Real Estate Investment In Nigeria Is Gold For Every Entrepreneur

Real estate can be equated to gold in Nigeria. At about $1,200 or more per ounce, gold is clearly where many people will love to take refuge in. Storable in a variety of “safe” places, gold is readily convertible to many different currencies.

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The speculative positioning of gold is close to the 2015 peak, as there is a surge in investors taking long positions. This is no coincidence as the market turmoil in oil prices reaching new lows in recent years led a number of investors to seek refuge in other safe-haven assets. Gold is one of them. The metal has proven to be the quality, long-term wealth store during a slide into deep crisis – the one which everyone else comes to in a bit of a panic.

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Real estate in Nigeria reveals similar patterns to gold, although the outlook for 2018 might seem pale considering that commodity-dependent countries, such as Nigeria, are battling with plummeting oil prices.  In times of slow economic growth in Nigeria, while the stock market dips and the currency market plummets, this class of investment – real estate – on average, retains its value and only falls at a slower pace when at all it drops.

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Supply

The stock of gold isn’t disappearing, and its supply is growing at a very slow rate (1.6% pa) compared to its overall stock. This feature of a nearly fixed above-ground quantity, growing slowly, has been true for about 4,000 years.

So you can now see that there exists a large, but not too large, and almost fixed quantity of gold in the world, almost all of which is held by its owners as a tangible store of wealth. That is something which is true of nothing else.

In Nigeria, there exists a housing deficit of about 17 million units. Housing production is at approximately 200,000 units per year and this is highly inadequate because at least 800,000 units per year are needed to bridge the gap. The supply is also growing at a very small pace similar to that of gold.

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Real estate is a resilient sector in terms of pricing

Despite the 2008 crisis that some industries are yet to fully recover from, the real estate market surged four-fold from 2006. The ratio of home loans to gross domestic product of Africa’s largest economy is approximately 1%. The lack of affordable mortgages is a major challenge, a major deterrent, a major hindrance to the development of residential properties in this market. There’s little incentive or money for private developers to provide low-cost housing. This exacerbates the pricing of available housing facilities as demand exceeds supply.

Capital expenditure

A focus on economic diversification and infrastructure reform will open up a lot of opportunities. Commendably, the government has shown interest in boosting employment in income generating sectors of the economy – agriculture, mining, power, energy and real estate. Based on percentage contribution to real GDP (as at Q3 2015), five key sectors will be the focal points for output growth as at 2016:

• Agriculture
• Quarrying & Mining
• ICT
• Manufacturing
• Real Estate

Light at the end of the tunnel

The 2016 budget proposal of N6.08 trillion, which was aimed at jump-starting the economy, is the light at the end of the tunnel. Assuredly, about 30% of that budget was earmarked for capital expenditure, to provide respite to overstretched and dilapidated infrastructure.

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Also, high net worth individuals (HNWIs) invest 25% of their assets in real estate compared to 18 percent or less in equities and other instruments. The weak currency, when officially stabilized, also portends an opportunity for an increased inflow of foreign investment; real estate is positioned as an attractive sector as asset prices become discounted on the back of currency depreciation.

The fundamentals (rapid urbanization rate, rural-urban migration for job opportunities, and the growing middle class) backing the sector and resulting in a shift in consumption pattern haven’t been significantly mulled. Also, PwC projected the country’s real estate investment to rise by about 49%, from $9.16 billion in 2015 to $13.65 billion in 2016. The Nigeria property market, in the Short to Mid Term (i.e., next 24 to 36 months), looks attractive, offering investment opportunities, both on the capital appreciation and rental basis.

As Warren Buffett says, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”

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Photo Credit: Lagoshoms