COVID-19 and the ‘New Normal’: Implications for the Nigerian Real Estate Sector

COVID-19 and the ‘New Normal’: Implications for the Nigerian Real Estate Sector

 

Dr Olusegun Olanrele lectures at the Department of Real Estate, University of Malaya, Kuala Lumpur, Malaysia

Esther Thontteh is a lecture in the Department of Estate Management and manager of the Land Administration research cluster of the Centre for Housing and Sustainable Development, University of Lagos

 

The announcement of the dreaded coronavirus (Covid-19) on December 2019 from the epicentre – Wuham in China and its spread beyond national and continental borders had been followed with partial or total lockdown of nations. The lockdown has affected businesses across the globe. Factories, offices, schools, and even religious buildings are forced to close, leaving only essential services to operate as the world battles to combat the new coronavirus, curtail its spread and reduce consequent mortality rates. With the lockdown comes job loss, income losses and even travel restrictions. 

 

COVID and the Real Estate sector: Short and Long Term Impact

The impact on real estate varies according to regions and asset class. Deloitte (2020a) in its March report prescribed negative GDP growth and emphasised a short term impact on the real estate sector. A possible economic recession will no doubt affect demand for real estate in every country. In Nigeria, there may likely be demand chain disruptions in the property market, such as abandonments of projects and supply depression. Demand for properties, both residential and commercial, has been slow since the outbreak of the pandemic, while the contract of sale for many properties about to be concluded were put on hold by clients. Construction sites shut down as a result of the lockdown order and since the partial lifting of the lockdown, many are unable to resume due to price hike in building materials and variation in the bills of quantities. The interstate lockdown has also increased building contract breaks.

 

Significantly however, the coronavirus lockdown has created an intense need of ICT applications in real estate transactions in Nigeria.

 

The ‘new normal’ created by the lockdown has resulted in a shift whereby things which ordinarily require people coming together in a building space (property) have been shifted to virtual spaces using ICT. The application of ICT tools has supported the ‘new normal’ which has made possible virtual meetings of different shades – business, learning, religious, research etc. The automation of various manufacturing process has also imbibed the new normal of working from home with minimal physical appearance and space occupation

The real estate sector is also experiencing a paradigm shift from face to face meeting to virtual meeting using MOOC applications like Webinar, ZOOM, Google Meet, to mention but few. This is blended with social media apps (Facebook, WhatsApp and Telegram). Business meetings and activities are performed at homes with the phrase “Working from Home (WFH) which is becoming a ‘new normal’ in the service industry. In fact, some real estate transactions are now concluded (signed sealed and delivered) on-line as automation of service delivery and online payment system have supported non face to face activities in businesses and service industry Online seminars, mandatory development training and annual general meetings have also become virtual.

 

Effect of the global lockdown and the ‘new normal’ on real estate sector

 

Apart from doing business digitally, the global lockdown has also significantly affected the property sector – especially the commercial sub-sector. The tourism properties are already in complete halt with immediate impact of Covid-19 (Deloitte, 2020b). There is no lodging nor space usage for conferences, seminars, workshops business meetings etc. Most conferences and workshops have been cancelled or converted to hold online. As a result, Hotels and other leisure properties have suffered low patronage globally (Nigeria inclusive) due to cancellation of tourism activities and ban on air travels, leading to loss of income from the properties. The lockdown and stay at home order have exerted negatively on the real estate sector in US and other countries where rent payment and mortgage repayment are made on monthly basis – China, UK, Malaysia.  Rent payment in Nigeria is on annual basis and this is having a negative effect on income generation. The Nigerian property market is increasingly experiencing void and loss of income because businesses are downsizing and are unable to pay outstanding rent for the period in occupation.

 

The work from home experience has shown that business can operate with a sizeable necessary office space especially the service sector. Meetings hold online and little physical discussion is required resulting in reduced demand for office space. Jones Lang Lasalle (2020) affirmed that the ‘new normal’ world has emerged as business cannot go back to pre-Covid-19 pandemic because of the people’s resilient adaptation to the style of working from home. The job cuts and closure of some business will increase vacant spaces in the market with consequential reduction in rent. The global prediction of fall in demand for office space in Nigerian real estate sector may not occur on the short run due to the advance yearly mode of rent payment. However, in the long run, the property market will experience its own share of low demand for office space, rental price crash, property gluts in highbrow areas and probably a recession. Generally, demand for residential properties with comfortable space that will enhance working from home will be in high demand. This is because the home will also double as a work space. Furthermore, an increase in space demand for warehouse and retail space in the near future is expected due to increase in online shopping activities including groceries, using different e-commerce applications (Jumia, Konga, Jiji, etc).

 

In Nigeria, the initial five weeks’ total lock down of Lagos and Ogun states and Abuja have resulted in job losses and income losses to people and loss of revenue to governments. A lot of online meetings and learning platform are being deployed. The experience will not be different from the global world albeit local adaptions. The living and workstyle are changing and those changes being witnessed now will definitely become the ‘new normal’ which will impact on space requirement for activities in the future. The Nigeria hospitality sector is almost grounded to a halt and can only get to recovery when travel restrictions are lifted. A plunge in the Nigerian property sector in the long run will not be unexpected aftermath of Covid-19 pandemic.

 

The Covid-19 effect portrays a negative sign that the relevant stakeholders need to address. There is tendency of income losses as prospective buyers may end up in renting and in some cases rent default may begin to occur. The budgetary reduction on capital expenditure by the government will invariably reduce supply. Real estate practitioners will need to embrace the new normal world by investing in digital service delivery strategies and automation of their activities to reduce overhead cost, keep business afloat and be part of the new normal working style. Property developers will have to understand the new dynamics and study the market for absorption rate of their products. The commercial property sector is expected to have low demand and the residential properties will be stable with more focus on small and medium size homes with work from home functionality. Owners can also give rent leave of up to 3 months to tenants rather than prolonged void or rent default. It is time for study on home adaptability for work space and the property industry researchers will need to investigate the permanent impact of this current pandemic in the sector. The policy makers should come up with both fiscal and financial support for the real estate sector to have a quick recovery. The effort to diversify the Nigeria economy should be intensified and holistically implemented to save the whole economy from a recession that can further compound the covid-19 impact in the real estate sector.

 

 

 

References

Deloitte (2020a). Covid-19: Respond, Recover, Thrive: Consideration for the real estate sector. March 20. https://www2.deloitte.com/global/en/pages/about-deloitte/articles/covid-19/understanding-covid-19-s-impact-on-the-real-estate-sector--.html

 

Deloitte (2020b). Understanding the sector impact of Covid-19: Real Estate. March 25.

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/COVID-19/Covid-19-Global-Impacts-on-Real-estate-sector.pdf

 

Logan G. and Mammen, T. (2020). Impact of the Coronavirus (Covid19) outbreak in US Real Estate Market, the Advisory. RCLCO Real Estate Advisors. March 2. https://www.rclco.com/wp-content/uploads/2020/03/Impact-of-the-Coronavirus-COVID-19-Outbreak-on-U.S.-Real-Estate-Markets.pdf

 The views expressed in this article are those of the author(s) and not necessarily those of the Centre for Housing and Sustainable Development or the University of Lagos, Nigeria.


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