The pending COVID-19 pandemic has incessantly represented an unprecedented disruption to the global economy and world trade at large as such consumption and production have declined across the globe with real estate included.
The implication of this decline in global trade forces countries into recession. The Pandemic currently undermines countries’ effort to foster trade and investment amongst themselves. Projections show jeopardy in the economic growth and development forcing countries into various degrees of recession which will lead to redundancy in workplaces causing unemployment, developments that utilise 80-90 percent import-elements of construction would be disrupted as well as logistics for global supply chain interruptions.
The first major sign of the global recession was the 2020 stock market crash on 20 February 2020 and the International Monetary Fund (IMF) reported on 14th April 2020 that nations had already entered or were entering deep recession and that there had already been a significant slowdown of growth in emerging economies. Global markets into early March became extremely volatile with large swings occurring in the global markets. According to the IMF, the global economy will contract by 3 percent this year as countries around the world shrink at the fastest pace in decades, predicting that India and China are the only two major economies that will maintain a positive growth rate according to the latest UN report.
The Nigerian economy currently faces the effects of the global economic crises which results in breakdown and decline in economic vigor. It has continued to witness renewed and sustained recession, characterised by poor economic planning, high-interest rate, galloping inflation, unemployment, stock market crash and declining businesses. The general business cycle of recessions also affects real estate as home prices tends to fall when the demand shrinks, but the extent to which that happens can vary by the local market. In areas of high demand, property owners may not see their home values go down at all. As the pandemic continues to take its toll on the Nigerian economy, the country has witnessed a massive crash in the prices of stocks and shares in the stock exchange market. However, the real estate sector has enjoyed some mixed blessing in this economic situation.
Further to the worsened fluctuation in the value of the Naira against the Dollar/Pounds, re-appraisals of values and pricing of high end residential and commercial asset classes is inevitable. Immediate pricing in the local currency has made some of these assets more competitive and desirable.
Recent experience in the market showed slightly higher activities in the high-end strata of the market with developers pushing hard to find new developments for the market and off-takers seeking deals within that segment. My personal experience shows how two well-known developer friends of mine (names I cannot disclose) called requesting for land and advisory for Ikoyi residential development urgently. The mid-income market isn’t left out of these opportunities, the stay-at-home global phenomenon has pushed demand especially for investment drives.
For the real estate to thrive, private sector, government and other stake-holders have to collaboratively and formulate policies and action plans that will meet todays and tomorrows’ needs, which in turn lead to fair deals for the masses who want to own their own houses to reduce payment of outrageous rents
Real estate as an essential product/service
Consequently, real estate is regarded as a pertinent commodity both in and out of recession. While lockdowns may affect many types of businesses, especially those that provide in-person services which include retail stores, restaurants and hotels, entertainment venues and museums, medical offices and beauty salons however shelter remains a fundamental right and human need. In a case of a global pandemic which individuals need to remain isolated to stay safe, invariably pushing for real estate as an essential status.
To curb unemployment which is one factor that leads to recession, it is important to note that every home sale could generate a job in a country. Housing is currently 14.6 percent of Gross Domestic Product (GDP) and a major engine of the economy. Real estate activities that are considered essential include; residential and agricultural real estate services, staff of government offices that perform specific sensitive services, notary and recording services in support of mortgage and real estate services and transactions.
The essential services are primarily responsible for sale and leasing of residential properties to provide individuals and families with ready access to available housing. They are also responsible for handling property/facility management and maintenance as someone needs to ensure basic amenities such as power, water, security; janitorial and other services are running smoothly. These activities create the real estate ecosystem integral in government economic policies to exit recession. These roles are often offered by estate surveyors, engineers, technicians and other professionals in the built environment and the hospitality sector.
Workers performing housing construction-related activities to ensure additional units can be made to combat the nation’s existing housing supply shortage, including those supporting government functions related to building and development processes such as inspections, permitting and plan review services that can be modified to protect public health. If the construction industry and its supply chain are disrupted there will be a crash in the housing sector.
Nigeria has one of the largest stocks of human resources for health (HRH) in Africa; hence, there will be a need for development services, the health sector will need more developments to house patients and health workers. The hospitality sector which amounts to 1.9 percent of the country’s GDP is a breeding ground for international business seekers and will need to house tourists as Nigeria remains an attractive market to major hotel brands with strong infrastructures.
It is obvious that real estate is very essential to every sector of the economy and with the government taking necessary steps for fueling the economy, real estate is likely to bounce back and continue with its good run. The ease of doing business initiative by the government will have a positive impact on the market and things will improve. Growth in the real estate sector in Nigeria will have an impact on the economy significantly, from jobs it creates to revenue generation. The real estate’s multipliers effect in terms of job creation is significant. Real estate activities also stimulate the economy indirectly through the value-added impacts of the purchase of goods and services that stem from real estate-related businesses and transactions. Investors in the real estate sector often smile to the bank as they get returns on their investments.
I believe, “the future belongs to those who see it first, who get there first and who claim it first”. The opportunities hidden in the unprecedented health crisis for home ownership calls for innovations from access to finance, construction methodology, supply chain management, local material sourcing and marketing. Recognising what lies ahead and meeting the gap today calls for a “UREKA” moment.
In conclusion, for the real estate to thrive, private sector, government and other stake-holders have to collaboratively and formulate policies and action plans that will meet todays and tomorrows’ needs, which in turn lead to fair deals for the masses who want to own their own houses to reduce payment of outrageous rents. Lack of access to funds, poor mortgage systems are some of the challenges hindering the growth of real estate in the country.
However, real estate as the most transformative sector of any economy is capable of attracting more investments with flexible policies and optimum investment from the government. The sector has been growing with an influx of capital driven by young savvy investors who foresee the importance of investing in the sector as they see that when it comes to investing in real estate Nigeria is the best place.
This article was first published in BusinessDay Newspaper on the 3rd of August, 2020.