Impact of real estate market on GDP
Real estate in Nigeria is yet to grow to the level of making impact on the growth of national GDP. The reason is not far fetched, it is because the secrets of the sector is yet to be explored by both the investors and the government. The reason being the inability to harness the potential to the benefits of the nation. In Nigeria, for instance, people who go into real estate are merely those who have idle money to spend. These people, instead of investing the money into sectors that will create jobs for the teeming unemployed youths, they will just imprison the money while the labour market keep swelling.
Most of the developed property do not solve the shelter problems because since the property developer do not aim to make profit out of it, rather to use it as a savings mechanism, the property will not add any value to GDP. Again, since the owner has a stagnant money, by the time he starts developing the estate, he will just bite more than he can chew therefore abandoning the project midway. These projects, because they were abandoned halfway, they will not provide the accommodation they are expected to provide, they will also tie the money down without yielding any returns.
Although some of the projects were not completed, majority of the completed property remained unsold or unlet in most parts of the country. And the struggling supply side had moved into a state of comatose due to the lack of demand, lack of development capital and even lack of confidence concerning the future. Unfortunately despite this scenario, the normal expected plummeting of prices across board has refused to materialise. They eventually become hideout for hoodlums and miscreants in the society looking for habour.
The National Bureau of Statistics recently put real estate contribution to Nigeria’s GDP at 7.5 per cent, a figure that left many stakeholders surprised at what they described as a very poor rating by the body. To really appreciate the importance of real estate to the country’s GDP, they called on the federal government to integrate the construction and building sector into the formal sector in order to capture their contributions accurately. However, though real estate is still a small contributor to the country’s GDP, its importance cannot be over-emphasised. Perhaps the best way to really understand the importance of the real estate sector to Nigeria’s economy is to compare it to other emerging and developed countries of the world. Another way to do this would be to compare its growth to the country’s economic growth.
The Nigerian economy grew by 2.35 percent year-on-year in the second quarter of 2015, down from 3.96 percent expansion reported in the previous quarter. This has been attributed to the decline in oil production and prices, and recently, the Federal Government admitted that the country’s economy was “technically in recession” having gone on two quarters of negative growth. That admission, though coated in technicality, corroborates the recent forecast by the International Monetary Fund (IMF) who predicts that Nigeria’s economy was likely to contract by a further 1.8 per cent this year.
In other words, the country which had earlier overtaken South Africa as the fastest growing economy in Africa is now heading towards recession. Ironically, while the country’s economy suffers from stunted growth, the real estate sector has been on the upswing, growing faster than the average GDP at a rate of about 8.7 per cent, according to the accounting and auditing firm, PricewaterhouseCoopers (PwC), as well as stakeholders like the Centre for Affordable Housing Finance, with a projection to grow by 10 per cent in the near future.
However with the rebasing of Nigeria’s Gross Domestic Product (GDP) in 2014, the country was rated as one of the fastest growing economy in the world notwithstanding the high poverty level among the population. Although, the latest rating has shown that Nigeria dropped. Despite their economic importance, Real Estate contribution was pegged at 7.5 per cent, a situation that irked stakeholders who believed that the sector was poorly rated by the National Bureau of Statistics. To this end, they called on the federal government to integrate the construction and building sector into the formal sector in order to capture their contributors accurately.
When our economy was rebased, Nigeria took over from South Africa not because it did anything extra ordinary but because it captured markets that were not captured before, so it is the only industry where wealth grows and you don’t experience depreciation all the time. Despite their economic importance, Real Estate contribution was pegged at 7.5 per cent, a situation that irked stakeholders who believed that the sector was poorly rated by the National Bureau of Statistics. And according to some experts, the sector has not started yielding dividend to the extent of showing the level of contribution to the nation’s GDP. To this end, they called on the federal government to integrate the construction and building sector into the formal sector in order to capture their contributors accurately.
According to Mr. Ronald Chagoury Jr., the Vice Chairman of South Energyx Nigeria Limited, developers of the Eko Atlantic City project and a subsidiary of the Chagoury Group, lack of infrastructure still remains a major concern for the sector as the non-availability of basic services such as water and energy has forced developers to provide these amenities themselves, thereby raising their total development costs by up to 30 per cent, the report further lamented.
“All these have led to a severe shortage in the sector, with the yearly supply nowhere near what is needed. The country, like the rest of Africa, remains severely undersupplied, especially when it comes to high-quality commercial space. Retailer expansion also continues to be hindered by a lack of high-quality retail accommodation. Jones Lang LaSalle estimates that the stock of ‘Grade A’ shopping malls across. Africa (excluding South Africa) is less than 1.5 million square metres – that’s barely equivalent to the stock of Hungary, a country of just 10 million people against one billion in Africa.
“In Nigeria, a country of over 180 million people, the housing shortage can be seen in low, middle income residential and office spaces. And as the country’s population increases, we will see further strains on an already challenged industry. At the moment, Nigeria is believed to have a housing deficit of 17 million. According to experts, affordable housing and accommodation must be the major driver if the nation’s real estate sector is to deliver at the rate and scale needed to contribute significantly to the nation’s economy.
“To plug the housing gap, the World Bank in its 2014 study stated that N59. 5 trillion would be needed at N3.5 million per unit. What this means is that despite the harsh economic conditions, the real estate sector still represents a huge opportunity for positively impacting the economy to promote growth and inclusion,”he said.