Noah Ibrahim, CEO of Novarick Homes, Nigeria’s leading real estate company shares his insight and forecast for the Nigerian real estate sector, detailing its challenges, prospects and the part stakeholders, investors and Government have to play in its success.
In 2021, the GDP of the Nigerian real estate industry recorded a positive growth, a 2.3% increase from ₦3.96 trillion recorded in the previous year. This advancement was majorly witnessed in the third quarter of the year by a 5% expansion in the industry which remains the strongest since the last quarter of 2014. This was as a result of the full re-opening of the economy and increased investment interest.
But not everything was rosy, despite the level of activities that was witnessed in 2021, the housing deficit in Nigeria still remains at about 22 million. The market has not yet seen the volume of expected home demand and supply.
The state of Nigeria’s housing inventory is dire, with a chronic shortage of affordable and available homes needed to support the nation’s population.
According to Oxford Business Group, by 2050, the population of Africa will have doubled, meaning that the region would have added 3.5m people per month. Africa will contribute more than half of the world’s total population growth by then and more than three-quarters of that growth up to 2100. Some countries will even see a greater population burden.
Nigeria which is the most populated country in Africa with over 190 million people could have the greatest population increase of any nation in the world after China and India through to 2050 according to some projections. The government estimates that the housing sector would need at least $400 billion investment over the next 25-30 years to resolve the country’s housing deficit.
What are experts saying in 2022?
Many real estate experts are already predicting a stronger housing market in 2022. They are forecasting increased demand from buyers.
Housing Development Advocacy Network (HDAN), predicted a growth rate of 2.9% for the country’s Real Estate sector in 2022.
But we still have a serious dilemma on our hands, a severe lack of new construction and prolonged underinvestment have led to an acute shortage of available housing to the detriment of the economy and certain segments of the public.
The scale of underbuilding and the existing demand-supply gap is enormous and will require a major national commitment to build more housing of all types for the people.
Affordability has weakened substantially, especially for first-time homebuyers. Prices have risen most at the low end of the market, where supply is leanest and homebuyers have already lost considerable spending power.
Builders are struggling
What the Nigerian housing market really needs now is more available and affordable houses, but the nation’s homebuilders are struggling. Due to the persistent depreciation of the Naira, the cost of building materials has experienced a drastic hike especially for imported products. This has made homebuilders increase their prices, given higher demand and higher construction costs.
The cost of raw materials such as reinforcement, cement, finishing, paint and other components have skyrocketed, it rose by over 300 per cent in the previous year. A bag of cement is now sold for NGN3,600. A shortage of skilled labor and a lack of buildable lots are adding to the cost pressures.
With higher project prices, which include material and rising labour costs, the shortage of housing has exacerbated, construction activities are being postponed, reviewed or cancelled. Some builders, including several of the nation’s largest, are actually slowing production, hoping prices will ease soon.
If the economic situation and poor management of inflation is not addressed in 2022, builders will be woefully unprepared for the coming surge in home demands.
The Real Estate Sector Needs Technology Acceleration and Innovation
While very little is predictable anymore, given the slow march to widespread vaccination and normalcy, there is no question that Nigerians’ attitudes toward their homes have also changed.
All of these difficulties have bred innovation, too. Technology in the home and in-home construction are both on steroids now. This could well drive much-needed changes for labor, materials, sustainability and resilience.
While the pandemic has driven a new desire for clean-home technology, the real estate market itself seems to be less open to the expansion of innovation, most likely due to institutional, governmental and legal limitations. The real estate industry needs to undergo a digital transformation that will not only change its nature in terms of the markets and work environments, but also influence its growth. Homebuilders need to step up in 2022.
The Outlook for housing in 2022
The outlook for housing in 2022 is mixed. Some sectors, like commercial, hospitality and rentals, should thrive, while the residential market is facing a bevy of headwinds. Airbnb will leverage the biggest impact on the residential real estate market in 2022.
However, affordability is No.1 on that list. Nigeria has an ineffective housing finance programme. The mortgage/GDP ratio is low in Nigeria relative to other countries. The concept of mortgage finance is not popular in the country. The Institutions set up to address this challenge have not really lived up to expectation. The Federal Mortgage Bank of Nigeria (FMBN) is the only real affordable housing finance window for Nigerians, and we need more.
The housing sector in Nigeria needs strong strategic solutions in order to address housing problems and optimize it in ways that will benefit the consumer.
In 2022, there should be meaningful and life-changing collaborations between Government (Public) and Private Sector with this, the industry is poised to attract the relevant investment needed to reposition the industry.
The Government should seek innovative ways to attract funding for housing provision through private partnerships with financial institutions by raising long-term housing bonds which would guarantee provision of affordable housing for the public.
Real estate is long-lived and capital intensive, thus lasting impact requires the creation of value, the creation of that value starts now.
