Contrary to the opinion held across different quarters on what would befall the real estate sector in 2017, considering the current socio-economic situation of the country, a frontline real estate operator, who is the Managing Director and Chief Executive Officer, Propertygate Development and Investment Plc, Mr Adetokunbo Ajayi, has said that the prospect of the industry is bright, if only the right things are done.
Ajayi also identified some structural problems affecting the government’s mass housing project and proposed what could be done to get it right.
In an interactive session with the media last week on how the industry players can exploit the current situation to their advantage, Propertygate boss said there is need for boldness and knack for risk taking after which those who dared the current economic odd would reap beyond their expectation.
For instance, he listed challenges facing the real exchange sector to include high lending rate, lack of secondary mortgage facilities, high cost of land and its documentation, high cost of building materials, rising cost of labour and weak purchasing power of would-be home owners.
Citing the reports by the Central Bank of Nigeria (CBN), Ajayi noted that the operating environment of 2016 has been a challenging one, not only for the real estate sector, but for the country and other businesses.
According to him, the list of difficulties appear open-ended with the gross domestic product (GDP) growth of 2.24 per cent negative at the end of the third quarter of 2016, inflation at record high 18.48 per cent, including falling in national revenue, liquidity squeeze, decline in foreign and local investment, high interest rate, weakening currency and atmosphere of uncertainty amongst others.
All these, he said, have adversely impacted on governmental performance, operations of many businesses and the well being of most citizens.
“The real estate sector as at end of third quarter of 2016 recorded 8.20 per cent as sectoral contributions to GDP, which is a decline compared to 8.74 percent recorded at 3rd quarter of 2015, with lending institutions facing their own troubles, lending to the real estate sector was nothing cheerful,” he said.
The maximum lending rate from most of the lending banks (87 per cent of them) was between 24-36 per cent per annum, while mortgage financing to property buyers did not fare better.
“Apart from the perennial problems that traditionally undermine the sector, rising production costs have added to the challenges.
“Due to extreme volatility in the country’s currency and other economic challenges, foreign investment in the country, which has strongly benefited the sector in the past, has slowed down considerably.
“According to Deloitte’s 2016 African Construction Trends Report, Africa suffered a decline from $375 billion in 2015 to $324 billion in 2016. Combination of global economic head winds, low growth and lower commodity prices contributed immensely to this decline,
“Report also revealed that transactional volumes of prime real estate in sub-sahara Africa so far this year was put around $150 million, compared to approximately $400 million in 2015, which is a sharp contrast in the fortune of real estate markets in Central and Eastern Europe which are seeing record levels of international capital inflows.”
Since the real estate sector does not operate as a virtual universe, it was obviously impacted as stated above. It is however pleasant to note that the sector has shown great resilience against all odds. It suffered a marginal decrease in contribution to GDP in the third quarter of 2016 of 0.54 per cent compared to same period in 2015. Though a relatively slow tempo was observed, substantial activities continue to be recorded in the year.
As an asset class with a hedge against inflation, real estate continues to enjoy attraction from investors. Unlike the capital market, the sector has not recorded major market volatility, thus positioning it as an asset of choice.
The major, going for the sector, is the fact that the need for real estate across strata remains extremely strong. Opportunities will therefore continue to exist. Though challenging times pose difficulties for operators, yet they present opportunities for innovations which will ultimately benefit the sector.
“For us at Propertygate, we are privileged to have people who have seen boom and bust eras. We have continued to navigate the ship of the enterprise forward. Our domain expertise and disciplined management are some of our competitive edge,” Ajayi said.
He postulated that recession and boom was cyclical, noting that “after winter, there is spring. But only those who fail to look at the negative side would reap the dividend at the end of recession, which he said is near.”
However, despite the above scenario, Ajayi hinged his hope on what he described as “concerted efforts by the government to turn around the economy.”
According to Ajayi, these include how the government handles the menace of militancy and insurgency on one hand; the seeming improvement on crude oil price internationally and diversification of economic activities, such as focus on agriculture, mining and fighting against corruption.
“With these, and with the right combination of efforts and sustainability, there will be an improvement in the real estate sector in 2017,” he said.
Picking holes on the proposed mass housing delivery being contemplated by the Federal government in which state governments urged to make land available, Ajayi wants government to be categorical if the housing scheme is social housing or house for sale.
“To us in the private sector, land is the the issue, but rather, its quality. It amazes when one learn that the housing scheme is local government by local government. Who are the people that
government’s mass housing project attractive to the beneficiaries.
The federal and state governments have over the years embarked on mass housing for all in order to provide affordable shelter for the middle class and those at the lower level as evidence of government’s sensitivity to the welfare of the people.
But the projects according to Ajayi require strategic plan for enhanced implementation. He noted that the target beneficiary of the housing for all requires minimum facilities in order to take advantage of the opportunity.
“Our expectation as private operators is that the government should provide enabling environment in those areas in order to encourage the target beneficiaries to take advantage. The easiest item to get by the government is land. But beyond the land is the issue of facilities such as good road network, sewage, pipe borne water, electricity and a host of others that can bring about enabling environment” Ajayi said.
He lamented that due to low income and weak purchasing power of the target beneficiaries; the rich still buys the low-cost houses and let them out to the poor, the ultimate beneficiaries.
Speaking on the activities of Propertygate Development and Investment Plc,, Ajayi explained that despite the tough operating climate, the company had consistently operated profitably due to factors such as corporate integrity, innovation, excellent customer care and strong and dedicated human capital.
According to him, Propertygate had executed many high-profile projects in the year. He however admitted that the industry had experienced a lot of challenges as a result of the recession period.
“Most high net worth clients could not make effective demand due to weak purchasing power. Real Estate operators’ ability to import some components of building has been moderated by the high cost of forex.
“Real Estate is a capital intensive business; hence, operators are at the mercy of banks due to high cost of funds and low profitability. Government should create an enabling environment for the real estate operators to enable us operate optimally.
“But for us, creativity and adherence to quality products and services would continue to define our operational philosophy at Propertygate,” he said.