These are not best of times for renters, as the number of available properties continue to drop by the day and rent surges owing to inflation in the real estate sector.
A factor that has also led to higher mortgage rates and higher home prices, increase in rental rates, devaluation of long-term debt, as well as increase in the cost of construction and distortion in the economy.
Other effects include high cost of funds, as reflected in the exchange rate crisis and high-energy cost. The option for the real estate investors was to hedge against the risks ruling to increase in rent and prices of land and properties.
Consumer Price Index report, recently, released by the National Bureau of Statistics (NBS), shows that the yearly inflation rate in Nigeria accelerated to 21.82 per cent in January 2023, the highest since September 2005, from 21.34 per cent in the prior month, against market expectations of a further slowdown to 21.3 per cent. The main drivers were soaring food prices and a weak naira.
The yearly core inflation rate accelerated for the 10th straight month to a 16-year high of 19.2 per cent in January, up from 18.5 per cent in the prior month. On a monthly basis, consumer prices surged by 1.87 per cent, the most in almost 16 years, after a 1.71 per cent increase in the previous month.
Specifically, inflation has triggered rise in price of building materials, making projects to be delayed and, in other cases, stalled. Developers have also reduced their portfolios, as purchasing powers of Nigerians continue to decrease for them to stay afloat.
There has also been a reduction in vacancies in some cities for certain categories of residential properties and also vacancies in residential properties in prime locations due to design issues, challenge of high-quality finishing and parking challenges.
Most affected are affordable, mid to low-income areas, where we are seeing vacancy rates at a record low within the past five years. The neighbourhoods in mainland Lagos with high demand pressure and low vacancy rates include, Yaba, Surulere and Magodo.
On the Island, a notable trend is that vacancy rates decrease from Ikoyi down to Victoria Island, and along Lekki-Epe Expressway, as houses become more affordable. New leases and rent renewals are more pronounced in units with lower-entry price point.
In Abuja, areas such as Jabi, Wuse, Utako and Gwarimpa are seeing low vacancy rates and developers are already taking advantage with recent increase in residential development going on in these regions.
Similarly, rents have increased by between 25 and 40 per cent in largely populated cities like Lagos, Abuja, Kano and Port Harcourt, where the hike has risen to about 50 per cent in certain locations in the last three years. For example, a duplex of four-bedrooms that was let out for N4m to 4.5m are now go for between N6m and 7m yearly.
Other locations, especially the high-density residential segments within the hinterlands in Lagos, have also witnessed almost double in the last three years.
For example, in Lagos, a three-bedroom apartment in Yaba with great demand has seen rental growth as high as 60 per cent within the last two years. High-end neighbourhoods have enjoyed similar rental growths, but over a longer period.
Rental prices in Yaba: Three-bedroom (N2.1m); four-bedroom (N3.4million); Surulere: three-bedroom (N2.2m); four-Bedroom (N3.5m); Gbagada: three-bedroom (N2.5m) and four-bedroom (N3.2m); Ikeja GRA: three-bedroom(N5.8m) and four-bedroom(N8.9m).
In Magodo GRA: three-bedroom (N2.6m) and four-bedroom (N4.5m); Festac: three-bedroom (2.3m) and four-bedroom (N3.3m); Apapa: three-bedroom (N2m) and four-bedroom (N4m); Lekki Phase 1: three-bedroom (N4.6m) and four-bedroom (N5.5m).
Similarly, in Ikoyi: three-bedroom (N13m) and four-bedroom (N15m); Banana Island: three-bedroom (N15m) and four-bedroom (N19.5m); Victoria Island: three-bedroom (N6m) and four-bedroom (N8.5m).
Estate surveyors and valuers, including property developers, who confirmed the development, traced the situation to market forces of demand and supply, as well as decline in vacancy rate.
Chief Executive Officer/Senior Partner, Knight Frank Nigeria, Frank Okosun, attributed it to demand pressure for housing in city centres, especially from students, young professionals and millennials at large places, high priority on accessibility and coupled with the slow pace of supply delivery as a result of rising cost of construction.
He said: “In high-end neighbourhoods, this trend is more pronounced with houses and apartments with lower entry price point as compared with ultra-luxury/high-rise grade-A units,” adding, “it’s a seller’s market. Landlords are confident of high absorption rate for one, two and three-bedroom rentals.”
Okosun explained that private developers account for most of the urban housing; therefore, they control the supply side of housing delivery. “Developers are rational; they are attracted to high capital values and neighbourhoods that optimises their capital investment, such as two and three bedrooms apartments and terraces, thereby, ignoring affordable housing.
“This is evident in Ikoyi, Lekki, Victoria Island, and Ikeja, as their level of activities remained strong in 2022. Some of those activities are concentrated in the new gated neighbourhoods/towns scattered across these locations such as Ilubirin in Ikoyi, Orange Island and Periwinkle in Lekki, and Eko Atlantic in Victoria Island, among others.”
A past president, International Real Estate Federation, (FIABCI) Nigeria, Chief Kola Akomolede, who agreed that rents have increased across board in the major cities, particularly, in Lagos, said it was owing to inflation derived from devaluation of the Naira.
“Supply has also been reduced as a result of high cost of construction of new houses. Vacancies have reduced because of the reduction in supply and not many are changing houses due to higher costs,” he said.
According to Akomolede, property developers are still building houses but the quantity has reduced drastically due to high costs of land, building materials and finance.
A past chairman, Faculty of Estate Agency and Marketing, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr. Sam Eboigbe, said since the global economic meltdown imparted prices of goods and services, property market will not enjoy immunity from the effects.
However, he said rent hike is not applicable to the whole gamut of residential properties, “we have, nevertheless, in some instances witnessed stability and reduction in the price adjustment in low-density housing types.
“Conversely, the medium and high density housing segment located within the hinterlands have witnessed extremely upward adjustments in the rental levels in the post-COVID-19.
“Requests for residential property listings post COVID have remained on steady increase, while demand for retail side has been experiencing decline.”
Eboigbe blamed it on the interest rate that has been all-time high, which has a cumulative effect on hampering access to credit, adding that most finished products in the marketplace have ongoing mortgage repayments.
The effect of exchange rate is that transactions can be frustrated due to the effect of unstable naira. The rising interest rate has not also encouraged stakeholders in this sector.
For him, projects initiated by developers are still ongoing, but the numbers have significantly reduced, while some have been completed and fully sold out in some cities.
“In Lagos, for instance, Lekki, Ikoyi and Victoria Island locations have ongoing projects ranging from high-quality finished and well-serviced luxury residential blocks of one, two, three and four-bedroom apartments,” he said.
Chairman, Real Estate Developers Association of Nigeria (REDAN), South West, Debo Adejana, said all the rents were reviewed last year in city centres, as rent cannot be separated from the economy.
“What we’re experiencing is reaction to inflation in the system. Every property given out for rent is largely an investment property for the owner and returns are expected. As prices of goods continue to jump, landlords would demand higher rent.”
He said fewer properties were completed in the past three years, which indicates that property stock fell within the period, as production has not caught up with demand due to increased population.
Adejana pointed out some tenants have also moved out of city centres to the outskirts or fringes owing to rent increases.
Property watchers have, however, advised government to take actions to ensure affordability.
Okosun, in fact, called for public-private partnership, making mortgages more accessible and affordable, and for longer terms.
He also urged the authorities to make land more affordable, increase density, encouraging of vertical housing and amendment of the Land Use Act.
Akomolede said in a situation where the government does not control the supply or demand for housing, there is little it can do to influence the price or rent.
He, called on government to reduce cost of acquisition of land, cost of obtaining Certificate of occupancy, governor’s consent, ratification and planning approval.
He also suggested reduction in Customs and Excise duties on building materials as a means of bringing down the prices. “Government should pay more attention to housing and give it the same priority as health, education and roads. For now, housing is not on the priority list of all the governments, Federal, state or local government,” Akomolede added.
Eboigbe called on government to declare an emergency in housing sector. “Some provisions of the land use decree should be refined. Where the administration of land is vested in the governors is actually making it cumbersome to resolve lingering issues.
“Acquiring governors’ consent and land titles are issues hindering housing delivery. The cost of building materials, exchange rate and interest rates are all hindering successful delivery of housing,” he said.
Credit: The Guardian