FDC ECONOMIC BULLETIN – SEPTEMBER 07, 2021 (Re: As inflation bites, is it now time to buy that house?)

Dear Subscriber,

People are usually skeptical about investing in financial instruments. But when it comes to property, attitudes change and it becomes a thing of pride. For example, in most family squabbles for inheritance in Nigeria, people seem to appreciate landed property more than financial instruments. This is basically because it is tangible and believed to appreciate in value over time. It is a stereotype that landed property has more value than securities.

In recent times, the safest hedge against inflation has become real estate assets.  But in truth, the property is only as good as its location (Location! Location!! Location!!!). In Q2’21, the real estate sector grew sharply to 3.85% from -21.99% in Q2’20 due to increased investment as yields on fixed income instruments declined. Developers rotated their portfolios from financial instruments into other asset classes including real estate, thereby leading to an increase in housing starts.

Our Q3’21 real estate survey reveals noteworthy trends including, the presence of Airbnb, short lets, shared apartments and aggressive investments in commercial real estate. We presume these would be game changers for the sector in the near term. However, the threat of high cost of building materials like aluminum, cement, roofing sheets and iron rods could trigger a further spike in rental values and in tandem lead to a fall in demand for housing units. Currently in Lagos state, landlords are jacking up rents to factor in the high inflation rate (17.38%).

In the Q3’21 GDP report to be released on November 24, we expect the positive growth in the real estate sector to be sustained, on the back of declining yields in fixed income securities. Investors will continue to see real estate as the perfect hedge against inflation.

In the download, the FDC Think Tank shares its findings from the latest Q3’21 real estate survey.

Do enjoy your read…