Oluwafunmilayo Oluduro

Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. 2, Oladunni Str., Glory Estate, Gbagada, Lagos-,-. www.mauveemblem.com.- REAL ESTATE MARKET ASSESSMENT REPORT FOR LAGOS APRIL 2017 Real Estate Market Assessment Report for Lagos_27/04/2017 CONTENTS Introduction 1.0 Macro-Economic Outlook 2.0 The Nigerian Real Estate Industry 3.0 Lagos Real Estate Market Analysis 4.0 Location Assessment: Ibeju -Lekki Conclusion MAUVE EMBLEM LTD. Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. INTRODUCTION This report is a vital tool for investors, developers, regulators and stakeholders who want to develop and execute strategies that unlock value and mitigate risk in Nigeria’s real estate market. Over the last decade, the Nigerian real estate industry has experienced significant growth; rising to become the 5th largest GDP contributor despite the year 2016 recession. Nigeria’s rising profile as Africa’s largest economy, changing consumer trends, market forces within the real estate industry as well as the industrial and economic possibilities of the “New Lagos” are critical factors at play within the real estate landscape in Lagos. These factors also reveal opportunities for new game-changers. The goal of this report is to provide cognate insight for devising winning strategy in real estate investment for 2017. Real Estate Market Assessment Report for Lagos_27/04/2017 1.0 MAUVE EMBLEM LTD. MACRO - ECONOMIC OUTLOOK Despite a negative growth of 1.54% in 2016, Nigeria’s Real GDP is expected to improve to 2.19% in 2017. Sources: MBNP, NBS, FMF & CBN Between January and February 2017, the inflation rate went down by 0.94% while the annual core inflation rate edged down to 16 percent from 17.85%. Sources: www.tradingeconomics.com, NBS. Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. Sources: www.tradingeconomics.com, CBN. The 2017 African Investment Index measuring key investment indicators such as growth, liquidity, business environment, risk, demographic and social capital factors currently ranks Nigeria 19th in Africa for top investment destinations; this portends a vast improvement this year from the 2016 FDI chart shown above. Best Case Nigeria implements macro-economic and structural reforms; and makes a big push to significantly diversify her economy.  The economy would recover strongly and GDP could reach 2.2%, driven by significant non-oil sector growth.  Increased public and private investment, higher FDI, stable exchange rate, increased ease of doing business and high market confidence. Real Estate Market Assessment Report for Lagos_27/04/2017 2.0 MAUVE EMBLEM LTD. THE NIGERIAN REAL ESTATE INDUSTRY Since 2000, the real estate sector has grown rapidly, at an average growth rate of 11.4% between 2010 and 2015. However, the sector may have declined by up to -2.19% in 2016. It is currently the 5th largest contributor to GDP. Contributions to GDP, 2016 (Nigeria). Sources: MBNP, NBS, FMF & CBN Nigeria Real Estate Sector, Size & Growth Trends (2000 -2017). Sources: NBS & CBN Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. The real estate and construction sector contributed 3.9% of real GDP in 2015 , employed nearly 1million formal workers, and has been one of the fastest growing sectors in the Nigerian economy. According to REIC and Cromwell PSI, despite it’s challenges; the medium to long term outlook of the industry suggests strong growth due to several socio-economic factors. Other major drivers include rapid urbanization, the Major Factors Expected to Drive Real Estate Industry Growth in 2017 Sources: MBNP, NBS, FMF & CBN rising middle class, increasing investments from pension and mutual funds operators, growing numbers of HNIs (High Networth Individuals) investing in real estate and targeted intervention from FG. Residential vs Retail Segment 2017 Growth Driven by increasing population, rural-urban migration, consumption and middle class. Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. 2017 Growth footprint Residential Segment  Retail Segment 17m affordable housing deficit.  Estimates show 1sqm retail space per Expected to rise by 2m houses per 1000 ppl in Nigeria comparedto yr @ current population growth rate 480sqm per 1000 in SA. This means of 2.8% per yr. significant opportunites given current and future population of size.  Underdeveloped & costly mortgage  market. Means home ownership is Nigeria is one ofleading destinations for retail property investors. driven by developers’ instalmental payment plans.  Developers pivoted largely towards  mid-range market. Expected to $3.5b expected to be spent on 25 new destination malls in 2017. continue in 2017  Federal Mortgage Bank & Nigeria  The proliferation of Shoprite and Game, Mortgage Refinance Company to high street fashion and lifestyle brands drive availability & affordability of treasured by rising middle-class as mortgage loans in 2017. anchor tenants. Commercial, Industrial & Hospitality Segments 2017 Growth Driven by growing economic activity and FDI inflows. 2017 Growth footprint Commercial  Nigeria’s reputation Industrial  Increased demand for Hospitality  Segment has as SSA gateway has warehousing space experienced significant led to increased due to growing middle growth in recent years demand for Grade A class, retail activities due to entry of boutique office spaces. & infrastructure and hospitality big guns enabled industrial & in Nigerian cities. FTZs.  The SS-DD gap has  25 currently approved  Although global raised rental prices FTZs in Nigeria with penetration in the with an average 50% of that number segment is immense Real Estate Market Assessment Report for Lagos_27/04/2017 $85/sqm 2014 MAUVE EMBLEM LTD. being operational. (about 20% of space estimate. use),local brands will continue to play active parts.  Expected stimulation  Despite huge in the segment due potential, segment is to high profile still largely developments like disorganized and Eko Atlantic City, vague. Wings project & World Trade Centre, Abuja. In 2017, we anticipate a flat to modest recovery from the sector’s decline in 2016. Impending Legislation & Real Estate Sector 2017 Growth Several new bills currently being deliberated by the federal legislature if passed into law in 2017 could have considerable implications for the real estate industry. Bill Title Description Stage HB 521 National Housing Seeks to amend and 1st Reading Fund Act (Ammendment) Bill, strengthen the National 2016. Housing Fund Act to reflect present day realities and stiffen punishment for violators. SB 285 Nigerian Assets Seeks to establish and Management Agency regulate the Nigerian Assets (Establishment & Regulatory) Mangement Agency with a Bill, 2016. view to managing all government assets includingthose seized, forfeited or taken over by EFCC, Police, ICPC, 1st Reading Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. Customs etc. SB 280 Nigerian Industrial Seeks to repeal the Nigerian Development & Zones Bill, Export Processing Zone 2016. Authority Act LFN CAP N107 1st Reading 2004, and enact the Nigerian Industrial Development & Zones Commission to manage, control and coordinate all activities within the Zones. Infrastructure Development Seeks to ensure that public Bill infrastructure development in 2nd Reading Nigeria is given priority in planning, approval & implementation. SB 284 Engineering Seeks to amend the original (Registration etc.) Act 2004 Act and introduce a (Ammendment) Bill, 2016. new 5th register for the 1st Reading registration of engineering firms, broaden the powers of the Council and its registers. Also to institutionalize COREN as a professional body independent of government. A recent IMF report projects an increased GDP for Nigeria in 2017; this signals a gradual return to stability and buoyancy in the real estate sector. Owing to favorable factors of urban population expansion, housing shortage and high demand for affordable housing, the residential property market in Nigeria remains one of the best to explore – Roland Igbinobia. Real Estate Market Assessment Report for Lagos_27/04/2017 3.0 MAUVE EMBLEM LTD. LAGOS REAL ESTATE MARKET ANALYSIS Lagos has one of the highest property values in the country as well as the widest variance from one territory to the other; with CAGR of property values Growth Trend in Property Values (2012 – 2017). Sources: MBNP, NBS, FMF ranging from 39% in Banana Island to as low as 1% in Festac Town between 2011 and 2015. While the economic recession affected the prime and luxury property segments; overall property values have remained robust especially in midrange markets. The 2017 Lagos State “Golden Jubilee Budget” is also expected to impact property values significantly. This is because the $817b provision made by Govnr Ambode is to be expended largely on provision/improvement of physical infrastructure – primarily road construction, rehabilitation and maintenance with a key focus on opening up hinterland areas and “New Lagos”. Other infrastructure aspects include water channelization, parks and recreation. Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. All these are expected to have a considerable multiplier effect on property values within the state in 2017. Land and Housing Price Movements According to MCO Real Estate Report, prices of land in prime areas have remained unchanged all through the economic recession; while in the residential market demand still remains high with property buyers willing to pay high values for the available properties where they feel they are getting commensurate value for money. RAC Lagos House Price Index shows that comparatively, overall property values in Lagos Mainland between 2014 and 2017 have been on the increase while Island properties experienced a major dip up; although house prices in Lekki Phase 1 and environs continue to increase in Q4, 2016 – Q1, 2017. Source: Residential Auctions Company (RAC) Roland Igbinobia (RI) House Price Index for Lagos, also indicates negative price movements in 5, 4 and 3 bedroom houses in Lekki and Ibeju- Lekki areas. The average prices for houses in these 2 areas in Q1, 2017given by the RI Index are illustrated in the succeeding page. Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. House Price Movements in Lekki & Ibeju-Lekki (Q1, 2016 – Q1, 2017) Area Q1, 2016 Q2, 2016 Q3, 2016 Q4, 2016 Q1, 2017 (N) (N) (N) (N) (N) Q4, 2016 Q1, 2017 Price Price Change Change (%) (%) Lekki 5 bd 69,367,532 65,000,000 97,500,000 79,555,656 79,555,656 -18.4 -4.9 4 bd 50,000,000 55,000,000 62,500,000 65,705,667 65,705,667 5.1 -11.0 3 bd 34,668,478 37,500,000 37,500,000 35,555,675 35,555,675 -5.2 -4.4 5 bd 45,000,000 46,000,000 41,000,000 41,000,000 41,000,000 0.0 -6.1 4bd 30,600,000 33,500,000 37,666,667 35,000,000 35,000,000 -7.1 -10.7 3 bd 22,342,105 25,000,000 16,900,000 13,800,000 13,800,000 -18.3 -9.4 IbejuLekki Source: Roland Igbinobia House Price Index (Lagos), 2017. House Price Movements in Lagos (Q1, 2016 – Q1, 2017) Source: Roland Igbinobia House Price Index (Lagos) Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. Housing Supply and Demand in Lagos According to RAC, annual housing supply in Lagos reached an all-time high of 3, 929 units in 2015 surpassing the previous year by 15%. 15,410 housing units were delivered between 2010 and 2015 at an average of 2,523 units per annum. One-third of the bulk of this housing stock are flats with terraces coming second. 82% of the new housing units were built in Lagos Island during that period. As at the beginning of 2016, 14,415 housing units were in the “Start” phase of the development pipeline with 30% of that number delivered that year. Annual Supply of New Housing Units Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. Annual Supply of New Housing Units by House Type Source: Residential Auctions Company (RAC). Housing Demand in Lagos Source: Lamudi Barometer Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. Whichever way one looks at it, there is still a massive mismatch between the demand for affordable housing units and supply available. And although many residential and public housing projects were launched between Q3, 2014 and Q3, 2015 such as the NMRC 10,000 affordable homes and Lagos Homes; many of these projects were delayed due to the financial constraints of the oil price slump. In addition even after completion; dwindling revenues and low disposable income meant many of the units remained unsold. In EtiOsa LGA alone, there is a 696% housing demand. Here are key points to note about the housing demand/supply dynamics in Lagos:  Lekki axis and environs have the highest demand for flats to buy (7.5x higher than the Mainland)  Lekki has the highest pressure for houses to buy (6.5x than the Mainland)  Ajah and by extension Ibeju-Lekki(New Lagos) has a notably high demand for houses (detached,semi-detached, terraces) and apartments (Studio, 2 & 3 bedroom) for sale. Consumer Attitudes & Perception of the Lagos Housing Market While the economic downturn in the past 2 years has brought on a spur in rental demand which is overall higher than property acquisition; generally factors that drive purchase in the organized real estate sector are largely similar to that of the retail. This is because people who purchase houses in essence purchase a packaged product with specifications, details and branding that distinguish the house or estate from others. A study by Deloitte in the 2 fastest growing economies of Africa – Kenya and Nigeria shows that consumer attitudes can be summarized as follows:  Consumers are generally confident about their personal condition and the economy. Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD.  They gravitate towards well-known brands and latest technology.  Quality matters than price.  They are extremely brand conscious.  Mobile phones are the main access to internet. While affordability remains an issue and generally in an economic recession, buyers are more risk averse and not willing to make lump sum payments; Overall Housing Opinion in Lagos by Socio-economic status Source: The State of Lagos Housing Market, vol. 2. these emerging aspirational attitudes are indicative of the emergence of a resilient middle class, numbered as 23m as at 2014. A Pison Housing Study shows that there are varying degrees of housing satisfaction along socio-economic lines and distribution all over Lagos. Generally, 26% of respondents claimed “Very Bad” housing satisfaction or quality standard. 54% of Lagos state residents believe that the housing situation in the state is “Generally Bad”. Real Estate Market Assessment Report for Lagos_27/04/2017 4.0 MAUVE EMBLEM LTD. LOCATION MARKET ASSESSMENT Travel time: 1 h 15 min (57.4 km) via Lekki Free Trade Zone Rd Ibeju Lekki Real Estate Prospects Ibeju Lekki is an area that portends an enormous opportunity for capital appreciation on the long term.  Enquiries about, and purchase of, land in the Ibeju Lekki axis between Q2, 2016 and Q1, 2017 was 50% greater than any other area in Lagos. Huge investments in the area by industrialists and the government, such as the Lekki Free Trade Zone, the proposed second airport and the Dangote Refinery is an added advantage. The top property developments under construction in Ibeju Lekki are:  Citadel of Dreams. 10 mins drive after La Campagne Tropicana in Ibeju Lekki.  Amazing Grace. 3 mins away from Ibeju Lekki, LGA and off the coastal road;  Almonds and Vines Gardens located adjacent to the proposed airport in Lekki and very close to the Lekki Free Trade Zone;  Masters Villa, a garden scheme located in Awoyaya, Ibeju Lekki;  Citadel Homes and Parks, located near the Free Trade Zone and a few metres from the Akodo general hospital.  Chois Gardens Estate Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. CONCLUSION Consumer Appeal & Branding Keeping in line with the growing “consumerism” of the middle class, the house prototypes should have distinctive and contemporary architectural designs. The estate shopping mall should be world class to attract key anchor tenants. Attention should be given to the environmental branding , signages etc. The developments should essentially be packaged as a ”lifestyle brand” to command the right pricing matrix. Also, due to the growing awareness of the target market on sustainability, eco-responsiveness; construction materials, methods and facility management systems should be adopted that portray adherence to these principles. Installmental Payment Plans This is still remains a key success factor in home ownership for majority of Nigerians as they are more prone to long period of installmental payment for major purchases such as properties. Innovative Service Delivery Digital FM service delivery must be duly employed to maintain the estates sustainably and ensure that residents achieve full value for their money. This should incorporate self-service options and an efficient complaint/issues management system. Smart Parking and Smart Environments should also be employed to maximize service delivery benefits. Power back-up options such as bio-gas technology, solar power should be explored. Customized services that allow easy connection to UBER, Go My Way, DealDey and other lifestyle/e-commerce services Product Mix & Pricing Strategy According to the Nigerian middle class can afford housing between N15m and N35m. The pricing for the Ibeju –Lekki house prototypes adheres strictly to this. Real Estate Market Assessment Report for Lagos_27/04/2017 MAUVE EMBLEM LTD. Lamudi Barometer shows that the highest housing searches were Apartments for sale in Ajah and by extension Ibeju-Lekki and houses in Lekki. Due to the industrial development and steady expansion of the”New Lagos” axis; it is envisaged that many low income earners will also need housing as they work within this area; hence the option of 3 bedroom flats. Proposed Pricing Matrix for house in protoypes in Lekki & Ibeju-Lekki Area Our Estate Chois Gardens Glenwood Q1, 2017 Market Estate Properties Average Lekki 4 bd terrace + 1rm BQ 75,000,000 79,555,656 Ibeju-Lekki 3 bd terrace 4 bd terrace + 1 rm BQ 20,000,000 35,000,000 30,000,000 35,000,000 (no BQ) 2 bd flats 3 bd flats 3 bd semi-detached bungalow + 1 rm BQ 14,000,000 17,5000,000 18,250,000 25,500,000 22,000,000 (no BQ) 22,500,000 13,800,000