Andrew Nevin, Partner and Chief Economist, PwC

Dr. Andrew Nevin, Partner and Chief Economist for Pricewater Coopers, PwC, Nigeria says Real Estate is one of the most critical sectors of Nigeria’s economy, that if reformed will propel growth and alleviate poverty in Nigeria.

According to Nevin who was speaking ahead of the 4th annual West Africa Property Investment Summit, “Real Estate makes up 60 per cent of the world’s global assets and in developed countries, real estate buttresses the financial sector, enabling for the creation of asset backed loans and securities”.

“Nigeria’s real estate system cannot work without a proper land registry; banks cannot lend against a property without evidence of ownership. The current land titling system is onerous and excludes many people from formal ownership. Based on these facts, real estate is one of the most critical sectors that if reformed will propel growth and alleviate poverty in Nigeria”.

Foreign exchange and inflation he added, have stabilised in Nigeria amid emerging market pressures. However, “crude reliance continues to leave Nigeria vulnerable to external shocks. This creates persistent uncertainty for investors in Nigeria, which is affecting all sectors in the economy, including real estate”.

“In urban areas, commercial real estate occupancy has declined as a result of low demand in an under performing economy. Consequently, office rent has declined by 20% over the last 3 years in the high-end market, while co-working spaces are becoming more popular, consistent with the growing number of tech start-ups and entrepreneurs.”

He however added that in the premium residential market, demand has shifted to less expensive semi-detached houses and apartments. There is also persistently huge demand for affordable housing in Nigeria. “Nigeria’s population is set to exceed 250 million people by 2030 (roughly 50 million households), and by 2025, our housing deficit will be approximately 20 million. We are not building enough houses for people to live in.”

Global volatility has increased the oil price, which has benefited the immediate public sector coffers, but is this a good thing? Some have argued that a lower oil price will drive economic reform, but won’t $70 – $80 oil keep reform at bay?

“The economy is benefiting from rising oil prices. The reality is that Nigeria requires capital to invest in critical sectors and fund long-term structural changes. Over the last three years, we have seen government debt grow from 12% of GDP in 2015 to 20% in 2017. A further indication of the high demand for government revenue is the Voluntary Asset and Income Declaration Scheme (VAIDS), which was implemented to grow tax revenue.”

Failure to diversify the economy is a result of bad policies and poor implementation of good policies. Oil prices have fluctuated since the first quarter of 2016 (over 2 years ago) and we still have not achieved a diversified economy. There is no reason to believe that persistently low prices in the future will make this happen.

How have macro-development factors impacted the real estate sector – has there been less transactions, or investment, and has Nigeria bucked the trend?

Nevin expressed displeasure that The real estate sector has not seen positive growth since the start of the recession in 2016. The sector continues to lag behind overall growth, recording a growth rate of -3.88% in the second quarter 2018. Nevertheless, this is an improvement from the -9.4% growth of the preceding quarter.

The tight monetary environment – high interest rates and currency restrictions – are huge contributors to the slow growth in the real estate sector. Heavy government borrowing has crowded out the private sector, making it difficult to investors to finance the capital-intensive projects of the real estate sector. This issue reinforces the need for the government to undertake structural reforms that will improve capital stock and business environment.

The 2019 elections will revolve around the economy. There is growing frustration over slow growth, high unemployment, low liquidity and poor infrastructure. Foreign investors who have low confidence in the economy are also keeping close watch. Thus, the election outcome will have some effect on Nigeria’s economic health in the short run.

Over the last year, the ease of doing business has risen 25 places to rank 145 out of 190 countries, however, the absence of major reforms in infrastructure, power and land ownership will ultimately stifle advancements in improving the business environment in the long run.

Where do you see the investment case for Nigeria and the region in the next 12-18 months, and do you think we are about to see a continued growth curve?

In the absence of sweeping structural reforms, Nigeria will continue to experience slow growth through 2022. The critical takeaway here is that income per capita will decline each year over the next five years as population growth exceeds GDP growth, if no action is taken. Investor confidence will be largely determined by the elections and the ongoing security situation in Nigeria.

(APO)