Making Strategic Real Estate Investments

Making Strategic Real Estate Investments

Homeownership or Property Investment is a long-established and well-known standard of wealth creation in every society. Most people recognize homeownership as a primary investment vehicle for personal wealth accumulation. In Nigeria, housing is both a consumption good (Shelter) and an investment. As the economy evolves from the impact of the coronavirus (COVID 19) which disrupted the world economic order, and the recession both of which brought real estate and construction activities to a halt: the real estate sector is slowly rebounding.

Real Estate Sector grew by 1.77% in Q1 2021 from 2.81% in Q4 2020 and -4.75% in Q1 2020 which indicates recovery triggered by Nigeria’s early exit from recession.

Major factors that have heightened the appeal of Real estate are the need to hedge against inflation and a race to reduce the impact of currency devaluation on wealth aggregation. Critical factors when considering housing as an investment are the rate of capital appreciation and potential rental yields. It is imperative to state here, that the appreciation of property in the prime areas of Lagos, Abuja, and Port Harcourt typically exceed the rate of inflation and the rent component of the consumer price index. (CPI).

FACTORS DRIVING STRATEGIC REAL ESTATE INVESTING

In making strategic real estate investments, the above factors should serve as the primary consideration in determining and making capital investments in the Real Estate Sector. With a surging housing deficit which currently stands at over 21 Million Nigerians coupled with the undersupply of high-quality and affordable homes, The Real Estate market remains attractive and opportunities abound to developers, investors, and first-time homebuyers alike. The concurrent devaluation of the Nigerian Naira and the instability in the money market has thus made an investment in Real Estate more desirable with relatively low variability of returns.

Let us digress a bit: You would recall Magodo in the early 2000s was a relatively underdeveloped and unknown area, but its emergence came as a result of its proximity to Ikeja which happened to be the industrial hub and Capital of Lagos. Ogudu as of 2005 was barely developed, and Lekki was once a swamp and a low-income area in the 1990s that attracted a lot of migrants. Parts of the Lekki peninsula -formerly known as Maroko, was a slum before it was destroyed by the Raji Rasaki-led Lagos State military government. Lafiaji, where we have our OceanBay estate was largely undeveloped up to the year 2004.  Emerging Communities like Katampe, Guzape. or even Airport road in Abuja were peri-urban were vastly shanties in comparison to what they have become today.

 

The keynote here is if you had purchased in any of those locations ten-fifteen years ago, you would have comfortably protected and sustained your wealth when all factors are considered. Ten-year price comparison of the price of land per square meter in 2010 and 2021 for the aforementioned locations are shown below:

We foresee that demand for housing will continue to rise, and more peri-urban cities will become increasingly consetted as individuals and developers attempt to maximize yields at lower costs by the accumulation of land assets and affordable housing stock.  In essence, “Don’t focus on the current value, Rather think about the future Yield”.

As a prospective investor or homebuyer, you MUST understand this concept, and next week we would explore using historic records, the validity of the assertion.

Stay Safe and Remain Productive.

 

Octo5 Research Team

 

 

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