THE NIGERIAN SITUATION
It is common knowledge that Nigeria is in a recession. With Nigeria recording two quarters of negative GDP indexes and possibly another negation in the coming quarter, it has become undeniable that the economy is experiencing a slowdown.
A recession here means prices are going up, the spending power of the population is decreasing, rising unemployment, low confidence levels, devaluation of the naira and many more. The Real Estate sector is a major sector of any economy and it is usually in the eye of the storm during a recession, this was evident during the 2007-2009 recession in the United States by the United States Housing bubble affecting over half of U.S States.
Within the real estate sector, high vacancy rates are being experienced as the housing stock becomes in excess of demand, rents are being negotiated downwards due to low purchasing power, a high rent default rate is witnessed. Tenants seem to have an upper hand at this time as Landlords are usually caught in between increasing rent or retaining existing tenants in order to avoid vacancy.
On the other hand, a time of recession is where the bravery and strategy of real estate investors are called upon. A time of recession requires bravery as the real estate market is cyclical in nature, one that unfolds in 4 phases going through multi year cycle of booms and bursts periods. A time of recession requires strategic decision making, a detailed analysis of the market in order to take strategic positions in the market. Buyers and investors also have an upper hand in this economy since Cash is king and anyone with cash can navigate his/her way through the market.
One of the unique aspects of real estate is that one can successfully invest across the four cycles , this would involve a total understanding of the market, the behaviour of the market such as when to lock in to an investment and also when to exit.
A time of recession means there is most likely a reduced head-on competition in the space as some investors will prefer to back out and wait for the economy to pick up, in other instances you will find brave investors starting innovative investments and strategies not minding the season because they know the economy will stabilize and rise again in no time due to the cyclical nature.
The risk of investing in Real Estate in Nigeria may seem high now but it has been advised that investors should exercise a great deal of patience, look beyond the recession and also be ready to take on some reasonably high-risk. The recession market is a risk taker’s market; it is for the bold, the brave and the tactical. Real estate is a safe investment even in a time of recession as it hedges out against inflation.
At Akin Olawore & Co, we are always ready to brave the storm whilst also making calculated investments with renowned investors as we have strong belief in the role the real estate sector plays in any economy.