September 6, 2021/CSL Research
Based on the Q2 2021 GDP data released by the National Bureau of Statistics (NBS), the real estate sector is once more in the spotlight, as it recorded another growth of 3.85% in Q2 2021, the highest growth posted in 26 quarters. By and large, this raises optimism that 2021 will be a good year for the sector.
Although the growth seen in the quarter was largely supported by a low base in the preceding period, we believe conditions for the real estate sector are improving. For one, companies in related sectors such as the cement industry recorded impressive numbers, and many attributed their good performances to real estate investments. Also, the work-from-home (WFH) policy by many corporates has provided opportunities for many developers to embrace residential real estate projects. In addition, the rising pace of online shopping has propelled huge investments in warehouses, which bodes well for the sector.
Based on the available data by the Central Bank of Nigeria (CBN), the share of the real estate sector credit from the total credit to the real sector fell to 3.16% in Q1 2021 from 3.54% in Q1 2020 despite the increased credit to the private sector (up 16.4% y/y in Q1 2021). Hence, this reflects the commercial banks have sustained their limited exposure to the sector considering the bottlenecks affecting the sector’s performance. In effect, the driver of real estate investments largely rests on private investors’ funds, perceived to be safer and less volatile to economic shocks.
Reports from notable real estate advisory firms showed growth in the sector was not broad based as the impact of the pandemic continues to weigh on some segments. Hence, we are of the view that the sector may not be totally out of the woods despite the growth posted in the first half of the year. The emergence of the covid-19 delta variant shows the recovery may remain limited to a few segments. Also, structural issues such as the high cost of mortgage facilities, building materials, etc., remain major stumbling blocks to significant growth in the sector.
