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Nigeria’s property crash offers opportunities for brave investors

By Yinka Kolawole, with agency report

CRASH in property market in Nigeria has opened up  opportunities for brave investors who are banking on possible high returns when the country climbs out of recession.

A report by Reuters noted that rents for residential and office property in Lagos have dropped by around 20 percent, year on year, due to a supply glut as projects planned prior to 2014, when oil prices started to fall, are now coming online. However, investing in Nigeria requires a willingness to navigate opaque land laws, corruption and the prospect of having money held up in the bank due to currency restrictions.

In spite of being in recession for the first time in 25 years due to a slump of oil revenues, Nigeria has a fast-growing population that will require more housing and shopping malls in the long-term, and some investors believe the time is right to step in, particularly as banks are reluctant to grant loans to other potential buyers in the midst of the downturn.

Some private equity funds, mostly from South Africa, are investing in Lagos and Abuja, believing that the spending power of the country’s 180 million people will grow. “We believe Nigeria has massive potential in the retail area. The sector is in its infancy and will only continue to grow from a very low base,” said Jan van Zyl, head of Nigerian property development at South African fund Novare Equity Partners.

Investors face the risk of being caught in another currency devaluation as the Central Bank of Nigeria (CBN) seeks to end a 30 percent spread to the black market – a goal it failed to achieve when it allowed a 40 percent depreciation in June.

But investors can take advantage of their purchasing power as the country is desperate for dollars to replace oil revenues which account for almost all the hard currency income it needs to fund food and other imports. “What you are offering as an investor is liquidity.

In the country itself, there is no liquidity,” said Jonathan Millard, Lagos-based chief operating officer at Troloppe Property Services. “If you’re looking at this on a five to ten year cycle there are tons of opportunities.”

Lagos has seen a building boom in the last few years – real estate is a favourite destination for those who get their hands on oil money. Two shopping malls were completed within the last three months, bringing to eight the total of such retail hubs in the city.

With the CBN imposing hard currency curbs and construction activities slowing in a dollar-starved economy, foreign capital flows into Nigeria fell by 61 percent, year-on-year, in the second quarter. Property consultant Cluttons estimates that Lagos retail yields stand at around 7.5 percent, compared with 8 percent in Johannesburg, 9 percent in Accra and 10 percent in Nairobi but have the potential to rise once the economy improves.

In the last few months it has become common for retailers and service sector tenants, squeezed by the economic downturn, to negotiate lower rents with landlords who are keen to sustain occupancy levels. Lower rents have pushed down yields in Lagos.

Office yield have dropped to around 8 percent from 9 percent in 2014, making them the same as in Johannesburg and Nairobi, but less than the 10 percent found in Accra. But investors say Nigeria’s size, with one of the world’s fastest growing populations, means it has better long-term prospects than the rest of Africa. Lagos has a population of around 21 million, whereas Ghana’s entire population is 26 million.


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