By Obinna Chima
The federal government’s fight against money laundering and corruption is taking its toll on the real estate sector as politicians and top government officials no longer see the sector as a safe haven.
The Managing Director, Financial Derivatives Company Limited (FDC) Mr. Bismarck Rewane stated this in his monthly economic news and views for February that was presented at the Lagos Business School’s executive breakfast meeting, the report, which was obtained by THISDAY recently.
It had been reported that the Economic and Financial Crimes Commission (EFCC) had confiscated so many properties believed to belong to former National Security Adviser (NSA) Sambo Dasuki and some officials under investigation.
According to the FDC report, a lot of the suspects are already returning properties to government, with the EFCC confiscating them. Also, many properties are tagged ‘under investigation.’
Furthermore, the report pointed that there is now a flight to quality on real estate in Ikoyi and Victoria Island areas of Lagos.
It also showed that price of building materials have increased due to forex scarcity and restrictions.
“Some landlords will continue to use interbank rate in order to retain tenants. Rent can also be transferred between domiciliary accounts to avoid exchange rate conversion. Lower disposable income means low for real estate.
“Tenants are expressing preference for mixed use developments for shops, offices and residential complexes. There are lots of abandoned projects and properties in Lagos and Abuja and large scale construction projects will remain at a standstill until budget is approved,” it added.
Furthermore, the report showed that vacancy factor, which means the gross rental income loss due to non-occupancy of a rentable unit or space, was up across Victoria Island, Ikoyi and Lekki, especially in Agungi, Bourdillon, Oniru, Bishop Aboyade Cole. Precisely, it stated that residential vacancy factor was up in Ikoyi to 32 per cent in February, from 25 per cent previous month. Also, in Victoria Island it was up 41 per cent in February, from 36 per cent the previous month.
However, Rewane stressed that “if headwinds persist, prices may decline.”
In his analysis on the aviation sector, Rewane noted that airlines now buy blended funds (parallel and official) as a form of hedging against forex devaluation
According to the report, a case where airline buy forex from both the CBN and oil companies. This, he said affects capacity and frequency reduction.
It argued that airlines will continue to be exposed to currency volatility if devaluation does not occur, adding that airlines would have to find new ways to adapt to recent challenges.
The report added: “Ticket price to increase further with alternative forex sourcing. Continued pressure on the exchange rate will reduce the aviation market in more ways than airline capacity. It will likely reduce the profitability of the airline industry. Substitute airlines like Arik, Qatar, Etihad and Kenya Airways will benefit from capacity reduction.”
It stated that Nigeria’s beer market has been negatively affected by economic slowdown, saying that disposable income decline will lead to brand switching.
“Price elasticity of demand higher at the premium segment, Total beer market growth has slowed to 0.20 per cent in December 2015, down from eight per cent in the previous year. We are expecting further down trading in March and second quarter.
“The value segment is growing at the expense of premium beers +5 per cent. The key beneficiaries are Hero, Dubic and Trophy brands. All at the low price point of N100. The beer market for 2016 will be driven mainly by value and low price products.
“Also growing will be the low sugar/fat content products. Anti-obesity sentiment is growing in the market. In the malt market, there will be another sharp decline (-12%). Volume is mainly affected by public servants’ salary arrears. The situation will be worse in states where arrears are chronic
“There is more serious down trading in malt than beer. Carbonated drinks are facing a major hit. Decline in mainstream high, limited pick up in the low sugar brands,” it added.