I salute the courage of the Governor of the Central Bank of Nigeria, Professor Chukwuma Soludo in times like this. A few days ago he was quoted as saying that despite the global financial crisis rocking major economies of the world, the Nigerian economy is adequately insulated from the crisis and would not suffer any recession. Honestly, I wanted to stop reading that piece at that point but for the second paragraph where in an attempt to elaborate, he said “the worst that could happen to the nation’s economy as a result of the meltdown was a reduction in the growth rate.
Well, at least the man appreciates the fact that the economy may slow down. I have my doubt as per the reasons he proffered for his optimistic view on the economy. Reasons such as the fact that we have a liberalised economic system, with flexible prices; easier adjustment processes and robust external reserves that could be tapped into as well as sound banking and financial system that now had the capacity to fund the private sector.
Even if the rest are okay, I know of a fact that the banking system may have better capacity to fund the private sector then it existed pre-consolidation but there are a lot of bankable private initiatives languishing in the custody of the promoters for lack of funding after several attempt at securing such support from the banks have met with failures.
Further probe into the speech of the well read gentleman at the helm of affairs in CBN during the 2008 Bankers’ Dinner in Lagos reveals that he is only been technical to say we won’t experience recession in 2009. Hear him “The global system is in a recession and from all indications, the Nigerian economy will not be in a recession. What could happen is that the rate of growth could be reduced, but this will not make us slide into a negative growth rate for three consecutive quarters that would officially lead the economy into recession” It is clear from here that what Mr. Soludo is talking about is the definition of recession not that our economy may not suffer a slow down or even negative growth. Also, I seem to have the backing of World Bank in my belief that things may not be as rosy in 2009 as Mr. Soludo would have us believe. As reported in one of the national dailies, although the Federal Government targets a growth rate of 7.5 per cent in the coming year, the Wolrd Bank said the nation’s GDP might shrink to 5.8 per cent.
Agreed that African economies are less integrated into the international financial system and relied relatively less on international capital and bond markets to finance investment, weaker external demand and resultant fall in commodity prices will take a toll on exports and the contribution of trade to GDP growth is likely to be negative in 2009. The falling old price is already causing a problem for the 2009 budget and the necessity of the deficit for infrastructural development.
To drive these home, what I have being trying to say is that all these will affect your investment in real estate such that if you maintain properties in certain places for something other than a long term view, you may lose out seriously. The reason is simple; in the frenzy of the events that preceded the present economic glum, money flowed so freely and certain decisions by the powers helped certain places in my opinion appreciate beyond the bounds of reasonable profitability for a would-be investors.
The underlisted reasons and other are impacting on property markets in the concerned five areas:
- More people were able to buy properties because more money was circulating within the economy, good places where getting depleted very fast.
- Government resulted to selling some properties to the highest bidder and others to current Civil Servant occupiers whose benefits have been monetised. That was a policy switch by the Obasanjo regime. The likes of 1004 flats, other blocks of flats and single family units in Victoria Island, Ikoyi, Ikeja, Surulere, e.t.c fell under this category. They were all sold and what happened in most cases was that the civil servants who had the first right of refusal did not have the funds required to buy the places and they then went into all kinds of arrangement to have a share of the cake. Mostly, they bought with loans and resold to investors or property speculators or just fronted for one. Now, the properties have passed through 2 to 3 generations of buyers attaining record breaking value computations at every turn.
- Banks started the branch expansion “competition” after recapitalisation buying up any property that catches their fancy in the process. To hear that a bank wants to open over hundred branches in the nation within a financial year became a common place. Every major street became a target and the highest bidder takes all. The dynamics of bank property purchases drove the “value” of such properties to high heavens. There were cases of properties that would have gone for N10million going for about N25million.
The aforementioned and a lot of others contributed to what the places listed below have come to be. If you must buy properties in these places now, ensure that you can almost rise four times the purchase price in putting up whatever you what to do on the land and that the venture will pay for it. Otherwise, forget it. What that does is that you now find out that there are only very few things you can achieve profitable on the properties given the present value. This reduces the attractive or marketability of such a property making these places almost no go areas for property speculators.
For reasons above adduced, I will like to advise that you should be extra careful buying properties in the following places until after this economic hullabaloo except if the prices properties currently command here come crashing significantly.
Ikeja G. R.A – probably only multiple units high class luxury apartments and five star hotels can turn you profit on the landed properties available here.
Magodo, Shangisha – mostly built up with only very few landed properties left in good locations. Other landed properties at the edges are mostly within disabled land or swamp.
Banana Island – What will you put o the land here to command billions in rent? That’s the question you should be ready to proffer answer to when shopping for landed property on this Island in 2009.
Osborne Road -Victoria Island – because of the fact that it is now commercialised, property prices here have reached the roof and you may need to erect sky scrappers to break even.
Old Ikoyi – The situation here is very similar to the Ikeja G. R. A experience.
Check one of the most current postings on my blog (www.deboadejana.com) for an idea of the places you can look up to for good returns in 2009.
I wish you happy New Year and the very best in 2009.
