Tuesday, 30 June 2020

THE OUTLOOK OF REAL ESTATE BUSINESS AT THESE HARSH ECONOMIC TIMES

Chief Anayo Nwosu
Chief Anayo Nwosu

When the buyers’ abilities to buy are diminished due to reduced profit or lowering disposable incomes, a smart businessman or salesman should immediately readjust his or her product offerings to the price range the customers can buy or afford. It could also require a product engineering and deep thinking.

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Most salesmen or businesspeople who fail to smell the coffee or move with the cheese would later sink with their stubbornness or lack of ability to analyze business situations and reacting accordingly. Unfortunately, many businesses would and have already started sinking early enough; and would sink further post-COVID-19.

The effects of depleting cash in the pocket, unemployment in all sectors of labour cadres, poor sales or output caused by bad economy are the initial impacts on the rental income of or poor sales for those owners/developers of real estates and service flats in highbrow areas like Maitama, GRA PH, Ikoyi, Victoria Island, Lekki Phase 1 and all those who own the beautiful houses in well-organised gated estates on the Lekki peninsula axis and Banana Island, Ikoyi Lagos Nigeria with high annual or monthly service charges.

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While it is a reality that a lion would never eat grass no matter the economy in the jungle, the rich and the survivors of the harsh economy would still keep living big but their numbers be depleted. Upper and upper-middle class are fast depopulating. That’s why most houses slated for sale or let in the high brow areas in Lagos, Abuja and Port Harcourt still have wooden adverts hanged permanently on their gates with nobody renting or buying.

In the wake or in view of the present bad economic weather, I advise players in the real estate sector, especially the developers, to consider doing the following:

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1. Build houses in areas with lower or moderate value of land to make the off-take prices of their apartments affordable. This would also ensure that those built for rent are affordable to tenants whose incomes have been lowered by harsh economy.

2. Builders should work with their architects and civil engineers to reduce convolutions in the building designs to save materials and labour costs. Straight and simple designs like Festac housing designs would produce low-cost houses for sales or rents.

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3. Now the majority of the populace are around middle and low income classes, why won’t a developer build houses which costs would approximate N15mn and encourage buyers to use their National Housing Scheme loans to buy? Any worker in Nigeria’s public and private sector is entitled to a housing loan of up to N15mn at about 5%p.a interest rate and tenored for up to 15 years from the Federal Mortgage Bank of Nigeria provided that the statutory deductions are made by the employers from the work’s salary.

4. A smart developer can enter into an agreement with blue chip companies like banks who give mortgage loans to their employees, agree on designs and location, and build apartments that would be off-take by the employees while their employers pay the developer and book mortgage loan for the benefitting staff.

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5. Those developers who had built up their houses before the annoying COVID-19 arrived with its economic consequences, should consider renting out the buildings or apartments that were planned for outright sales at reasonable rates. This would ensure some revenues while waiting for the economy to pick up or the right time to sell.

6. A developer could adopt a strategy of tenant-house-purchase scheme whereby the tenant pays normal rent but at the same time pays by installments for the eventual acquisition of the rented property.

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It is suicidal for a real estate developer to ignore signs of times and continues developing what he cannot sell or rent at profitable prices. Even their big customers who are into drugs, money laundering and stealing of our patrimony are also caught up in the web of hard times. Someone would have to drink tea first before asking for Ovaltine or Over-tea.

Securing a bank loan for real estate development for sale is a tough sell at this time. This is simply because the banks would not be able to see how the built houses or apartments would be sold early enough for loan repayment at this gloomy period.

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Given the foregoing, any risk taker in real estates at this time must do it with his or her own funds.

It is a tough one.

anayonwosu@icloud.com

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