After my write up on the State of the Nation, I came across this Business Day write up. Obviously and advert but still an indication of the current state of the market. A bit frothy if I may say so. Reminds me of London a couple of years ago...
u
Friday, 7 November 2008
Eleko Beach
A nice change from work, work, work and traffic and Lagos gra-gra. Eleko Beach, about 20 mins drive up the Lekki - Epe expressway from where we live. Sheer bliss (and coconut milk and grilled fish and...)
State of the Economy III
The Stock Market
I am told that there was a stock market crash in Nigeria in 1997, but the stock market was much smaller then and it appears as if a lot of stock brokers must have retired over the past 10 years. Fast forward another 10/11 years and we have experienced another crash of about 40-50% off the highs of last year. The loss is painfull. Especially considering that a lot of speculative investors poured in their life savings, kids school fees, house rents and pensions and levered up to increase returns. Things have turned for the worse and the banks are making margin calls and calling in their loans or selling client portfolios that cannot be serviced. Numerous stories abound of investors stock values being wiped out leaving only enough to repay the banks money and leaving interest payments on a portfolio that is now worth zilch. Very painful.
Investors are in pain, institutional operators are in pain, however the taxi driver and fruit seller on the street couldn’t care less as they are not the ones that had the means to invest. It is the bankers, the oil and gas middle management, the nouveau middle class wealthy, the professionals and the lower middle class that are exposed. Everyone is crying into their coffee. Unfortunate, but what goes up must come down. The Nigerian stock market and the Nigerian investor will emerge wiser and more mature after this.
The Real Estate Market
There was a brief report on BBC the other night about the booming Lagos real estate market. What comes after a boom (hands up please). The Lagos real estate market has been powering along. Annual returns of over 100% have been common place. The real estate market has tracked the stock market quite consistently, with profits generated from stock market returns being pumped into real estate. The boom has been most conspicuous on the Island but choice areas on the mainland have also taken off. Additional fuel was thrown onto the fire by the transfer of a lot of oil and gas staff from the current hotspots of the Naija Delta to the relatively calmer and more secure environment of Lagos Island. Rents shot up with the oil companies willing to pay top dollar and beat out all competition to secure choice properties. Rents have gone through the roof over the past couple of years because of this.
Moving forward to the present day, the stock market is tanking, the oil people have settled into their choice water front properties and what was driven by shaky fundamentals is now driven by speculative demand, hence the forming of a bubble. Eighty Million Naira properties can be rented for Three Million Naira. What’s the yield on that? Rents cannot cover interest payments (we saw this in London) and the expectation is now totally in the returns from asset appreciation. The makings of a classic bubble.
In fairness to the Nigerian market, things are slightly different here. Ownership penetration is very low. The bottom end of the market is crying out for reasonably priced housing, Lagos is a market of 140m people. However, the market for flats at $1.5m or rents at $120k per annum, hmmmm how many would rather sink their $1.5m in a Lagos flat than a US mansion?
Business/Entrepreneurship
Whatever is going on in the world of stocks and bonds, in Nigeria it is business as usual in the world of business. Every day I am sitting down with new or expanding business owners seeking capital. Be it real estate, car hire services, paint manufacturing, juice packing, agriculture, noodles, ethanol, sand dredging, Liquified Natural Gas, oil services, you name it, it is business as usual. The credit crunch, liquidity crisis, stock market melt down, these things have hardly touched the real economy. As I pointed out earlier, there are 140m Nigerians and they all need to be fed, housed, entertained, supplied with energy and provided with all the demands that 140m Nigerians make. The economy is emerging, the middle class is emerging (albeit a bit poorer considering the fall in the stock market), they all want nice things, the opportunities are there for the taking.
I am told that there was a stock market crash in Nigeria in 1997, but the stock market was much smaller then and it appears as if a lot of stock brokers must have retired over the past 10 years. Fast forward another 10/11 years and we have experienced another crash of about 40-50% off the highs of last year. The loss is painfull. Especially considering that a lot of speculative investors poured in their life savings, kids school fees, house rents and pensions and levered up to increase returns. Things have turned for the worse and the banks are making margin calls and calling in their loans or selling client portfolios that cannot be serviced. Numerous stories abound of investors stock values being wiped out leaving only enough to repay the banks money and leaving interest payments on a portfolio that is now worth zilch. Very painful.
Investors are in pain, institutional operators are in pain, however the taxi driver and fruit seller on the street couldn’t care less as they are not the ones that had the means to invest. It is the bankers, the oil and gas middle management, the nouveau middle class wealthy, the professionals and the lower middle class that are exposed. Everyone is crying into their coffee. Unfortunate, but what goes up must come down. The Nigerian stock market and the Nigerian investor will emerge wiser and more mature after this.
The Real Estate Market
There was a brief report on BBC the other night about the booming Lagos real estate market. What comes after a boom (hands up please). The Lagos real estate market has been powering along. Annual returns of over 100% have been common place. The real estate market has tracked the stock market quite consistently, with profits generated from stock market returns being pumped into real estate. The boom has been most conspicuous on the Island but choice areas on the mainland have also taken off. Additional fuel was thrown onto the fire by the transfer of a lot of oil and gas staff from the current hotspots of the Naija Delta to the relatively calmer and more secure environment of Lagos Island. Rents shot up with the oil companies willing to pay top dollar and beat out all competition to secure choice properties. Rents have gone through the roof over the past couple of years because of this.
Moving forward to the present day, the stock market is tanking, the oil people have settled into their choice water front properties and what was driven by shaky fundamentals is now driven by speculative demand, hence the forming of a bubble. Eighty Million Naira properties can be rented for Three Million Naira. What’s the yield on that? Rents cannot cover interest payments (we saw this in London) and the expectation is now totally in the returns from asset appreciation. The makings of a classic bubble.
In fairness to the Nigerian market, things are slightly different here. Ownership penetration is very low. The bottom end of the market is crying out for reasonably priced housing, Lagos is a market of 140m people. However, the market for flats at $1.5m or rents at $120k per annum, hmmmm how many would rather sink their $1.5m in a Lagos flat than a US mansion?
Business/Entrepreneurship
Whatever is going on in the world of stocks and bonds, in Nigeria it is business as usual in the world of business. Every day I am sitting down with new or expanding business owners seeking capital. Be it real estate, car hire services, paint manufacturing, juice packing, agriculture, noodles, ethanol, sand dredging, Liquified Natural Gas, oil services, you name it, it is business as usual. The credit crunch, liquidity crisis, stock market melt down, these things have hardly touched the real economy. As I pointed out earlier, there are 140m Nigerians and they all need to be fed, housed, entertained, supplied with energy and provided with all the demands that 140m Nigerians make. The economy is emerging, the middle class is emerging (albeit a bit poorer considering the fall in the stock market), they all want nice things, the opportunities are there for the taking.
Subscribe to:
Posts (Atom)
