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Real estate deals suffer from dollar liquidity problems

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The shortage of dollars in Nigeria hinders the sale of real estate and projects, according to BusinessDay.

In the real estate sector, materials for use are mostly imported, and some assets are sold in dollars.

The volatility of the naira exchange rate against the dollar and the lack of the dollar in some cases caused some assets, the sale of which is denominated in dollars, to remain on the shelves for several months after the expression of interest. Some projects with delivery deadlines have been postponed or stopped in the middle of construction.

As of April 2022, 1 dollar was exchanged for N588.00, which is 49.8 percent more than N392.51, which he exchanged in April 2021. Over the past six months, from October 2021 to April 2022, the dollar rose 42.2 percent, from N413.59 / $ 1 to N588.00 / $ 1.

Since then, some assets have been put up for sale, mostly in the cool places of Lagos and Abuja, where some luxury residential apartments are valued in dollars. In Ikoyi in Lagos there are many such apartments, and they cause a high level of vacancy in this real estate submarket.

One of the asset sales that has been delayed due to dollar liquidity constraints is the Ikeja City Mall, owned by AttAcq and Hyprop.

In 2020, AttAcq and Hyprop entered into an agreement to sell the Actis shopping center through their new funds called the Actis Africa Sustainable Real Estate Income Fund and Actis West Africa REIF LP.

Actis is a global investment company focused on private equity, energy, infrastructure and real estate. It has a growing portfolio of investments in Asia, Africa and Latin America. The firm, which was founded in 2004 and has about 250 employees, has assets of $ 19 billion under management.

The Ikeja City Mall transaction has not yet closed, almost two years later due to a problem with the exchange rate for the dollar. A recent Intel Estate report recalls that in May 2021, the date of the long stoppage of the transaction was extended to July 31, 2021 due to restrictions on dollar liquidity.

“On April 1, 2022, AttAcq and Hyprop informed their shareholders that the date of the long-term sale of the asset was extended to June 30, 2022, citing liquidity constraints in US dollars in Nigeria,” said Dolapo Omidire, founder and CEO of Intel Estate. , told BusinessDay.

He referred to a published note where both sides remain in favor of the deal, so it was agreed to continue filing a fully relevant merger application to the Federal Commission for Competition and Consumer Protection of Nigeria.

This agreement, Omidir said, was to reaffirm commitment and take some steps forward. “The extension of the long stop date depends on the buyer submitting a fully relevant merger application before May 31, 2022 or earlier, otherwise the date of the long stop will be May 31, 2022,” he added.

Real estate investors and various stakeholders have complained about what they call a “sustained adverse policy and full-blown crisis” in Nigeria’s exchange rate regime, warning that the long-term consequences are deeper than one could have imagined.

Read also: How corruption denies Nigeria the mining dollars

Investors are also concerned that the currency crisis in the country is affecting construction, leading to a halt or change in value that could force them to postpone completion.

Experts believe that this situation could lead to a significant part of the country’s labor force in the construction industry, mostly artisans from neighboring countries such as Togo, Benin and Ghana, to leave the country en masse.

They said foreign currency issues would make housing more expensive for the average Nigerian, whose purchasing power was lowered by hyperinflation and lower naira prices.

Kunle Adeyemi, CEO and CEO of Sterling Homes Limited, stressed in an interview that lowering the naira rate will have a far-reaching impact on real estate.

He said: “The cost of building materials, especially imported ones, has risen and this will be passed on to buyers, which will lead to higher prices for real estate products.

“In addition, existing projects may suffer some failures, including delays or complete abandonment of the project due to depreciation of the naira. Similarly, new housing projects will be affected depending on the source of funds. In addition, the free fall of the naira may adversely affect the attraction of real estate investment as a storehouse of value.

The developer, who declined to be named, told BusinessDay that there were many projects in Lagos and Abuja that had been suspended since the start of the free fall of Naira. He, however, declined to mention some of the suspended projects due to what he called “reasons of security and business ethics”.

Adeniji Adele, a surveyor and real estate appraiser, has blamed the currency market crisis for poor implementation of various public policies over the years as a result of double standards and inconsistencies.

Adele, who is president of the International Real Estate Federation, a branch of Nigeria, noted that “the market is reacting negatively to the continued growth of the exchange rate, which has affected the cost of building materials and labor in the construction environment; so real estate prices will never be the same. ”

“The market price has risen, and the cost of borrowing is higher, and financial institutions are reluctant to give loans to grow real estate, as they prefer to promote objects in the short term,” he said.

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