Economic Challenges Hurting the Real Estate Sector


The persistent macro challenges have negatively affected the real estate sector, resulting in a slowdown in activities, THISDAY checks have revealed.

Also, the monetary policy tightening, which resulted to the hiking of the monetary policy rate (MPR) by 100 bps to 12.00 per cent by the Central Bank of Nigeria (CBN) is hampering the growth of the sector.

Following the shocking inflation data for March released by the National Bureau of Statistics (NBS), the Monetary Policy Committee (MPC) of the CBN resumed tightening by hiking its monetary policy rate.

The MPC had in its meeting in March, raised the Monetary Policy Rate (MPR) otherwise known as the interest rate, to 12 per cent from 11 per cent.

It also increased bank’s Cash Reserve Ratio (CRR) to 22.5 per cent from 20 per cent, in a move aimed at tightening liquidity, which the central bank blamed for the current pressure in the foreign exchange market with a strong pass-through to consumer prices. Inflation in the country rose to 11.4 per cent last month, effectively exceeding the CBN’s inflationary ceiling by 240 basis points.

The MPC had also kept liquidity ratio unchanged at 30 per cent, and further resolved to narrow the asymmetric corridor around the MPR from +200 and -700 basis points to +200 and -500 basis points respectively.

The situation may become worse in the weeks ahead of the statement credited to the CBN governor, Godwin Emefiele is anything to go by.
Emefiele had hinted at the weekend in Washington that the dire inflation report for March may well lead to another rate hike.

For the most part, analysts believe banks would have passed on the March increase to borrowers (real estate developers and mortgagors inclusive).
Analysts at FBN Quest told THISDAY that foreign exchange sourcing challenges have put a strain on the sector as difficulties in securing imported building materials have led to higher costs in developing housing units.

“Based on a recent survey carried out by a domestic financial advisory institution, the number of properties up for lease in Lagos was more than double the number put up for sale in March. The latest national accounts from the NBS show that in 2015 gross domestic products (GDP) growth in the real estate sector slowed to 2.0 per cent y/y from 5.1 per cent recorded in 2014. As for construction, the sector grew by 4.3 per cent y/y in 2015, compared with 13.0 per cent y/y the previous year.

“At the National Economic Retreat which took place in March, President Buhari reiterated the administration’s commitment to deliver one million housing units per year. This is no easy feat as only 250,000 units are currently delivered annually. The minister of power, works and housing, Babatunde Fashola, disclosed recently that a new housing model designed to supply 17,760 flats across the country is underway, “they stated.

Financing, they pointed out, remains a major bottleneck as mortgages continue to account for a low single-digit percentage of banks’ loan books.
The analysts added that until this is adequately tackled, the housing deficit in the country is set to remain substantial.