Nigeria’s real estate investment to hit $20.6trn by 2016 –PwC

The real estate sector in Nigeria is expected to hit $20.6 trillion by 2016, according to a report by PricewaterhouseCoopers. The sector is currently growing at a rate of 8.7 per cent, faster than the average GDP growth rate of 7.4 per cent. According to African Business Community, the report titled: “Real Estate: Building the future of Africa,” projected the country’s real estate investment to rise by about 49 per cent from $9.16 billion currently to $13.65 billion in 2016.

It attributed the expected increase to many factors. PwC said: “This is driven by a growing middle-class driving demand for residential property development and, indirectly, retail, industrial and commercial real estate development. High networth individuals (HNWIs) invest 25 per cent of their assets in real estate compared to 18 per cent or less in equities and other instruments. “Continued government reforms have created an enabling environment for property development and financing. Increased allocations of funding to the asset class by local and foreign investors are also key drivers of projected growth in this sector.” It also noted that the growing population in Nigeria, as well as the increasing ruralurban migration, strong economic growth and a growing middle class, drive residential real estate market.

The report added that commercial real estate market is driven by an influx of institutional, foreign and private business into the country, as well as the growth of locally established businesses and multinational oil companies across the cities of Lagos, Abuja and Port Harcourt. “The availability of office space is improving and several A-grade projects are underway. Rental figures in Lagos remain among the highest in the world, with achievable rents at over $85 per square metre per month,” noted the study. It also indicated that there is considerable room for profitable investments in the real estate sector due to the huge housing deficit in the country.

“It is estimated that Nigeria has a housing deficit of 17 million houses estimated at $363 billion. This number is expected to increase by two million houses per year at the current population growth of 2.8 per cent per year.” PwC noted that if the growth pattern is sustained and improved on, numerous jobs will be created in the process and the housing deficit will be bridged sooner than later. The study, however, highlighted the problems facing the real estate industry, cautioning that despite the substantial opportunities existing in the Nigerian real estate market, there are many specific risks for property investors.

It further observed: “There are existing problems with access to finance; with a lack of long-term debt financing and an underdeveloped mortgage market, with mortgage loans representing less than one percent of the nation’s Gross Domestic Product (GDP). “Cumbersome and time-consuming processes for land acquisition and ownership documentation can make acquiring land difficult, while land in urban areas is expensive. Building materials and construction costs are also high and there is a reliance on expatriate workers resulting from a shortage of expertise in the local construction industry. “Security considerations as a result of local unrest should also be factored into investment decisions. A dearth of infrastructure presents difficulties for potential developers, as non-availability of basic services such as water and energy has forced developers to provide these amenities, adding up to 30 per cent to total development costs.”