Many properties with dollar rent tags in Lagos are struggling for tenants and buyers as supply outstrips demand in the high-end segment of the rental market.
Experts said the downturn in the economy, coupled with uncertainties in the foreign exchange market, has changed a number of market fundamentals, leading to a dollar-to-naira rental transition, which, by default, is creating opportunities for investors and home seekers.
“Rental prices in up-market neighbourhoods such as Ikoyi already took a nosedive pre-pandemic and only became worse as a result of the present economic condition in the country. Particularly worthy of mention is the ‘dollar-to-naira rental transition’ that has happened in properties that historically attracted US dollar rentals,” Udo Okonjo, CEO of Fine and Country West Africa, told BusinessDay.
Okonjo said this transition had affected mostly luxury residential buildings ranging from $60,000- $100,000 per annum in Banana Island and old Ikoyi, adding that about 90 percent of these properties have now been downgraded to naira rentals and at values that are, in effect, almost 40-50 percent below the precious dollar values before Covid-19.
According to her, the transition presents opportunities for more tenants who ordinarily could not afford Ikoyi homes to upgrade, and this is already reflected in the speed of rentals in the hitherto empty buildings, especially in Banana Island.
“There is, however, an exception to this pattern as our market intelligence shows a different trajectory for the newer luxury projects which tend to remain in the ‘USD dollar rental economy’ at least for the foreseeable future, until newer stocks or a market stabilization occurs,” Okonjo said.
She said because of the significantly lower rental yields for most properties in the high-end residential markets, some high net-worth investors who were buy-to-let investors were considering taking a riskier approach by investing in new projects as co-investors for a higher yield.
Some of the reasons she gave for the low rental activities in this market were end-users being typically 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, shrinking purchasing power and reduced corporate and personal budgets.
At the low- to mid-income market, there are a lot of activities going as reflected in a half-year 2022 Nigerian real estate market report by Northcourt Real Estate, a Lagos-based firm of estate surveyors and valuers.
According to the report, residential property remains strong. It said apartments in key nodes spend less time on the market and vacancy rates have declined. It added that gated communities have retained their appeal with developments in Abeokuta, Port Harcourt, and Ibadan on the increase.
“Some areas of Lekki phase 1, Lagos, are now more desirable to investors due to enhanced security, estate services, and infrastructure,” Ayo Ibaru, the company’s chief operating officer, said.
Ibaru pointed out that property prices in Imo, Kwara, Ondo, Oyo, and Enugu states have also increased amid rising maintenance costs.
The fallout of this, according to him, is frequent landlord-tenant renegotiations as the rising cost of living makes even justifiable property service charge increases difficult to pay.
This 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.
In the same vein, the report cites Onitsha, the commercial nerve centre of Anambra State, which saw conversions from lock-up shops to high-rise buildings complete with large shops and warehouses.
“New constructions are going the way of higher buildings in Awka, indicating an increase in the intensity of use. Several residential apartments are being converted to commercial buildings along Zik Avenue and in many parts of Awka – the capital city,” Ibaru said.