The Future of Nigeria’s Real Estate Industry Post COVID-19 and ENDSARS Protests

Despite the notion that businesses must be prepared for unexpected forces that are likely to impact their operational activities and bottom-line, many businesses were subsumed by Covid-19, a disease that struck from a Chinese city and spread throughout the world.  The impacts were enormous at the first and second quarter of 2020 to the extent that political leaders made policies that restricted movement of people and non-essential goods. Like other African countries that had a share of the disease, Nigeria is not exonerated from the first pandemic of the beginning of a new decade. From the south to the west and east to the north, businesses were shutdown with the intent of controlling the spread of the disease.

As if the impacts of the disease were not enough, a few days after the country celebrated its 60th year anniversary, the youth started #ENDSars protests across the country. For more than 10 days, business operations were disrupted in towns and cities despite the peacefulness of the protests. On October 21, 2020, the peaceful protests turned violent, when it was hijacked by hoodlums in retaliation to the killing of some protesters at the Lekki Tollgate in Lagos. The outcomes were looting of warehouses, shops and other business premises, including burning of properties.

When Covid-19 took over the country, according to analysts, the already contracted real estate industry in terms of nominal real GDP and percentage share contribution to the GDP was further forced to be on a steep decline [see Exhibit 1]. Before the protests there were indications that the industry would pick when the country returns to normal life. In our experience, we discovered that a number of businesses have developed post Covid-19 impact navigation strategies in Africa’s largest economy before the youths staged the protests, especially in Lagos, the industrial hub. As the industry battling impacts of the first waves of the protests, analysts have equally noted that there would be negative growth in the economy. This would not exempt the real estate industry.

Exhibit 1: Nominal and Real GDP Growth Rate Q1 and Q2, 2020

Our analyst notes that the views of the analysts are likely to come to pass as the performance of the industry in the Stock Exchange market was not encouraging between October 19 to November 6, 2020. During these periods, the financial services, conglomerates and consumer goods industries performed better than real estate industry. From October 8 to November 9, 2020, our analysis indicates that public interest in buying homes, renting apartments and maintaining houses reduced by 33.9%, 33.5% and 21.0% respectively. However, our analysis further establishes that the interest in renting apartments resonated with the intent of maintaining apartments by 12.3%, while the intention of buying houses reduced the consideration of investing in the real estate industry by 14.2%.

These results have several implications. It is clear that like what Covid-19 brought to the industry, the protests also contributed to the decisions made by prospective home buyers, investors and apartment users, most importantly in Lagos, Rivers, Kano and Abuja, the Federal Capital Territory. It is also obvious that public engaged players for maintenance services during the first waves of the protests. Our analyst further questioned and analysed the data. The results show that when the public intent in maintenance was over 60%, it was beneficial to the industry by 3.70%. The same percentage was found for investing in the industry and purchasing houses. With the same percentage of interest, the usefulness was 5.40% [see Exhibit 2]. As the industry bleeds, it has emerged that there are prospects for it in the future if the country does not experience second waves of the protests.

Exhibit 2: Impact of #ENDSars on Clients’ Key Indicators of Interest

Looting: A Case of Mixed Benefits

A number of facilities, houses and business premises were looted and destroyed during the protests. From government and business leaders, to rebuild destroyed facilities and restock looted items or goods, between N700 billion and over N3 trillion are needed. Businesses and governments of states with the highest impacts have called for support. When this comes, the industry is expected to be changed and leave its decline stage at the end of Q1 2021, our analyst notes.

“Some of the discouraging factors in the real estate sector has been bad governance and the system, policy but as the system is beginning to fix itself, you will see a new Nigeria rising,” Stephen Akintayo, CEO of Gtext Homes said in an interview with a local newspaper. “Sometimes, people think that protest like this leads to the bleeding of businesses, temporarily it does, but in the long term it, it leads to confidence. Foreign investors and Nigerians in the diaspora will be able to come in and invest because they know we now have a government that is accountable to the people,” Akintayo said.

Since the protests were not only focusing on police reforms, experts believe the federal government is likely to look into some policies and initiatives that are crippling the growth of the industry. For instance, they expect significant amendment of the Land Use Act of 1978, which places all land in “trust” of the Government and specifies that future transfers or sale of land must be confirmed by a government official, in writing, irrespective of the value of the transaction is one of the reasons for the country’s lack of a functioning mortgage system.

What is at Stake?

From November 3 to November 9, 2020, the interest in the industry picked by 14%, indicating a 8% increase from the previous period. During this period [November 3 to November 9, 2020], interest in which segment of the industry is appropriate to invest in was huge. If the second waves of Covid-19 and ENDSARS protests are not averted, our analyst notes that the industry is likely to be hit harder in the next few days [see Exhibit 3].

Exhibit 3: Future of the Industry in the Next 11 Days