Coronavirus (COVID-19) and the Nigerian Real Estate Market
The virus has killed at least 3,000 people and has infected more than 90,000 worldwide, mostly in China- The World Health Organization (WHO)
It is no longer news that the deadly monster the world is trembling at is an epidemic life-threatening disease called Coronavirus. The World Health Organization (WHO) has declared a global health emergency over a new coronavirus which causes an illness officially known as COVID-19 that has killed more than 3,300 people worldwide.
Tracing its origin back to Wuhan, China, the virus was officially identified and announced on January 7, 2020, belonging to the coronavirus family, which includes SARS and the common cold. On January 11, China announced its first death from the virus, a 61-year-old man who had purchased goods from the seafood market.
The coronaviruses are common and spread through being in proximity to an infected person and inhaling droplets generated when they cough or sneeze, or touching a surface where these droplets land and then touching one’s face or nose.
Unfortunately, all efforts to prevent this virus from spreading to other parts of the world has been in futility as the first case in sub-Saharan Africa was announced in Nigeria where a suspected Italian, whose country is the worst-hit in Europe by the coronavirus outbreak, arrived on February 24 on a Turkish Airlines flight that had a connection in Istanbul. Thus, stock markets took a pounding amid fears of a global recession.
Since many African countries have economies that have a strong connection with commodities, such as oil, there have been many discussions on how the virus might affect the continent. For instance, the proposed 2020 budget of Nigeria set by the Federal Government estimated oil sales to stand at an unrealistic production level of 2.18 million BPD at a price of $57 per barrel, certainly has a lot to worry about. However, the main focus of this article is to let lovers of real estate who are curious about the effects and impacts of coronavirus on the property market be enlightened.
To start with, it is necessary to establish the context of pricing mechanisms for real estate and other asset classes. Unlike equities and bonds that are transaction-based (i.e bought in smaller units and can be transacted, traded and change ownership in large volumes making it easy for variations in market sentiment and confidence to echo in pricing very quickly, real estate pricing mechanism is appraisal based. This means that it usually has to be valued by a valuer as transaction volumes are not as frequent due to its indivisible nature and high price.
The appraisal method is the value of a property at a specific point in time as determined by a licensed appraiser. It typically involves valuers using historical valuations and in other cases comparable properties with values that were arrived at in previous periods that had different economic backdrops. As a result, property prices do not always react to the changes in expectations about the economic environment as fast as they should.
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Historically, it has been proven that prolonged periods of oil prices could affect the Nigerian real estate market. Before the commodity price crisis of 2015/2016, that saw oil prices go below $30 in early 2016, most luxury residential and office properties were occupied by residents that worked in the oil sector. However, as a result of the crises, there was a significant amount of vacancies in an already saturated market. The effect of Coronavirus may not push oil prices to the same depressed levels seen during 2016, but we are conscious of the effects that low oil prices can have on the market.
Finally, one of the most powerful countries that Nigeria has an important affiliation with in terms of importation is China- The progenitor of COVID-19. In the construction industry, many property developers and vendors source for sanitary ware, doors, HVAC and many other fixtures and fittings from China. Because of the effect of the virus on China's economy, in terms of many businesses and construction companies folding up, many developers could not import at cheap prices. Thus, making the completion of construction projects untimely and thereby, creating a breach of integrity between seller and buyer.
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