Issues Behind Nigerian Real Estate Sector’s Growth Contraction in 2 Years

In the previous analysis, the real estate sector was reported as one of the worst sectors in 2 years, considering its decline growth rate and contribution to the country’s Gross Domestic Product.  From -4.27% in 2017, the real estate sector failed to poll positive growth in 2018. The sector negative growth increased in 2018 by -0.47%.

In 2017, the contribution to the GDP was 6.85%, while it recorded 6.41% in 2018. Comparing the growth and contribution rate with the construction sector, the real estate sector is significantly behind during the years. From 2017 to 2018, construction sector maintained positive growth and contribution to the GDP. The growth rate was 1.00% in 2017, while the contribution was 3.72%. In 2018, the growth rate was 2.33% and contribution rate increased to 3.73% in 2018.

Despite the significant interest from the public and investors in the real estate sector in 2017 and 2018, the sector’s performance did not align with stakeholders’ expectations. The poor performance, especially in 2017, was largely blamed on the economic recession of 2016 which impacted its growth and development before 2017. The sector continued to suffer from low occupancies in 2018 brought about by an overhang of new space coupled with low demand.

The sector was immersed in a sharp supply-demand imbalance, widening vacancy rates and dwindling rents. The restrictions placed on the availability of foreign exchange by the Federal government equally impacted the sector.

In addition to the restriction, the government’s anti-graft policy and programmes scared investors from the sector. The sector is one of the sectors, Federal government’s anti-graft agencies investigated the most; every transaction was queried as part of an anti-corruption drive.

With the absence of robust consumer spending power coupled with the bank lending rates of circa 25 per cent, it was difficult for the sector to perform like the construction sector. Residential developers mostly avoided loans which were seen as too exorbitant. As the first quarter of the year 2019 has one month and a few days left, analysts believe that the sector would grow and make a significant contribution to the GDP as long as the stakeholders work out the right modalities towards mitigating the issues.