Home Uncategorized Our stand(26): How recession may affect real estate business

Our stand(26): How recession may affect real estate business

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Nigeria officially entered into second recession in five years as released by the country’s National Bureau of Statistics [NBS] last Saturday. It also revealed that the economy contracted again in the third quarter of 2020.

When a country goes into economic recession, it means that there is a drop down in economic activities. Recession is characterized by these signs which include high prices of goods and services, decline in the housing market [the real estate sector will not be exempted from the crash in prices of stocks and shares at the Stock Exchange Market [SEM], there will be scarcity of funds]. Others include increase in unemployment, exchange rate fluctuations, government inability to meet up with its financial obligations and less than adequate performance of other economic variables that define the state of an economy.

The latest recession the nation has entered may be as a result of continuous fall in its Gross Domestic Product [GDP] and it stands a chance of affecting the country’s real estate sector that can be described as a bedrock where other sectors can thrive more towards growth, it is important to examine how the real estate sector will be affected.

This economic recession is projected to be hampered by the general economic downturn where most real estate investors are likely to struggle to remain in business. As prices go up with recession, it will also lead to a rise in vacant houses since prices of apartments will increase due to the unstable nature of the Naira as compared to the US Dollar. The weak demand for housing will be evident in the growing number of unoccupied houses especially in major cities like Lagos, Portharcourt and Abuja.    

Since the devaluation of the naira by the Central Bank of Nigeria [CBN] few years back, the exchange rate of the local currency to the US Dollar has been discouraging. An implication of this is that, a tenant who rented an apartment maybe two years ago, at the point of lease or renewal, the rent would have doubled.

When the local currency fluctuates in comparison with the dollar as usually is the case leading to recession, it makes it difficult for some persons to consider the possibility of investing in real estate. Some that are ready or willing to invest will be faced with the challenge of finding investment opportunities in markets that offer long term growth and stability. Consequently, there will be more properties in the market that there are buyers willing to make purchase.

Today, there are many constructing projects scattered all over the nation that are yet to be completed or left unoccupied. As hardship comes with recession, many private organizations may be forced to tighten their belts and delay major purchases. With the harsh economy that comes with recession, the concern for many will be on how to get food for their families to eat, not how to develop or complete landed properties for investment. Prices of materials related to building development will increase with minimal or slow financial flow for the masses.

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