Daily Independent (Lagos)
Michael Simire And Dada Jackson
5 January 2009
As the world continues to experience the effect of the global economy downturn, local built environment industry experts have said the indigenous real estate sector will continue to weather the storm.
In fact, the grim prospects confronting the global real estate sector notwithstanding, the industry in Nigeria seems to be experiencing a boom, thanks to a healthy stream of financial injection by commercial banks and a corresponding rise in demand for the products.
Apart from the fast growing Lekki corridor in Lagos, the Mowe-Ofada axis off Lagos-Ibadan Expressway in Ogun State has emerged the major selling point in recent months, as numerous real estate development initiatives are sprouting in droves.
But some experts are wary, saying that situation might not last for long, as Nigeria's immunity will soon wear out.
Since the collapse of the housing market in United States (U.S.) several months ago, the development had snowballed into a major economic crisis.
The downturn has been typified by the closure of hitherto viable establishments, job losses and falling values. The U.S. government a couple of weeks ago announced a bailout package worth billions of dollars to the country's three major automakers so as to avoid their collapse and a potentially disastrous ripple effect on the economy.
A boom in property disposal via auction has become one of the hallmarks of the economic slowdown in the real estate sector, which was once the toast of the U.S. economy.
Across United Kingdom (UK) and indeed continental Europe, property auctions are also buzzing like never before due essentially to the remarkable mortgage meltdown, rising foreclosures and an increase in sales due to financial distress.
But concerns about a prolonged recession and widespread redundancies appear to have prompted even solvent developers and individual homeowners to try auctions as well, attempting to create a bit of urgency in an otherwise stagnant market.
As a result, the offerings now available through real and online bidding rooms include a broad range of properties at bargain prices.
According to the Essential Information Group (EIG), which tracks property auction information in UK, over 2.5 billion pounds of property was sold at auction from the third quarter of 2007 to the second quarter of this year, representing a 46 per cent rise on the same period four years ago.
It is a similar story in U.S., where the initial total gross sale of residential real estate sold at live auction increased by 46 per cent from 2006 to 2007, according to the National Auctioneers Association (NAA).
Although there are no statistics for 2008, a recent NAA survey, however, showed that 48 per cent of auctioneers reported more interest from clients wishing to sell personal property them. And even in Europe, where there is no tradition of selling homes of auction, the sector seems to be taking off.
Commenting on the development vis-a-vis Nigeria, Lagos-based property developer, Lanre Okupe, said Nigeria's property sector had remained virtually unaffected by the global economic situation because practitioners therein are not global players.
He added that a previously flawed situation had turned out to be a blessing in disguise.
His words: "I think there is a disadvantage in the country that is now turning to an advantage for us. We may not experience what is happening in Europe and United States because we are not playing in the global market. That is why the global meltdown has not affected us and it may not affect us.
"Most of our big players in the organised private sector are not big time global players. This is a disadvantage, but it is turning out to be an advantage. "One area that it will affect us as a nation is the area of funding from abroad. Foreign money will no longer come.
"Another area is that the country's main revenue from crude oil may be affected and this will be bad for our economy. This may reduce our revenue."
However, added Okupe, the country's real estate sector might later begin to feel the effects of the global economic situation.
But Chairman, Lagos State chapter of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Dr. Joshua Ajayi-Patunola, said the effect of the downturn would not be seriously felt by the real estate sector.
According to him, the impact of the global economy on the sector would be subject to the local budget and the pride of place given to housing by the government. He added that the funds expected to drive the sector from outside the shores of the country might not be readily available if the inputs of Nigerians in the Diaspora are taken into consideration.
Ajayi-Patunola said some of these Nigerians who might want to access their funds from banks with affiliations overseas could find it difficult doing so as a result of the global financial crunch, adding that such funds might take quite sometime to access.
He explained that in the final analysis, the effect of the global crunch would be minimal on the real estate sector.
In his own submission, Chairman, Lagos State chapter of the Nigeria Institute of Building (NIOB), Kunle Awobodu, said the effect of the global economic recession would be minimal on the real estate sector.
According to him, investors would now begin to shift attention to the real estate sector as a result of the fall of stocks in the capital market.
He said more and more people would now begin to invest in land, which he added, has an appreciative value.
He, however, stressed that on the other hand, there is the tendency for capital flight, as foreigners would start to move their capital out of the country.
The consequence of this, he said, would be that developers would now find it difficult to access funds from banks to finance their projects.
Speaking in the same vein, Managing Director of Megamound Investment Limited, Olumide Osunsina, expressed doubt over the consequence of the global economic crunch on the real estate sector.
According to him, the fear being expressed by some people over the fallout is unfounded. He added that instead of an adverse effect on the sector, it would certainly pick up in the New Year.
Osunsina allayed the fears of members of the economic community that the sector would suffer a slide or downturn due to the economic recession.
He expressed optimism that the real estate sector would experience a boom in 2009, adding that the global economic recession notwithstanding, there is a lot of hope for the sector in 2009.
A developer, Alao Makanjuola, said because most of the houses being sold in Nigeria are on a cash-and-carry basis rather via mortgage financing, the sector would remain immune to the global housing crisis.
"In Nigeria, we believe in cash and carry and this is so because the sector is meant for the rich who see the sector as a veritable sector to invest in. "This is not to say that this is good for the economy, but at least there is no crisis yet," said Makanjuola.
Former Vice-Chairman, Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON), Adeola Olufon, said the situation in U.S. and Europe indicated that a seemingly perfect system can also be crisis-ridden.
He, however, called on investors and home seekers desirous of buying houses overseas to take advantage of the current regime, as according to him, home prices are falling at a rate not witnessed since records began in the 1950s.
Estate surveyor and valuer, Biodun Adeola, spoke in a similar vein, calling on Nigerians to exploit the advantage of the global housing crisis.
He said: "We should not focus of the fact that the world is a global village. What is happening in other places may have a direct impact in our country if we fail to take advantage of it. We need to look at what is happening in those countries for the purpose of using the fallout to develop our sector. It will be a disaster if we fall into the same pit."
However, it is not all gloom in U.S. and Europe, where some buyers of auctioned properties are joyous over the deals, claiming that the houses are cheaper and the transactions faster than buying through an estate agency.
UK auctioneers, Allsop, recently sold a multi-storey property on the edge of London's upmarket Chelsea for 880,000 pounds. It was formerly bed-sits and will, therefore, cost a lot to refurbish, but experts say that similar properties in the area may cost more that 1 million pounds.
The discounts are believed to be even greater on foreclosure sales. In UK, the typical repossessed house sells at auctions for 10.30 per cent less than the market price.
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