Property market not likely to bounce back soon – Akomolede

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Chief Kola Akomolede is the Vice President, Africa, International Real Estate Federation (FIABCI). In this interview with MAUREEN IHUA-MADUENYI, he says that with the absence of free money, rents and prices of properties will become stable

There has been a lull in the real estate market in the last one year, what has been your experience as an estate surveyor and valuer?

Yes, there has been a lull in the market due to the recession in the economy. This should be expected. Many people cannot pay their rents as and when due as a result of job losses, non-payment of salaries or poor business returns. Many businessmen are virtually doing nothing. Those who work for government are not getting paid either. Property sales is the worst affected. Most properties above N100m are difficult to sell because of the absence of money bags who usually buy them. Most corporate bodies are not doing well also, hence they cannot buy properties as they used to do. Their patronage for high rental properties has also stopped; therefore, you see so many block of flats in Ikoyi and Victoria Island remaining vacant for long.

Apart from the issue of recession, which started last year, how would you describe the real estate sector; is it growing or stagnant and what is its future?

The real estate sector is always growing. It may appear that it has not been growing in the last few years, because prices of houses and rents have not increased as before. This is due to the fact that most properties, especially in the high-brow end of the market, have been overpriced. Take for example, people paying $100,000 per annum as rent on a three-bedroom flat in Ikoyi. Where in the United States do you get such a rent, especially in an environment without constant water and power supply, and with bad roads and insecurity?

We were living on borrowed garments. Now, water is finding its own level. With the absence of free money as a result of corruption, subsidy scam, etc., rents and prices of properties will become normal. Then, the usual growth will be experienced. At any time, investment in property is the future of all investment options. There is no better option. Some may tell you to invest in Treasury bills or Federal Government of Nigeria bonds, because of the high interest rates. But both interest and capital will be decimated by inflation over the years, unlike property that will always appreciate in value.

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For some years now, professionals like yourself have advocated for a reduction in the cost of land acquisition, building materials, interests on loans and the process of building plan approval. Why do you think these problems are still confronting the sector?

Truly, the cost of acquisition of land in Nigeria is humongous. Consent fees, regularisation fees (N20,000 per square metre in Ikoyi), stamp duty, registration fees, land use charge, development fees and approval fees. All these can account for as much as 30 per cent of the cost of a development. Interest on mortgage loan in Nigeria is perhaps the highest in the world. It is between three per cent and six per cent in the UK. In Nigeria, it is about 18 per cent. Cost of building materials keeps going up every day in line with the rising exchange rate of the dollar.

Instead of the government looking into these problems, it is concentrating on how to control rent. How can you control the price of what you cannot determine its demand and supply?  It cannot work.

Some experts think that despite predictions of a positive outlook this year that it may take the sector nothing less than two years to get back to profitability even if the economy bounces back, do you share this view?

The property market is not likely to bounce back this year. If the recession ends this year, the rental aspect may recover. Once people have money, they can afford to pay their rents or move to bigger or better accommodation. This will boost the rental market.

But for the sale aspect, it takes time to amass money to purchase a property, just as it takes time to develop a property. Hence, it will take longer time to return to normalcy in this area. Most developments that have been stopped due to paucity of funds will need re-evaluation to ascertain the new completion costs and scheme of completion. Costs will be different, so also sale prices will be adjusted.

What areas of real estate market should those with funds invest in at this period?

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The answer to this question will depend on the location concerned. But generally, I will advise people to concentrate on residential developments. As population increases, the demand for residential properties will continue to increase. If the rents and prices are right, you will always find a tenant or buyer for residential properties. Efforts should also be made to give priority to the needs of the low and middle-income earners as the high end seems saturated for now. There are over 40 high rise buildings either ongoing or just completed in Ikoyi as we talk. It will take some time to get either tenants or buyers for such properties.

There has been a trend of developers investing more in luxury houses for the rich, while the country’s housing deficit continues to grow and those who really need housing are left out. How can this gap be bridged?

Developers invest more in luxury houses for the rich because the profit at this end is higher. You cannot blame them because they are in business to make profits. This is why we have advocated that government cannot leave housing for the low and middle income entirely in the hands of the private sector. Government must either get involved directly in the provision of housing at this level or create incentives for developers to get interested. These can come in form of easy access to land, lower interest on loan, waiver of so many taxes, which act as limitation to housing development for this level of people in the society. The rich cannot exist without the low income people. The neglect of provision of housing for them is a time bomb.

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