Rising Vacancies in Real Estate

As the lull in the property market persists, several high-end apartments, homes and offices remain empty despite falling prices. Experts say this trend would continue for the rest of the year and well into next year. Bennett Oghifo reports

Between 2006 and 2007, property prices in Nigeria reached an all-time high, attracting equally record high investments. The economy was on a roll, money was available and so were willing buyers. But then, a crack appeared on the financial wall in 2008, bringing down prices but not as rapidly as it turned out recently after the banking reform claimed the big chiefs.
Experts have concluded that the lifeline provided banks by the Central Bank of Nigeria will not in any way lead to an upturn in the real estate market, even though it is a major gauge of how well the economy is recovering. “There is no uptake in the system and this is a worrisome sign, because even though sales were slow last year, but we did not expect it to grind to a halt instead of picking up with CBN’s intervention,” remarked Tajudeen Olanikan, a real estate broker on Lagos Island.
“Now the market is replete with office buildings, homes and apartments that are vacant and not selling. Property owners have come to the realisation that the market is down and would not pick up in a hurry. They are not going to get the price they want,” Olanikan added.

Rising Vacancies...
It is estimated that more than 1,000 buildings are vacant or abandoned in various cities in the country and rising. A drive around Ikoyi or Banana Island or Victoria or the Lekki-Ajah corridor, which are traditional areas where people stay for long years on the queue to get a roof over their heads, shows there are an alarming number of vacant buildings, both old and new.
The same is applicable to Abuja where several properties in Asokoro, Maitama, Wuse, and Garki are lying empty. In the case of Abuja, this was exacerbated by the federal government’s housing monitisation policy which prompted senior civil servants who lived in these high-brow areas to relocate to their own property in the suburbs.
Characteristically, vacant buildings in Port Harcourt’s high-brow areas known as old and new GRA was caused by desertion by their owners who sought refuge from militant and kidnapping activities, which has petered out in the last few months. But these buildings would remain empty in a long time unless their owners get buyers or tenants.

Investor Drain Pipes
Vacant buildings come in different shapes and sizes but they never hurt anyone financially other than the investors because the longer they remain vacant, the more expensive it is to salvage them from decay. Vacant and unattended structures are a major cause of blight in neighbourhoods and commercial areas. Such structures could cause safety and environmental problems for adjoining property owners. Thus real estate operators believe owners of vacant buildings need to secure the building from trespassers and keep the building and landscaping in good condition.
Often enough, vacant buildings always suffer from lack of maintenance and necessary utilities. Their lack of use and maintenance makes vacant buildings prone to deterioration and vulnerable to damage from vandals and the elements. In order to protect these buildings and keep them available for future use, experts recommend that the owners should keep in place protection systems for fire and security to protect the property from vandals.
Lagos Island, for instance, has many commercial buildings, which are mostly empty and most of these buildings could have fetched the on-going market rate if they were in use as affordable commercial developments like restaurants and retail shops. However, the recent debt recovery drive by banks, coupled by lack of credit in the system has led to economic stagnation to the extent that several buildings are being put on the market for far below their value because investors want to cut their loss.
According to Ben Torroh, an engineer, by implementing a regular schedule of both internal and exterior checks of vacant structures to discover problems or maintenance issues that may lead to fire and collapse or to deter burglary and other unauthorised actions “will help the structure maintain its value in the long run.”

Housing Market Impact...
Money spent on housing constitutes the biggest component of most household’s wealth, explains Theodore Njoku, a lawyer and property consultant in Abuja. “It therefore has a big impact on the nation’s economy and the earlier the regulators of the economy come to terms with this, the better for everybody. The housing sector is one of the main drivers of economic growth. Therefore the weakening of this sector has ominous implications for continuing expansion in the period ahead.”
According to Njoku, it is the responsibility of the federal government through the Ministries of Finance and Works to regulate the housing sector and “in performing this function they should ensure that every aspect of the economy works fluidly. We know that most of the housing stock is in the hands of the private sector but that also is subject to regulation like the banking and manufacturing sector.”
He explains that in developed economies, property speculation and arbitrariness is discouraged through special levies on vacant properties. “Many vacant buildings are potential public safety and fire hazards. And we know that people who may be involved in criminal activities also occupy such properties. The idea is to encourage property owners to either sell or let their property. The government can even crack down on unsafe or badly deteriorated buildings as was done recently by the Lagos and Edo State Governments, forcing their owners to renovate and paint their buildings not only for aesthetics but also to enhance their value.”
The current economic condition of the residential and commercial real estate markets is, to say the least dire, adds Mark Davis, a facilities manager, who also recommended the imposition of fees for owners of vacant properties. “In developed societies there are laws that force owners of buildings vacant for over 90 days to register them and fees are imposed after the first year, at $500 a year, and increase to $5,000 a year after 10 years.”
The law, he said, is meant to discourage property owners from keeping their buildings in the city vacant and unproductive. “The fee structure is a motivation for property owners to realistically pursue a sale of the building or find a productive use for it by possibly dropping the price at which it can be rented or sold.”

Conversion of Buildings...
In this period of economic crunch, real estate operators agree it is almost impossible to sell or rent vacant housing units and buildings across the country. “Those who usually buy property in bulk are not showing interest because the banks are after them to repay their old loans,” says Ms. Bimpe Adedoyin.
She suggests that while the economic problem persists, developers should explore ways of selling or renting their properties. “They shouldn’t just assume that things will turn around soon, and so, can afford to sit the period put. There are several ingenious ways to get these things done and one of them is to redesign the property to make it more affordable.”
A solution may be found through the conversion of vacant large residential homes or office buildings into smaller housing units/apartments that can be rented or sold at lower prices. An alternative for commercial property is to rent it to tenants who might not mind sharing office space and common amenities.

Culled from: http://www.thisdaylive.com