This, indeed, is not time when investors need to act fast, because they need to watch and see what timeline the rampaging coronavirus sets and also where the economic pendulum swings to.
But, be that as it may , those who must invest can start to figure out where the trends will create the best opportunities and good returns once the COVID-19 crisis is over.
Investment analysts in Nigeria are already betting on a possible recession following the performance of the crude oil market in the wake of the coronavirus pandemic which has dragged prices down below the country’s budget estimates and benchmark.
In an answer to what real estate investors can do in time of coronavirus, Ingo Winzer, a market analyst, says what the investors can do “depends on how much confidence they have in the idea of a sharp but short recession.”
“In fact, I think that real estate, and especially rentals, will be a dynamic area for development and investing. This has nothing to do with buying property cheap but rather with investing more wisely and precisely,” Winzer notes.
According to him, a crisis is often a catalyst to accelerate trends that are already known, pointing out that recession will always push more people towards renting.
In its recent report on the State of the Real Estate Market, Fine & Country West Africa International, notes that multi-family units, specifically apartments, tops the list in order of preference for most developers and, of course, investors in Nigeria.
The report explains that apartments would appear to make more economic sense to developers, as multiple units can be developed on a piece of land, without taking up too much space. It adds that land optimization is consequential to maximizing value when developers are considering developmental options and also the ease of sale and lease or rent.
In terms of location, the report’s analysis of both rental values and returns on investment for different areas and house-types shows that , in spite of their relatively higher values, Victoria Island and Ikoyi have more promising outlook and offer.
According to the report, rental values in Victoria Island, as at the end of second half of 2019 stand at N1.5 million per annum for 1-bedroom apartment; N3.5—8.5 million for 2-bedroom; N5.5—15million for 3-bedroom and N6-25million for 4-bedroom apartment.
In Ikoyi, it is N4—5 million per annum for 1-bedroom; N6.5 million for 2-bedroom; N10 million for 3-bedroom and N10—25 million for 4-bedroom apartment.
Return on investment on these apartments is quite significant. In Victoria Island, the return on the different apartment sizes stands at 2.7—3.7 percent per annum for 1-bedroom; 7—10 percent for 2-bedroom ; 6.1—10 percent for 3-bedroom; 6.1—9.2 percent for 4-bedroom duplex and 3.75—6 percent for 4-bedroom terrace.
In Ikoyi, it is 9 percent for 1-bedroom; 5.4—8.6 percent for 2-bedroom; 5.3—8 percent for 3-bedroom 4.5—8.3 percent for 4-bedroom duplex and 4.8—5-4 percent for 4-bedroom terrace.
A closer look at these analyses shows that returns are higher for smaller apartment units, especially 2-bedroom which, according to David Mbah, Manager, Commercial Sales at Fine& Country, means that demand is more for these house-types than the big-size apartments.
It also means that smaller unit apartments are the new investment destinations and any investor wanting to enter the market amid the COVID-19 pandemic should look in that direction.
It needs be pointed out though that the opportunities which both Ikoyi and Victory Island offer also come with some level of risks or threats.
In Victoria Island, the strengths of the location are in its excellent location, ease of obtaining approvals for development based on precedent, high rents and return on investments (ROI) based on demand, and a wide mix of support service companies.
But the development of Eko Atlantic City in the long term is a major threat to the continued prosperity of Victoria Island. So, potential investors should always bear in mind that this development, which is already evolving with some residential and office developments coming up fast, may throw the spanner in the works.
Opportunities in this location include ease of rental as a large pool of prospective home buyers, both local and Nigerians in Diaspora, would rather buy out right a finished product that meets their immediate needs in Ikoyi; amendment in Lagos planning legislation is expected to make zoning for commercial use easier.
But there are threats too. These come in as construction challenges leading to delay of delivery; lack of availability of financing for projects or mortgages for prospective buyers; presence of competing developments within the same axis and planning challenges to secure permission for commercial office use.
Source: Businessdayng
