Yinka Kolawole

The real estate sector brought in estimated revenues of N1.25 trillion into the Nigerian economy in 2010, representing a contribution of about 4.7 percent to the nation’s Gross Domestic Product (GDP).

Augusto & Co, a leading research and rating agency, noted in its 2010 annual report that the 4.7 percent contribution to GDP is a slight decline from 4.9 percent recorded in 2009, adding that the industry comprises over 1,000 developers and 5,000 estate agents.

The figure is however much higher than the UN’s estimates which indicates that Nigeria’s real estate sector contributes less than one percent to the GDP. “Revenue growth remains constrained by suppressed demand, the rising cost of building materials, the dearth of long term funding, as well as a generally subdued economic environment,” the report added.

It noted that the current focus of demand is in the low to medium segment, adding that the prohibitive rent in highbrow areas have made most tenants in Nigeria to move to areas where properties are available at more affordable prices.

“Between 2008 and 2010, high-end residential properties in Ikoyi and Victoria Island, Lagos, recorded a 15- 40 percent drop in rental rates, while mainland properties have performed well, recording strong rental growth in most of the major markets.

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In Abuja, most residents are relocating to the satellite towns, pushing rental rates up in those areas, whilst in Port Harcourt rents have gradually declined in the high-end markets due to the exit of expatriates.

Nonetheless, we find that most of the lower-priced areas, such as Surulere, Ada George and Lugbe, have lower rental yields in the three to four percent range, while returns are near 10 percent or more for premium neighborhoods,” the report stated.

According to the Augusto report, the development is mainly because these rents were paid for up to three years in advance, prior to the crash in real estate prices, believing that this trend is unlikely to persist in the short term as premium rental rates have gone southwards over the last two years.

The report also noted that the overall forecast for the industry remains positive despite recent lull in the property market, because of upswing in the economy and the prospects of continued growth in the sector.

Agusto noted that Nigerian banks have started lending again which, coupled with improved economic activities, should help bolster the growth of the sector.

“We also believe that the Asset Management Company of Nigeria’s (AMCON) recent debt purchase from banks should help prevent forced sales, thus sustaining property values,” it noted.

The agency said that it expects demand to remain strong in both the residential and commercial sub-segments, and listed factors driving demand for housing to include the large and growing population as well as the emerging middle class. It further noted that office and retail spaces are expected to be the key drivers of market recovery.

“We however, expect that the industry will still be beleaguered by its high operating costs, particularly the cost of debt and building materials, which continue to make property prices unaffordable for most Nigerians.”