An imagery of a housing estate in Eko Atlantic City, Victoria Island, Lagos

The nation’s struggling capital market is tilting the traditional decision of investment in stocks in favour of property, writes Bennett Oghifo

Through time, two investment modules interest people and these are real estate and stocks. In boom times, these are money spinners but since the advent of global economic recession, investors have been suspicious of the stock market. They now prefer to play in the property market because, unlike a piece of paper with figures on it, real estate is about physical acquisition and a more reliable store of wealth.

Housing and mortgages hold the most promise for investment and high returns in these times, but the only limiter here is cash which is getting increasingly difficult to come at a time the nation’s landscape is awash with real estate and good bargain.

An economist and Chief Executive Officer of Financial Derivatives Company Limited, Mr. Bismarck Rewane, at a meeting with Richard Hall, International Economist of the US Department of Treasury, was quoted by WikiLeaks to have condemned what he described as the “Nigerian Stock Exchange’s attempts to control stock prices.

In response to the recent dips in stock prices, the Securities Exchange Commission (SEC) has been making statements about the stock market growing stronger and listed companies delivering good returns. SEC’s statements, instead of allaying investor fears, have only confirmed concerns about the stock market’s performance.”

“He alleged that high NSE transaction fees cost foreign investors about USD 4 million on every USD 100 million of investment. These costs also deter those investors, who had exited the market from reinvesting,” he was quoted to have said.

The real estate market, against all odds, has become the choice of investors, particularly those with cash to play with. The slogan in the property market now is ‘cash is king’.

Property Market in 2016

Rewane has predicted a dynamic real estate market in the country this year, explaining that it would be hinged on economic activities and on effective demand, following a rebound of the economy in the fourth quarter of the year when currency adjustments would, expectedly, increase capital inflows.

Regardless, he said the residential and commercial buildings market might register sluggish growth, especially in the early part of the year, with government funding for housing restricted by the fall in oil revenues.

“Projects such as the Eko Atlantic City and major commercial projects such as shopping centres may struggle to gain traction because domestic and international investors are likely to adopt a wait-and-see approach to their projects,” he said.

He said the real estate sector was the fastest growing, putting the growth rate as at the third quarter of 2015 at 9.18 per cent and contributing about 7.57 per cent to the Gross Domestic Product.

Rewane said, “We are likely to see a rebound in construction activities after budget funds are released and contractor arrears paid; Lagos and Abuja, having the same political party, will also have positive impact, while there will be infrastructure development to make real estate more attractive.

“There will also be clearer policy direction, which will boost the confidence levels of private investors and the reduction of the benchmark interest rate to encourage borrowing for buyers and property developers.”

A major threat to the sector’s growth, he said, would be “persistent macroeconomic headwinds to slow down construction activities; continuous forex restrictions, which would increase the cost of building materials; and lower disposable income, which would have a negative effect on demand.

“There will also be challenges with the transfer of titles and weak judicial system; and the clampdown on corruption and money laundering, which would reduce new money going into real estate transactions.”

Rewane also pointed out that, “the major economic indicators that will affect the real estate market growth are the Gross Domestic Product, oil price, exchange rate and inflation, which he noted would hit 12 per cent within the year and increase in interest rate.

The sector, like others, would also be affected by the major impediments to growth such as underfunding and lack of access to capital; outdated technology and strangulation by government dominance and control.”

Property and Stock Market

An international economist, Kim Hiang Liow, who investigated the long-run and short term relationships between stock and property markets, stated that there was a long-run concurrent relationship between the stock and property prices.

He said: “Both the long-run and short-term influences of the combined residential and office property prices on the stock market prices weakened after controlling for changes in the macroeconomic influences. Whilst the stock market prices are largely influenced by the office property prices in the long run; the residential property prices impact stronger on the stock market prices in the short-term. Thus the combined perspective has significant implications in mixed asset allocation that includes stock and property investments.”

Stocks, he said, were affected “through the impact of three macroeconomic factors (GDP, inflation rate, and the population growth rate) and another three factors from the microeconomic indicators (interest rate, remittances of expatriates, and the loans provided by banks).

“The results show that the stock market is more sensitive to the microeconomic indicators than the real estate market, and responds more rapidly than the real estate market for the changes in the micro economic indicators.”

The relationship between the real estate market and the financial stock market—as two investment arenas within the markets of any economy – has a great importance, he said.

“The changes in microeconomic and macroeconomic factors across the time affect the two markets in many areas such as, prices, demand, supply, the cost, and the rate of return.”