment firm, Northcourt last year, on the effect of COVID-19, said there has been a general decline in purchasing power, which has led to a significant reduction in demand for large and expensive luxury homes.
According to the report, while there has been an increasing demand for one-bedroom and two-bedroom apartments, residential vacancy rates continue to increase across the country with landlords adopting a more “tenant-friendly” stance.
The report listed areas where vacancy rates have moved up in Lagos, Abuja and Port Harcourt to include Ikeja GRA, Ikoyi, Lekki, Magodo Phase 11 in Lagos; Apo, Gwarinpa, Jabi, Maitama, Wuse 2 in Abuja, as well as Old GRA, GRA phases one, two and three, Elenlewo, Peter Odili, among others in Port Harcourt.
According to the report, a recent survey indicated that most residential occupiers in Lagos are renters with only 29% confirmed to be homeowners.
It reads: “High-end areas in Lagos (Ikoyi, Victoria Island and Banana Island) and Abuja (Maitama and Asokoro) have the most luxury houses even though a steady proportion of these have been empty for the last 5 years.
“Luxury sale prices in Victoria Island and Ikoyi range between N160m – N200m and N250m – N300m respectively for the average 3- bed apartment. Banana Island rentals average N15M and N25M respectively per anum.”
It projected that the next few quarters would likely see a delay in the construction of luxury villas “as the world reconfigures its supply chain and adapts to increased construction costs.”
Sources, however, told Daily Trust that the situation rather than improving is getting worse by the day as developers are boxed to the corner in a bid to recoup their investment.
More so, it was learnt, that there has been a major lull in the development of new residential apartments in the highbrow areas.
An agent who operates in the upscale property segment who preferred anonymity added that apart from the increasing vacancy rates in the areas listed, “late payment of rent is getting high.” He said inflation has deepened the woes of players in the market even as the high cost of materials has also slowed down activities in the real estate industry.
“It is really a problem. The industry is facing the ugliest development we have never seen for years and the recovery is still going to be small. A lot of high net worth individuals are having it tough due to the COVID-19 induced recession and so patronage of expensive apartments in highbrow areas is decreasing.
“I recently visited a newly completed project on Banana Island, five units of five-bedroom terraces. The developer had built to sell but has now decided to rent. This was a tough switch for him considering that the property wasn’t commanding the expected sales price in the market due to inflation,” the agent said.
Speaking with Daily Trust, Managing Director of Rent Small Small, Mr. Tunde Balogun, confirmed the development in the upmarket saying it “is experiencing the sharpest sales and rental decline.”
He said many developers have lost billions of naira even as the majority secured bank loans to develop the properties.
Balogun said while the industry would rebound in the future with sale prices gaining more value, many developers don’t have the financial muscle to wait for too long.
For instance, he noted that some developers converting their properties meant for sale to rental could have waited till there is stability in the market but it is uncertain when the situation would improve.
“COVID-19 has not only created economic chaos but also brought about further devaluation to our currency. This means purchasing power has reduced significantly.
“So this developer in question is already counting his losses for today but betting against the future where he possibly can sell at a higher price. Sadly, not many developers have the financial muscle to wait as most are funded with loaned cash. Most will likely go red.
“The rental market will continue to see some activities. Not everybody can afford to buy, but people need a place to stay. If you can’t buy, you rent. Therefore, the rental market will do better than the sales market in highbrow areas, but generally, the vacancy will be high,” the real estate expert said.
Also speaking, Mr. James Oluwayemi of JS_Pace Homes, however, believed that despite the recession, a lot of people still bought properties in the upscale market.
According to him, the vacancies noticed in the highbrow areas of Banana Island, Ikoyi, among others could have been that those properties were developed for investment purposes with the expectation of significant yields in the future.
He said, “To an extent, people were actually buying properties. To be sincere with you, 2020, despite the hiccups, a whole lot of people still bought properties, especially in Ikoyi.
“If there is an increase in vacancy rates, it could be that the people who have bought such properties are trying to use them for investment purposes.”