As supply exceeds demand in the high-end rental market, many properties in Lagos with dollar rent tags are facing great challenges in getting purchasers and tenants.
According to a Businessday report, several market fundamentals have changed as a result of the economy’s downturn and the uncertainty in the foreign exchange market, according to experts. This has resulted in a transition in the rental market from dollars to naira, which by default is creating opportunities for investors and home buyers.
The CEO of Fine and Country West Africa, Udo Okonjo, said the nation’s current economic situation has only made things worse.
“Rents in upscale areas like Ikoyi had already fallen sharply before the COVID-19 outbreak. The “dollar-to-naira rental transfer” that has taken place in buildings that have historically drawn US dollar rents is particularly noteworthy,” Okonjo said.
She said that approximately 90% of these properties have now been downgraded to naira rentals at values that are, in effect, almost 40%–50% below the precious dollar values prior to Covid-19, adding that this transition had mostly affected luxury residential buildings costing between $60,000 and $100,000 per year in Banana Island and old Ikoyi.
According to her, the transition offers more tenants the chance to upgrade who would otherwise be unable to afford Ikoyi properties. This is already showing in the pace of rents in the previously vacant buildings, particularly in Banana Island.
“There is, however, an exception to this pattern as our market intelligence reveals a distinct trajectory for the newer luxury developments. These tend to continue in the “USD dollar rental economy, at least for the foreseeable future, until newer stocks or a market stabilization arises,” Okonjo added
Okonjo explained that some high net worth investors who were buy-to-let investors were considering adopting a riskier route by investing in new projects as co-investors for a greater yield because the majority of properties in the high-end residential markets have much lower rental yields.
While highlighting some factors that affect low rental activities in the market, The CEO said end-users are generally more price-sensitive as their needs are shorter term, adding that they are more flexible just as many of them are directly affected by the economy.
In the same vein, Northcourt Real Estate, a Lagos-based firm of estate surveyors and valuers, said in their half-year 2022 Nigerian real estate market report that there are a lot of activities going on in the low- to mid-income market.
The report says that residential real estate is still doing well, as vacancy rates have decreased and units in important nodes spend less time on the market. Adding that the new constructions in Abeokuta, Port Harcourt, and Ibadan, gated communities have maintained their allure.
The company’s chief operating officer, Ayo Ibaru, stated that some sections of Lekki phase 1 in Lagos are now more appealing to investors because of improved security, estate services, and infrastructure.
Ibaru emphasized that despite rising maintenance expenses, real estate values have also climbed in the states of Imo, Kwara, Ondo, Oyo, and Enugu, noting that as a result, landlord-tenant agreements are frequently renegotiated since even reasonable increases in property service fees are becoming increasingly difficult to afford.
While noting that the segment of the market has seen significant product deliveries by both public and private sector operators, the report cites Lagos State government, which launched Benson Estate, Ibeshe – a 15-hectare development comprising 40 blocks with 480 units of one, two, and three-bedroom flats priced between $9,500 and $25,900 located in Baiyeku Local Council Development Area.
Similarly, the report cites Onitsha, the hub of Anambra State’s commerce, which saw a transformation from lock-up shops to high-rise structures with roomy stores and warehouses.
