Rents High Supply Glut

April 2016

Real Estate

VFIX March 2016 – Up 65%

Pioneer edition of real estate vacancy factor index

(VFIX)

Covers Ikoyi, Victoria Island and Lekki neighborhoods

Base month for index is January 2015

Just before the historic election

Prior to the last exchange rate adjustment from N186 to N199/$

VFIX was up by 65% from the base month

Means vacant properties increased by 65% in 15 months

Residential and Commercial Sub Index

In March 2016, VFIX for residential and commercial was 177 and

148, respectively

Both indices increased by 77% and 48% respectively compared to

January 2015

Month/year VFIX Residential Index Commercial Index

January 2015 100 100 100

February 2015 93.6 92.3 96

March 2015 94.2 96.2 91

January 2016 160.2 169.2 148

February 2016 165.3 176.9 148

March 2016 165.3 176.9 148

Money Laundering and Real Estate in Lagos

90% of Nigerians hold real estate as an asset class

Real estate sector is enigmatic

Strong correlation between real estate and

a) Investment

b) Money laundering

c) Public sector corruption

Rents high in spite of supply glut

Developers are funded mainly from

Family savings

Pension assets

Illicit Income

Demand and Supply in Real Estate Market

Demand is price and location elastic

Supply is price inelastic

Interest rate agnostic

Anomaly of high supply and high rent

Macroeconomic challenges drive increasing vacancy

In Lekki Phase 1, an office space in TBC building cost about

N30,000 per sq.m

100

160.7

165.3 165.3

0

5000

10000

15000

20000

25000

30000

35000

80

90

100

110

120

130

140

150

160

170

Vacancy factor index (VFIX)/Rents per sq.m

64%

35% 24%

0%

20%

40%

60%

80%

Lekki VictoriaIsland

Ikoyi

Vacancy factor

Lagos not that expensive in dollar terms

Cape Town is Africa’s most expensive property zone

$1mn can buy 1,250 sq.m in Church gate and FF Towers of Victoria Island but

can only purchase 255 sq.m in Cape Town, South Africa

Impact of macroeconomic variables on VFIX

Real estate can be used as a hedge against inflation

Increasing trend of the VFIX in tandem with unemployment rate

Forex controls discouraging investors

Poor stock market returns affecting investor sentiment thereby

reducing demand for office space and housing

VFIX will decline as economy improves as we should see a decline

in house prices