Real Estate Expert Laments Over Effects of Increased Operating Costs
In the wake of Nigeria’s economic realities and the evident imbalance and performance of the Nigerian naira against other currencies which is further stifling investments in real estate and other sectors, the founder of Nigeria’s leading provider and pioneer of short-let apartments, Digital Landlords and ShortletHomes, Keji Giwa has posited that more landlords will turn into tenants. This is just as he stressed that the hope for high-yield rental income from short-let revenue has now been wiped out by the uncontrollable increase in operating costs.
He noted that the current realities have led to extortionate electricity bills by service management companies which are in most cases owned by the same property developers who sold the property to them. “A lot of property developers came to the realisation a few years ago that they could easily turn landlords into tenants by charging up to 400% premium on electricity bills and close to 100% profit margins on service charges. While a landlord may generate N1.3m from a short-let property as rental income, N1m of that money goes towards paying electricity bills. When you consider the cost of maintaining a short-let home, cleaning, facility management and replacing damaged items, it’s no longer profitable,” he said.
According to World Bank Data, the Nigerian diaspora population remitted $65.34bn in three years to boost economic activities in the country. Looking into the data itself, in 2018, the Nigerian Diaspora remittance was $24.31bn; in 2019, it dropped to $23.81bn; and in 2020, it fell to $17.21bn. Remittance inflow made up four percent of Nigeria’s Gross Domestic Product in 2020.
Reacting to this, Mr. Giwa said; “In a nutshell, Nigerians in Diaspora are not just high-income earners, but significantly contributing a whopping 5% to Nigeria’s GDP. While the diaspora market presents a huge opportunity to fund Nigerian real estate, there is little attraction for investors to want to invest today. Out of the funds remitted to Nigeria each year from the diaspora market, Unsurprisingly, 70% of remittances are spent on household & personal uses like education, large purchases, and education while the outstanding 30% goes towards building or buying a house at home.
“The bad news is that investments into real estate have started to dwindle as more people start to realise it is better to invest in dollars or pounds rather than in naira.”
Speaking further, he said; “With the current market metrics and the number of properties developed at different locations by owners, more landlords will become tenants. Owners of properties in locations such as Lekki Phase 1, Ikoyi, and Victoria Island have experienced a 500% increase in yearly rental income. This has taken their ROI on a property from 2.5% a year in local rental income to 22% a year in high-yield rental income.
Commenting on how to fix the current issues, Keji Giwa whose ShortletHomes have made a significant impact in the short-let sector, said; “Developers hold the key to making real estate in Nigeria attractive to Nigerians in the diaspora. Nigeria is fast becoming the destination hub for indigenous tourists every easter, summer, and what is now called dirty December. Property developers should focus on recreational real investment to attract tourism and recreational activities. This will boost the recreational short let market which can generate a 30% ROI for investors.
“This is what we are doing with Giwa Garden City which is a facility comprising 570 vacation homes right next to Giwa Gardens Water Park in Sangotedo, the largest water park in Africa. The property will attract 1.4m people a year generating over N35bn in revenue and attracting major investments to Sangotedo. We are also capitalising on the Gold rush of ocean view apartments and beaches on the Oniru axis. The Carnelian, 21-story luxury apartments with recreational activities, an ocean view, and a private beach where each apartment has already experienced a 163% appreciation in value since the purchase of the land and is expected to appreciate by a further 158% on completion.
“Attracting the international community using recreational and tourism-based initiatives will attract revenue in foreign dollars and pounds, overcoming the dollar to naira depreciation issue buyers/investors/landlords are now faced with today. The key is to sell recurring value and no longer just sell properties to turn landlords into tenants through extortionate electricity bills. Recreational short let opportunities can create recurring revenue in dollars or pounds for buyers provided the operational cost is low.”
He concluded that property developers who can capitalise on this initiative will gain a huge competitive advantage and dominate the diaspora market over the years to come.