The real estate sector is expected to record significant turnaround in 2018, the Chief Executive Officer of the Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane has predicted.
Vacancy factor for the sector was estimated to remain high through 2017, just as replacement cost for the sector is currently far in excess of market values
Rewane stated this in his latest monthly economic views and news titled: “Strong Naira – Catching a Falling Knife,” presented at the Lagos Business School recently.
He pointed out that in the real estate sector; values are exchange rate insensitive in the short run.
“Cost of building properties remains sticky downwards; effects likely to feed into higher house prices. Real estate market will pick up gradually if the economy follows a recovery path. Lagging effect of the sector means positive changes will soon be felt in the market.
“Lagos vacancy factor index at 73.4 per cent in the first quarter of 2017 dropped from 74 per cent in the fourth quarter of 2016. Vacancy rates in prime areas falling gradually as rental prices become more attractive. As a lagging indicator, real estate will adjust gradually following changes in the business cycle. Cost of building materials stubbornly high and landlords offering discounts and lower advance rents – 1 year rent,” he added.
Rewane also predicted Gross Domestic Product (GDP) growth for the second quarter of 2017 of 1.5 per cent. This, he said would be driven by improved power output and oil production, noting that lower diesel costs average N190 per litre.
According to him, availability and supply of forex would also contribute to the GDP growth, adding that declining headline and core inflation was expected at 16.4 per cent for March.
Nigeria’s terms of trade still at 14 (from 18.9 in 2015), while balance of trade is currently -$0.5 billion, while foreign direct investment is still static below $2 billion. According to Rewane, marginal propensity to import in the country is still above 0.63, saying if oil price falls below $40pb, the naira will suffer a further decline.
“Ships awaiting berth benefits from subsidised naira. Forward contracts and spot dollars mean increased letters of credit and imports. The PMI is expected to increase sharply to 55, thanks to forex and exchange rate advantage. Increased capital expenditure and infrastructure projects financed by the Chinese,” he explained.
Furthermore, he predicted that power output would reach a peak of 3800mwh in April, saying higher rainfall would improve hydro generation and output.
According to him, the repairs to Forcados and pipelines should guarantee gas supply.
The Central Bank of Nigeria (CBN) intervened vigorously in the forex market, increasing quantity of supply by 73 per cent in March relative to sales in February.
Also, the CBN last month depreciated the rate for invisibles initially to N375/$, then revalued by 4.17 per cent to N360/$.
“Effective weighted average exchange rate at N325/$. No change in market structure from price discriminating monopoly. Multiple exchange rates persist
“The federal government has banned the importation of tomato paste and raised tariff on concentrates from five per cent to 50 per cent to revive the tomato sector. The Kano-Lagos rail transportation of tomatoes has been reactivated after 58 years.
“Levy on wheat was reversed from 50 per cent to 15 per cent. Flour price war in the offing between major players with price expected to decline from N10,500 to N9,000 per 50kg,” he added.
He however stressed that strong currency was not synonymous with strong economy. But he stressed that economic fundamentals were recovering slowly.
“Aviation in Nigeria is a victim of naira weakness. Domestic carriers with 70 per cent market share in receivership of the Asset Management Corporation of Nigeria (AMCON).
“The route rationalisation and existing unprofitable destinations; Arik suspended Heathrow, Johannesburg and the West Coast; Aero laid off 60% of employees, while Medview is gaining market share domestically,” he said.