Experts Discuss Challenges, Opportunities in FG’s Reforms on Real Estate Sector

Bennett Oghifo

Nigerians have been urged not to focus only on the challenges thrown up by the reforms being embarked on by the federal government, but search for the opportunities inherent in them, particularly their impact on the real estate sector.

Lagos State Governor Babajide Sanwo-Olu stated this at the 3rd edition of the Real Estate Summit hosted by UPDC Plc, an annual event, held in Lagos, last week. 

The Summit’s theme was, “Current Economic Reforms and Their Impact on the Real Estate Sector.”

According to governor Sanwo-Olu, represented by the General Manager of Lagos State Real Estate Regulatory Authority (LASRERA), Mrs. Tamitope Akinbola, “Today‘s summit provides a valuable platform to deepen collaboration, share expertise and generate innovative solutions as we discuss the impact of economic reforms on the real estate sector. I encourage us to think beyond challenges and focus on opportunities. “With reforms come a chance to re-engineer processes, attract investments and build structures that are both inclusive and resilient.”

In his welcome address, the MD/CEO, UPDC Plc, Odunayo Ojo, said, “We’re meeting at an important time for our industry. The real estate world is changing rapidly in terms of our built environment, sustainability trends, regulations and economic conditions, more so because of what’s happening around the globe and the new economic reforms taking place in our country.

“Our built environment reflects past policies and their outcomes. Today, we’re actively shaping tomorrow‘s landscape, influenced by current decisions and actions.

“At this year’s event, we have invited expert speakers to talk about the main impact of the current economic reforms in Nigeria on the real estate sector, and their implications for key stakeholders.

‘They will delve into the topic and help us navigate the opportunities and challenges that these reforms portend for our industry’s key players.

“This summit promises to be an interactive time, where we have an opportunity to network, collaborate, question norms, and set a new direction collectively. Your insights and ideas will be most useful in this regard.”

Also at their fireside chat, after their personal insightful presentations, three experts on finance and the economy, Biodun Adedipe, CEO, B.Adedipe and Associates Limited; Bismarck Rewane, CEO, Financial Derivatives Company; and Ayo Ibaru, CEO, Northcourt Real Estate, brainstormed on the challenges and, more importantly, the opportunities offered by the reforms being embarked upon by the President Bola Tinubu administration, particularly in the real estate sector.

They had clear views on the impact of the removal of subsidies on petroleum products, electricity tariff, high inflation, high interest rate and uncontrollable exchange rate. 

Biodun Adedipe, CEO, B.Adedipe and Associates Limited, said the reforms have made the real estate sector more challenging, noting that the high interest rate from high cost of fund, “high construction costs, massive housing deficit and low mortgage penetration.” 

According to Bismarck Rewane, CEO, Financial Derivatives Company, “Nigeria’s inflation rate remains extremely elevated at over 33.88 percent and the economy is feeling the full impact of the central bank of Nigeria’s (CBN’s) aggressive rate hikes, which have pushed the benchmark rate to a record high of 27.25 percent.

“Nigeria’s inflation rate remains extremely elevated at over 33.88 percent and the economy is feeling the full impact of the central bank of Nigeria’s (CBN’s) aggressive rate hikes, which have pushed the benchmark rate to a record high of 27.25 percent.” 

Rewane said recent policies of the Central Bank of Nigeria have resulted in “8.5 percent cumulative hike in interest rates,” weakening the Naira in the process, adding that this had a negative impact on the real estate sector.

He said, “A weak Naira leads to higher property prices, making real estate less affordable. It leads to reduced foreign direct investment (FDI) and slows the development of large-scale projects, makes mortgages and loans more expensive and reduces housing affordability. A depreciated naira erodes the purchasing power of potential property buyers.” 

On inflation, he said, “Inflation drives up the cost of building materials, labour and other inputs necessary for construction, it reduces affordability and demand for property purchase.

“It erodes buyers’ purchasing power and makes it harder to save or afford property investments, shifts investor focus by pushing it to fixed-income assets such as government bonds. “It also leads to an increase in rental demand because more people may choose to rent rather than buy, driving up rental prices.” 

Ayo Ibaru, CEO, Northcourt Real Estate, said the proposed tax reforms of the federal government have some positives for real estate practitioners, particularly the aspect of tax exemptions on commercial real estate, which will provide their developers flexibility in terms of pricing and giving concessions to tenants.

He said, “I did read through the proposal for the tax reform and I came across removal of taxes on the commercial rents received, which does help the demand side. What that means is as a landlord who has a commercial asset, you have more flexibility in terms of the concessions you can give to your tenants, because you’re paying less in taxes, assuming that this reform goes through. But maybe the problem in Nigeria as we speak is more of a supply problem and by that, I mean supplying in accessing the market that is within the buying power of the average person. The reform can be seen, so far, the consensus view is tending towards the negative even though this has now brought up some opportunities.”

He said in Lagos, there is a high occupancy rate for residential buildings, but Rewane observed that “High occupancy rate is one thing, high delinquency rate is another thing. So what we’ve noticed is that a lot of people’s fortunes have changed. Some people were making a lot of money two years ago and now they are not making that much. Even in shopping malls, we’re beginning to see empty shops because people are not buying, people are not trading, people are buying lower quality. We are also beginning to see an increase in court cases; the number of people who are going to court to sue their clients.”

He presented another scenario, saying, “Some of those properties which are passed down from one generation to another in the first place have affected the estate and so you have families having problems. There is an opportunity also in taking over assets. If you drive along some roads you’ll see a few good houses and, then, abandoned property because of disputes. You go in there, settle the dispute, refurbish the property and get a lot more when selling.”