Considering the looming economic recession caused by coronavirus pandemic and its associated lockdown for over five months, real estate sector, which has been negative, may not recover until first quarter (Q1) of 2021.
According to report from the Bismarck Rewane-led Financial Derivatives Company (FDC) on the industry’s outlook, real estate sector will contract from Q4 of 2020 to Q1 of 2021. Justifying the projection, FDC’s analysts stated that demand for real estate would be constrained by virtual working and structural displacement.
Besides, they pointed out that the commercial sub-sector of real estate would be severely hit by remote working and virtual learning trends. “Tenants in large malls will struggle to meet rent/lease agreements as e-commerce becomes the new norm,” analysts said
Already, real estate had sunk deeper into negative territory in Q2 of 2020, contracting by -21.99 per cent compared to -4.75 per cent in the previous quarter.
The contraction was induced by lower consumer disposable income, low demand for new buildings as costs climb, fall in commercial demand as offices shift to remote working, and reduced foot traffic to malls. Analysing the impact of economic crisis on stakeholders in the sector, the FDC analysts pointed out that foreign exchange volatility translated to higher import prices for developers. Besides, they added that macroeconomic environment would negatively impact the investment space.
To asset owners/landlords, they said: “This will lead to flexible lease negotiations, and mismatch for landlords who have dollar loans and naira income.” The added that tenants would be on the hunt for flexible lease and tenancy agreements.
On the impact of new normal on real estate, they stated that as online shopping is becoming popular, it could translate to an obsolescence of malls, adding that remote working might reduce demand for physical office space. Even as virtual property tour is gaining grounds, analysts said that focus could shift from physical tours to 3D technology (proptech effect).
“On virtual learning, school buildings may require maintenance once reopened,” they said. In nominal terms, National Bureau of Statistics’ report said that real estate services in the second quarter of 2020 declined by –17.18 per cent, or –19.27 per cent, points lower than the growth rate reported for the same period in 2019 and lower by –18.31 per cent points compared to the preceding Quarter.
“Quarter-on-Quarter, the sector growth rate was –1.24 per cent. The contribution to nominal GDP in Q2 2020 stood at 5.23 per cent as against 6.35 per cent recorded in Q2 2019 but same as the value in Q1 2020,” it read.
Quarter-on-quarter, the report said the sector declined by –2.71 per cent in the second quarter of 2020, adding that It contributed 5.30 per cent to real GDP in Q2 2020, lower than the 6.43 per cent it recorded in the corresponding quarter of 2019. Calling on government for intervention in the area of funding the real estate sector, experts said that investments in middle income property, rental property and low cost housing are areas of interest.
This, they added, would create generate economic activities, create jobs for the teeming unemployed youths and artisans.
According to Principal Partner, Richard Olodu and Co., Mr. Richard Olodu, good thing about real estate investment is that it won’t depreciate.
He stated that COVID-19 had already dealt with all sectors and investment, pointing out that the best thing about real estate investment was return on investment. “The yield may not be high but you are going to get your returns,” he said.