Homes & Property

June 19, 2018

Better performance expected in real estate sector in 2018 — Developer

Better performance expected in real estate sector in 2018 — Developer

UK housing estate

By Kingsley Adegboye

Going by the improvement in   the nation’s economy and the positive projections for 2018, the real estate sector is expected to ride on the back of these and other strides it ought to make, and put in a better performance in 2018.

This was disclosed by the Managing Director and Chief Executive Officer of Propertygate Development & Investment Plc, Mr. Adetokunbo Ajayi, at the 9th Annual General Meeting of the Lagos-based real estate development and investment company held in Lagos last week.

Mr. Ajayi who noted that international real estate firm, JLL, in its February 2018 Global Market Perspective, reported that global commercial real estate markets ended 2017 on impressive note, with 2018 projected to achieve another solid year barring major financial, economic or political shocks, said   the report which synchronized global economic upswing, provided a strong platform for 2018.

According to Propertygate boss: “While the report noted that it will be difficult to match the robust levels of 2017, it however observed that investors are still keen to access the sector and are now looking to new strategies such as debt financing, mergers and acquisitions as the search for yield continues. In addition, we expect the Nigerian housing market with its vast potentials, anchored on rising population, growing urbanisation and expanding economy, to present continuous opportunities to players in the sector.”

He, however, stressed that the real estate sector is not out of the woods yet; as such enormous traction is required, if the negative results being recorded in the sector are to be reversed, adding that while some sectors did comparatively better in 2017, real estate sector took a hammer.

“Its overall contribution in 2017 to total real GDP declined to 6.85 per cent compared to 7.22 per cent recorded in 2016. Real GDP growth recorded in the sector in the fourth quarter of 2017 was -5.92 per cent, while annual growth for the full year stood at -4.27 per cent. It underperformed the non-oil sector category where it resides, which achieved an annual growth of 4.7 per cent by the end of the year.

“The capital intensive nature of real estate development meant the sector would naturally struggle under a hostile lending climate. Interest rate was very high in 2017 with average lending rate hitting 30 per cent per annum at some point, a situation last seen in 1999. The year 2017 witnessed extremely limited mortgage financing for buyers, crippling potential demand, a situation that is yet to record significant improvement.

“The age-long red tape in land administration and planning permits and other structural challenges are still undermining the sector, affecting development take-offs and delivery, and business performance. Quarter 1 2018 report from National Bureau of Statistics reported a declining performance, with real GDP growth for the sector standing at -9.40 per cent, and contribution to GDP for the quarter at 5.63 per ecnt, a drop compared to 6.34 per cent recorded for the same period in the 1st quarter of 2017”, Ajayi stated.

Going forward, he said it is important to recognise that the vast potentials in housing will remain difficult to unlock until functional mortgage finance system is put in place, insisting that stakeholders daily talk about huge shortage in housing products, while attention is sometimes misplaced on affordability, when the key to unlocking the sub-sector is mortgage.

According to him, “The solution requires great innovation, as the financial system, as currently configured, cannot provide functional mortgage. Furthermore, the need for collaboration among operators in the sector cannot be more urgent than now. “There should be a deliberate engagement with the governments and other critical stakeholders on a continuous and sustainable basis to address age-long challenges in the areas of critical primary infrastructure, finance, red tape, processes and reviews of planning permits and rules, perfection of title, land administration and the built environment generally.

“At the macro-economic level, operators should be vigilant as there remain concerns that political activities, which begin this year, will have a drag on the economy and more pronounced in 2019, judging by historical antecedents.

“As a company, we are aware that the operating environment including our sub-sector remains fluid and dynamic. A continuous understanding of the fundamentals shaping the industry, anchored on knowledge and experience is crucial to business continuity. We must show leadership in innovative solutions, sound management and strong corporate values. We will remain focused and committed to our vision and strategic goals.

In his contribution, Mr. Peter Folikwe, a Non-Executive Director of the company said: “The real estate industry is capital intensive. This is impacting on the earnings of the companies in the sector. Propertygate has a focused board and management. That is why its massive investment in the Propertygate Center in the high brow Business District of Lekki promises a huge return on investment, ROI, in the nearest future.”