After a boom period marked by high oil prices and double-digit growth, Nigeria’s real estate sector was significantly impacted by the country’s economic downturn, with growth dropping off in 2015 and 2016, and remaining subdued in 2017 and early 2018. With some high-end office and residential projects stalled, developers are increasingly turning their attention towards smaller and more affordable projects, which should benefit from ongoing government efforts to grow the country’s mortgage market and reduce its housing deficit.
Planned fundraising activities at the Nigeria Mortgage Refinance Company (NMRC) should help support commercial bank lending, while the federal government’s plans to restructure and recapitalise the Federal Mortgage Bank of Nigeria (FMBN) should also see home ownership expand significantly in coming years. These efforts should keep the sector on a slower but more stable growth trajectory in 2018. At the same time, prevailing macroeconomic conditions continue to offer a silver lining to residential and office tenants, with landlords lowering their rental rates and offering new incentives to attract and retain tenants.

Recent Performance

Nigeria’s real estate trajectory has risen and fallen with international oil markets. Local consultancy Estate Intel cited data from the National Bureau of Statistics (NBS), showing that in nominal terms, real estate GDP growth rose from 15.1% in the first quarter of 2013, peaking at 24.14% in the second quarter of 2013, with full-year real GDP growth hitting 20.49% in 2013. As Brent crude prices peaked at $115 per barrel and then began to slide in mid-2014, real estate growth was also checked, falling from 22.34% in nominal terms in the first quarter of 2014 to 10% in the second quarter of 2014, with full-year growth hitting 12.5% in 2014. Nominal growth fell to 9.18% in the third quarter of 2015 and to 8.27% in the last three months of 2015, with full-year growth standing at 9.52% in 2015, before dropping sharply to 0.61% in the first quarter of 2016, as the price of Brent crude sunk to less than $30 per barrel. Nominal growth averaged 1.76% in the first nine months of 2016.

Contraction

In real terms, the sector’s growth trajectory has shown a steeper decline, falling from a peak of 15.86% in the second quarter of 2013, and ending the year with growth of 11.98%. Real sector growth fell to 5.12% in 2014 and 2.11% in 2015, according to Estate Intel, before contracting by 4.69%, 5.27%, and 7.37% in the first, second and third quarters of 2016, respectively. Real estate consultancy MCORE reports that the real estate services sector contracted by 8.38% in nominal terms in the first quarter of 2018, 18.94% less than the growth rate in the first quarter of 2017, and 5.03% lower than in the final quarter of 2017. The bureau reports that real estate’s contribution to GDP in nominal terms was 5.87% in the first quarter of 2018, against 7.67% in the fourth quarter of 2017. In real terms, the sector contracted by 9.4% in the first quarter of 2018, a 3.48% decline from the fourth quarter of 2017. The sector contributed 5.63% to real GDP growth in the first quarter of 2018, against 6.34% in the first quarter of 2017 and 7.03% in the fourth quarter of 2017.

Residential Rental

In its Nigeria Real Estate Market Outlook 2018 report, local property company Northcourt Real Estate said that the 2012-14 boom period had brought residential real estate prices to “perhaps irrational” levels, with the 2016 recession offering a necessary market correction, with prices, yields and other performance indicators corrected in 2017. Residential vacancy rates in Lagos averaged 11% in 2017, down from 15.57% in the first half of 2017, and 32.87% at the end of 2016. Vacancy rates in Abuja averaged 7% in 2017, down from 9.5% in the first half of 2017 and 25.57% at the end of 2016. The firm also reports that developers are resuming work on developments that stalled during the recession, while residential supply in the Ikeja Government Reserved Area (GRA) began to decline, in part because some units were converted into office spaces, while others were sold or leased. Landowners are increasingly forming joint ventures with developers in an effort to maximise their property value. “In Abuja, there are a lot of districts where real estate has outpaced the construction of urban infrastructure, which has resulted in a lot of completed housing without amenities. These plots are a great opportunity for developers who take a more holistic approach,” Eli Goldhar, managing director of Gilmor Engineering, told OBG.