Sectoral Preview: Pre-election politicking, subsidy removal, threatens inflation-affected Real Estate sector in 2022

By Moses Adeniyi

Nigeria’s Real Estate sector hit with the scourge of inflation in 2021, is threatened with such activities as the pre-election year politicking of 2022, expected impacts of subsidy removal policies and it’s projected attendant hike in fuel prices.

The Real Estate Market was observed to have been hit hardly by inflation in 2021 which saw the cost of building materials soaring high – a situation that left the development of buildings thwarted with slow growth.

As developers were hardly affected, operators in the downstream rent and estate agency were not left out of the discomfort.

However, in as much as stakeholders in the sector would have desired better market situation for 2022, it has been observed that such expected concentration of activities as the build-up towards the 2023 General elections, the subsidy removal policy and expected associated hike in petroleum products might further worsen market situations for the Country’s built industry.

The projections however, it is presumed that such other expected development as the passage of the Real Estate Regulatory Council Bill, would infuse certain development in the sector.

Giving perspective to the market projections for the year, Real Estate Expert and Managing Director, Realty Point Limited, Debo Adejana, maintained that fuel subsidy and pre-election campaign as well as expected regulations in 2022 are major events that would shape the Real Estate Market in 2022.

According to him, however, the possibilities before the construction market amidst the pre-election activities may pose either positive chances or alternatively negative impacts.

“A few things would define the market. The fuel subsidy removal would have its own effects on prices in the market. This is also pre-election campaign year – that would also have its impact on the market. It’s a 50/50 chance; there may be more activities in the market in the construction space and in some cases, it would also be affected. But as usual during campaign years, some enjoy while some suffer for it.

“The Real Estate Regulatory Council Bill, would hopefully be signed this year. That would also have its effects on regulation. It is expected the market would be better regulated. This is expected to foster cooperation across the built industry because everybody is expected to have input in the legislation,” Adejana said.

According to him, the major challenge for the year 2021 was inflation, which at a point made construction unattractive, hitting hard on developers.

…Real Estate Regulatory Council of Nigeria (Establishment) Bill, 2021 

Recall that the Senate had in November last year passed a bill to establish the Real Estate Regulatory Council of Nigeria to regulate market operations in the sector.

The Council when established would, amongst others, curb fraudulent practices to ensure that Real Estate business conforms with the National Building Code in Nigeria.

The bill tagged: “The Real Estate Regulatory Council of Nigeria (Establishment) Bill, 2021,” which scaled third reading during plenary in November would also create an innovative and sustainable environment to promote Nigeria as a real estate investment destination in Africa and the world. The bill was read for the first time on April 28, and scaled second reading on June 22, 2021.

The passage of the bill on Wednesday 17, 2021, followed the consideration of a report by the Committee on Establishment and Public Service.

Sponsored by Aliyu Wamakko (APC, Kebbi), it is expected that upon assent to become law, it would check rising cases of collapsed buildings, another symptom of poor quality structures.

Nicholas Tofowomo, who presented the Senate report on behalf of the Committee Chairman, Ibrahim Shekarau, had said the establishment of the Real Estate Council of Nigeria would provide efficient, effective and transparent administration of the business of real estate development in Nigeria.

According to the lawmaker, the Council would be responsible for prescribing minimum standards for the conduct of the businesses of real estate development across the country.

He had explained that when established, the Council would standardise the business of Real Estate by regulating the conduct of transactions; and provide enabling environment and transparency in the business of Real Estate development in Nigeria.

He had recalled that the bill seeking to establish the Real Estate Council of Nigeria was passed by both chambers of the eighth National Assembly, but was not assented to by President Muhammadu Buhari.

He said the President’s decision to withhold assent to the bill was as a result of certain observations raised by stakeholders at the time.

“Those observations have been taken care of in this report by the Committee following the engagement with stakeholders to ensure that real estate business in Nigeria conforms with the Money Laundering Act 2011 (as amended)and the Nigeria Financial Intelligence Unit Act 2018 in terms of Anti-Money Laundering and Counter Terrorism Financing due diligence compliance,” he had said.

Among other challenges highlighted, which had expanding impacts on the sector in the previous year include charges and bottlenecks in perfecting government approval for construction.

…Rent subsidy would save the day — Downstream operators

In his view, National President, Estate, Rent and Commission Agents Association of Nigeria (ERCAAN), Godwin Alenkhe, said the cost of perfecting relevant documents for building approval has been a major challenge to developers, with indirect impacts on other stakeholders in the sector.

According to him, interventions from the Government to subsidise rent would be the antidote to save the day for home seekers who are constrained to pay a full year rent from their income.

“The cost of perfection of documents, the charges by state and local governments have not been helping matters for those in the built industry and that also affected the rental performance to the fact that people have also found it difficult to get apartments of their choice.

“For the new year, we are expecting more from the Government. As much as government is trying to make housing available, they should be able to regulate rent to also make rent affordable for people. This will also assist property owners so they can easily recoup their investments.

“That is what the one-month-rent policy is all about which is subsidy in another form. It is Government intervention to alleviate the sufferings of inhabitants of Lagos and also to give fund to property owners,” he said.

According to him, the scheme can however only be applicable and accessible to salary earners.

“This can only be accessible by those on paid employment. Those in the informal sector would find it very difficult because it’s a loan and the payee must have a regular income for monitoring towards repayment.

“We are hoping as a body to see that the Government is involved more. The Government should do more than that to meet people’s needs for their homes. That is what we are hoping from the beginning of the year,” he said.

On the profitability of the one-month-rental policy to operators of the rent and estate agency, he said the policy would not affect returns for rent and estate agent operators, mentioning that the Government would only interface between the parties while the rental fees remain unaffected.

“The policy would be private sponsored backed up by the State Government. It is just to create continuity and stability in rent. The Government has discovered that most people searching for homes are finding it extremely difficult to pay one year rent. After the payment, many do not have enough to cater for other expenses as school fees and medical bills, among others.

“Government would engage with a routing management company and the bank to deal with the owners of properties and the agents that manage the properties. The Government would pay the one year upfront to the owners while the tenants would be paying the Government back in installments through monthly deductions.

“It wouldn’t affect the agents in as much as the Government is sincere with the regulations. A licensed agent should have principals who are owners of the properties and the tenants attached to the properties. The fear has been how do I collect my fee? Your professional fee is your service charge and you are entitled to collect your fee from the rents when they are paid.

“It is going to be one-off provisions for the agents, which is 10 percent of the accepted professional fee for service providers, while the tenants pay back every month with some marginal interests.

“I don’t think anybody would be sidelined, only that Government needs to do a lot of publicity and awareness to allay the fears many property owners are having.”

In his view on the challenges of the sector in 2021, he said the market dynamics in the year was not “encouraging because of the COVID-19 pandemic.”

He said: “The beginning of the year was so discouraging to Real Estate stakeholders. For the later part of the year, the market picked up with the fact that investors were having some confidence in getting their money but the challenges to those in the built industry, the estate developers, had to do with the cost of building materials which has to do with the fact that the materials were not locally fronted. The materials are largely imported and local producers such as cement had challenges of not being encouraged by the Government. The built industry was partly affected to the extent that people found it difficult to complete what they have started.

“Also, Government regulation have not been helping matters. Duplication of regularisation of papers, which has to do with what local government are charging and those the State Government are also charging in terms of processing papers, have been attracting complaints from developers.

“Those that are building are complaining that they are charged a lot in the areas of building approval and levies from State Governments.”

NewsDirect
NewsDirect
Articles: 51580