As the year unfolds with new trends emerging, we find it imperative to keep track of the projections and what to expect from the built sector in 2021. Though the year is still young , experts anticipate that the indices of the last quarter of year 2020 will still very much reflect in the first quarter of 2021 before we can talk of any significant changes.
Through our research and a few conclusions drawn during an interview with industry expert, Real estate consultant & Property developer, Victor Madekwe, we hereby present another possible outlook of the real estate sector for 2021.
The possible effects of economic recession and instability
1. The high interest rates will persist between 18-25% on the average. This is high for real estate which is a long term investment .
2. Double digit inflation will continue. The impact of the year 2020 floods on farm produce, banditry and insecurity on inflation will be felt more this year.
3. Nigeria is already in another recession . Even though the government had said the country will be out of it in the 1st quarter of 2021,the indices don’t indicate this.
4. Unstable policies will continue to affect long term planning and projections.
5. Poor power supply will continue
6. Working from home may become the new normal for many organizations.
7.Low lending to the real estate sector will continue.
Impact on real estate
The economic outlook of 2021 will likely have the following impact on the real estate sector.
1. The demand for residential apartments will continue to rise. More so for smaller and more affordable spaces. Values will likely shift from high rental value areas to other parts due to migration.
2.The demand for commercial spaces will likely drop further especially for office spaces. The expected downsizing and rightsizing will ensure this.
3. There will be a dip in rental income. Rentals values will be based on the *market*and not necessarily subjective.
4. Voids will increase and properties will stay longer in the market .
5. Rent default will be high. Many tenant won’t be able to pay their rents as at when due. Part payments will be very likely.
6. There will be a lot of landlord/tenant related issues. With the courts not functioning at full capacity due to Covid restrictions, a lot of matters will be pending in the courts. Landlords/ property managers must find alternative ways of resolving issues.
7. With the increase in rent default, voids and properties staying longer in the market, the impact on ROI will be negative.
Coupled with the drastic reduction in operational income, property owners and real estate investors are beginning to focus more on supporting existing holdings rather than committing to new projects and other capital improvement plans.
With over a decade of experience in property management, development, and consultancy, Victor Madekwe is the Principal Consultant of Home Edge, an estate surveyor and consultancy firm in Lagos.