Crash in property market in Nigeria has
opened up opportunities for brave investors who are banking on possible
high returns when the country climbs out of recession. A report by Reuters
noted that rents for residential and office property in Lagos have dropped by
around 20 percent, year on year, due to a supply glut as projects planned prior
to 2014, when oil prices started to fall, are now coming online.
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However, investing in Nigeria requires a
willingness to navigate opaque land laws, corruption and the prospect of having
money held up in the bank due to currency restrictions. In spite of being in
recession for the first time in 25 years due to a slump of oil revenues,
Nigeria has a fast-growing population that will require more housing and
shopping malls in the long-term, and some investors believe the time is right
to step in, particularly as banks are reluctant to grant loans to other
potential buyers in the midst of the downturn.
Some private equity funds, mostly from South
Africa, are investing in Lagos and Abuja, believing that the spending power of
the country’s 180 million people will grow. “We
believe Nigeria has massive potential in the retail area. The sector is in its
infancy and will only continue to grow from a very low base,” said Jan
van Zyl, head of Nigerian property development at South African fund, Novare Equity Partners.
Investors face the risk of being caught in
another currency devaluation as the Central
Bank of Nigeria (CBN) seeks to end a 30 percent spread to the black market
– a goal it failed to achieve when it allowed a 40 percent depreciation in
June. But investors can take advantage of their purchasing power as the country
is desperate for dollars to replace oil revenues which account for almost all
the hard currency income it needs to fund food and other imports.
“What you are offering as an investor is
liquidity. In the country itself, there is no liquidity,” said Jonathan
Millard, Lagos-based chief operating officer at Troloppe Property Services. “If you’re
looking at this on a five to ten year cycle there are tons of opportunities.” Lagos has seen a building boom in the last
few years – real estate is a favourite destination for those who get their
hands on oil money. Two shopping malls were completed within the last three
months, bringing to eight the total of such retail hubs in the city.
With the CBN imposing hard currency curbs and
construction activities slowing in a dollar-starved economy, foreign capital
flows into Nigeria fell by 61 percent, year-on-year, in the second quarter.
Property consultant, Cluttons,
estimates that Lagos retail yields stand at around 7.5 percent, compared with 8
percent in Johannesburg, 9 percent in Accra and 10 percent in Nairobi but have
the potential to rise once the economy improves.
In the last few months it has become common
for retailers and service sector tenants, squeezed by the economic downturn, to
negotiate lower rents with landlords who are keen to sustain occupancy levels.
Lower rents have pushed down yields in Lagos. Office yield have dropped to
around 8 percent from 9 percent in 2014, making them the same as in Johannesburg
and Nairobi, but less than the 10 percent found in Accra.
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