Housing: Dollar Denominated Rents Fall Sharply As People Move From Prime Areas

Houses which rents are denominated in dollars have seen prices crashing sharply in the last few months, with more people finding solace in areas which rents are more affordable, a survey has shown.
The survey conducted by Financial Derivatives Company Limited (FDC) Limited indicates that vacancy factor index remains high at 172.
The Chief Executive of FDC Limited, Bismarck Rewane, the 0.36 per cent first quarter contraction in Gross Domestic Product (GDP) is still affecting the vacancy rates today. He is afraid that the expectations of a further 1.5 per cent contraction in GDP is likely to push the index up in coming months.
In many areas in Lagos, rents have remained very high despite the supply glut. Vacancy rates of commercial properties have remained stable, while dollar denominated rents are becoming less prevalent. “In dollar terms, rents are sharply lower”, said Rewane.
But other analysts say, the sustained upward tick in rents in low-price housing parts of the country have stubbornly refused to bow to prevailing circumstances.
Gideon Okpala, an estate manager in Lagos said, in spite of contraction in economy and increasing inflation rate, rents in the mainland part of Lagos have remained high.
This is in spite of the believe that the increase in inflation rate to 16.5 per cent is likely to reduce future demand for housing. The increase in inflation is driven by supply shocks, spike in prices of refined products, foreign exchange (forex) scarcity and defensive buying, higher interest rates which are unlikely to reduce and marginal propensity to consume.
The FSDH Group of analysts are pessimistic, seeing inflation edge higher in August.
The research-based outfit said in its August publication that, “the rising inflationary pressure is largely a reflection of structural factors, including high cost of electricity, high transport cost and, high cost of inputs. The low industrial activities as well as higher prices of both domestic and imported food products are also contributing to the inflationary expectation. We estimate that the inflation rate would be at 17.35 per cent in July 2016”.
Rewane said, based on increased inflation, individuals will face budget constraints and that there will be an increase in the number of rental defaults in the market.
He said, real returns in the stock market have been negative, even when real estate as an asset class still offers positive returns. He believes that investors will rather divert funds to such markets.
Based on the fore-goings, Rewane sees demand for housing shrinking due to lower disposable income and at the same time expecting a move from prime areas to more affordable housing (mainland areas).
“We expect to see new developments coming into the market, positive changes in the sector are expected from 2017 onwards as we see demand growing through expatriates coming into the country”, said the chief executive of FDC.

Leave a Reply

Your email address will not be published. Required fields are marked *