A severe dollar shortage, currency volatility and poor purchasing power by many Nigerians, caused by a sharp fall in oil price, are dealing a blow on the Federal Government’s plans to bridge the 17 million housing deficit and hurting construction firms.
Investors have lost appetite for the shares of these firms, while many of them are increasingly cutting jobs and scaling back on expansion projects, in order to stay afloat.
Most of the 22 building material and real estate firms have under performed the NSE-All Share Index (ASI) this year, while only four of the 22 companies grew profit in the most recent quarter.
“Quoted firms in the building materials and real estate industry have been under pressure, with most of them recording a drop in sales and net profit,” said Pabina Yinkere, head, research division at Vetiva Capital Management Limited.
“For the real estate companies, it has simply been the economic situation and the resultant reduction in consumer spending that is driving the sector’s decline. Going in to 2017, whilst we expect company-specific initiatives to improve fortunes, we see only slight improvement because most of the aforementioned factors are expected to persist,” said Yinkere.
Dangote Cement, UACN Property Nigeria Plc, Portland Paints Plc, Cap Nigeria Plc, Berger Paints Nigeria Plc , and Sky Shelter Funds Nigeria Plc have all seen a decline in their net profits in the nine months ended September 2016.
Julius Berger, the largest construction company by market value, alongside Lafarge Africa Plc, Austin Laz Electronics Product, Avon Crown Cap Plc, Meyer Nigeria plc, and Premier Paints plc, recorded losses of N3.32 billion, N37.40 billion, N33.67 million, N85.64 million N71.72 million, and N15.67 million, respectively.
Nigeria’s economy contracted by 2.20 percent in the third quarter of the year, caused by a sharp fall in oil price since mid 2014 and a severe shortage of dollars, according to the National Bureau of Statistics (NBS).
Inflation for the month of October accelerated to 18.30 percent, the highest in 11 years, which means consumers, will be left with little money in their pockets to rent or buy properties.
“In a time of recession, the first sector that will suffer is the real estate and construction companies. Again, firms are not investing in new projects; they are in a survival mode,” said Igbuan Okaisabor, vice president/CEO of KAISER Construction Limited.
“If construction firms do not have jobs, they will not buy nails, paints and other building materials. We are cutting jobs and that is bad for the economy,” said Okaisabor.
Nigeria’s unemployment rate has hit 13.30 percent, according to the NBS.
Dangote Cement, Julius Berger, Lafarge Africa, Berger Paints, Beta Glass, Sokoto Cement, Paints and Coatings, and UACN Property have returned -5.89 percent, -16.67 percent,-51.48 percent, -37.37 percent, -41.07 percent, -52.09 percent, -29.89 percent and -61.41 percent compared to -11.60 percent return for the NSE-ASI in the same period.
Abiodun Akanbi, chief investment officer at Infinity Trust Mortgage Bank plc, said “apart from the fact that people are not buying properties, they are also increasingly defaulting on payment.”
GDP figures for the third quarter show that the construction sector contracted by 6.13 percent (year on year) in the third quarter of 2016, while real estate contracted by 7.37 percent in real terms, according to (NBS).
Experts are of the view that government should intensify more on using fiscal stimulus on infrastructure spending to invigorate the construction industry.
“Asides broader market factors, sector specific issues behind the building material under-performance include energy challenges amidst disruption to gas supply, LPFO shortage, higher cost of dollar-priced inputs amidst currency weakness, heightened inflationary pressure on operating costs and resistance to price increase,” said Yinkere.
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