What is the state of the Real Estate business in Nigeria today?
The real estate sector is still at the infancy stage in Nigeria, in view of the fact that the paradigm shift from individuals going to buy land, design their perceived property type, and build it, to mass production or outsourcing of that function to another organization called a developer have not been captured in our psyche and philosophy of operation. In developed countries less than 0.5% of the people design and build their own houses. They buy houses almost like the way we buy food from the shelf from the supermarket. They go to an online portal and check the house type, price, the Neighborhood and other features of the house and then commence transaction.
So we have a lot to catch up with regard to international global standard of the real estate and the rest of them. So when you look at the players in the industry, we have a huge gap. There has been a paradigm shift in home-ownership approach, and the key thing for us to do, is to begin to advocate, teach one another, open our minds to issues and getting us to understand what we don’t understand. Getting us to have a mutual beneficial understanding of the way forward so as to liberate the potential that is involved in the housing industry for employment, economic growth and shelter provision.
The 2002 coming into existence of REDAN (Real Estate Developers Association of Nigeria), MBAN(Mortgage Bankers Association of Nigeria) and BUMPAN(Building Materials Producers Association of Nigeria) was a welcome development in articulating the private sector players in housing development in Nigeria. Hitherto, we have seen that government is not a very good player because of the challenges of rapid political changes, bureaucracy and huge ‘interests’. The challenges that are there in terms of changes in party in government, changes in government policies, changes in individuals who head organizations and the character it brings to bear upon the institution to start all over again. So the private sector are more sustainable as key drivers in affordable housing delivery and that is why we can say that it is at infancy but yet has a good potential.
In South Africa, the housing sector contributes about 30% to the GDP; in Nigeria it is about 5%, which means we have a long way to go. We cannot even compare with countries that have about 60% housing sector contribution to their GDP, like USA and United Kingdom. So in terms of where we are and where we need to be, not only in comparing ourselves with them but comparing ourselves in deploying potential of the industry, comparing ourselves with multiplier effect potential of the industry, we have a long way to go.
If you look at the housing sector, there is something you will see, what you will see is that there are critical components in the housing sector, we have the land component. Land is where every development takes place, whether it is residential real estate, commercial real estate, industrial real estate, tourism real estate or agricultural real estate, it takes place on land. Now our emphasis has been on industrial and residential real estate. the next issue is the finance component, the next one are the off-takers that will buy/stay in those houses.
The fourth component is the developer, who is the one that mixes the factors of production. He is the manager of interest of these three others. If he gets into the land components, you will have issues from land ownership, who owns the land, issues of acquisition of the land and compensation, issues with titling(C of O,/Leases), issues with plan approval of what you should develop, the land administration, the type of activities that should take place on the land, issues with devolution of titles. In the case of residential real estate for mortgage, it will be title transfer from the developer to the off-takers, from the off-takers to the primary mortgage bank, from primary mortgage bank to secondary mortgage institutions like Federal Mortgage Bank of Nigeria. That is as regard to land.
We have issues with each of these sub-segments. In terms of finance, we have issues with financing those developments, whether it is in terms of construction finance or off-takers finance, whether it is commercial buyers or Federal Mortgage Banks or with private investors, or individuals who invest their internally generated revenues or equity into those houses. We have issues with interest regime, funding mismatch etc. Also whether housing is the preferred investment destination for their money is a different thing. There are sectors that are looking for that same finance. Finance is a coward, it goes to the area where it can be pampered, where it can get relatively higher return on investment for the same risk level.
The third aspect are the people who will need those houses. Why do they need those houses, what price are thy willing to pay, what is the gap between their desires and ability to pay? The affordability factor and that for me is a huge issue that we have not been able to think about. Now REDAN at their own capacity sits in the middle, trying to mix these factors of production. When you go to financial institution, they don’t ask you how you got the land, but the character of the title you hold determines how they will listen to you. So what we are trying to do as REDAN is to have us work together with all the players in the housing value chain with a view to improving the transaction dynamics and interfaces.
We determine the equilibrium point in our operations, whereby we can have a system where each person agrees to play their roles and responsibilities and get the benefits from their roles in an equitable format. So that the system is well managed and so that the transaction dynamics are well defined with a clear-cut road maps. When we have a clear-cut road map, it becomes easy for people to access the entry and exit from the sector. And if that is done, it enables us to define the next element and that element is what are the competitive advantages of investing in this sector .and we are looking at it as a group of stakeholders not as an individual, and that is the stage we are in the national housing sector. We are in the stage of understanding the roles, trying to define the clear-cut and pattern of what we should do, who should do what and what we should not be done.
That is what REDAN has set out to do because over the years, we try to run this industry and we discover as developers that a failure in the part of anyone of these stakeholders leads to a failure on our ability to deliver as the manager of interest of other stakeholders.
A failure of the government to pay compensation for the land leads to restiveness in that community; work stoppages and sometimes loss of life and/or property. Failure of government to give title as at when due, causes delays in sale and title transfer, thereby compounding the interest element on the construction finance.
So we decided to proactively engage all the stakeholders, so that we can come together and make sure that we have a seamless agreement on who should do what and at what time interval you are supposed to do it. That agreement will form a road map, that road map is not final, it will be modified as we go along. We may start small but can upscale our activities as time goes on, making reference to the experience that we shall have jointly and it will be clear to all that as we are moving from a point to another, these are the things we need to change in our definition of issues, definition of roles, definition of output for each party. For example we can effectively reduce transaction time for each envisaged activity. As at today, we have 34% as a compliant cost across the chain, that is too high. When you compare it, that if I buy share Nigeria Stock Exchange against central securities clearing system and they issue me a paper which enables me to trade on those shares at less than 5%, which means if I have 20% appreciation in share price, I can walk home with 15%, if you have that for housing and the cost of registration and other things come to 34%, it means that for me to trade that asset, I have to get something above 34%.
What we are trying to do is that for each of us, including the media, who should be at the forefront of our advocacy to create an enabling environment where each party understand themselves and their next partner in the transaction chain and how they can interface properly with their direct partners and the likely effect of the interface with other direct partners.
This is where REDAN position itself. Not only crying out every time about land and finance, but also interface with people, looking at so many other things because we have come to accept our role that no other person can play this role for us. When a man who wants to buy a house says it is too costly, he does not want to know about the building material costs; compliance cost etc. So if we have to address this issue, we will address it on a comprehensive platform that allows even the people to
know where they are going wrong and ask each person involved in the chain to reduce his interest to accommodate the interest of everyone.
That is where we are today in REDAN. We have signed MOUs with a number of the organizations. We are now at the stage of bringing these people together. We interface with building material producers, state government, federal mortgage bank, ministry of power, works and housing, CBN, among others. So we are now trying to bring them together to fulfill our core role of being the manager of interests.
We have done that with artisan training. We have MOU with institutions who are involved in training artisian because we have poor competence and skills among our artisans. We also identify that among ourselves as developers, we need to have an enhanced skills to be able to manage the interest of these stakeholders. We are working on that with the University of Lagos
Centre for Housing where we can obtain a Master’s degree and it is the first in the country. We also have the same understanding with Shelter Afrique which is the Pan African Housing organization. So we need to be able to do what has to be done to move this sector forward.
What is the effect of recession on the sector, consumer buying capacity and manpower development?
It has affected adversely every segment of the sector. The cost of the imported components of building materials went very high. The cost of the locally produced component did not increase with the same ratio. We have visited some of the local material producers to encourage them to know that we are there for them. We have had interface with cement producers, tiles producers, roofing sheet producers and other producers of building materials and we have given them useful advise on quality and process enhancement. We also assured them of increase capacity and turn-over if they can reduce some prices and enhance quality and they appreciated our input. We are now having meetings on monthly basis with federal mortgage bank, mortgage association of Nigeria and real estate association of Nigeria, so that we can sit down and begin to look at what we can do to help each other perform better. That is where we are now and we intend to enhance going forward.
It is making the strategy more creative and aiming to have economics of scale. We have changed so many things, one of the things we have to end is youth restiveness. We have discovered that when you come and take somebody’s land that he was using for agriculture and start using that land for housing development, there have been a change of use for that land but there is no change of skill for the person who owns that land.
So what REDAN has come up to propose is that, for every 20 houses put in a place, you must train a youth in that locality in the construction industry related skill because that is the current use of his land. The farming skills he had before is no more useful for the construction terrain that you are now using his land for. So we have come up with a policy, it was not induced by government but internally generated by us because we are interested in Nigerian people. We are saying for every 20 houses you build, as you are using that land, train the youth of that place, so that their skills will be in line with the current use of their land and still be useful within their locality. This is an innovation that we have introduced, so we are looking at every aspect of our operation to be able to do the needful and that is what we are doing.
How many people have benefitted from that training?
As at now, it is a new initiative. We have the first set of 120 youths who have gone through that training. It is gaining traction; we believe that by the end of this year we should be looking at 3,000. We are enhancing it, by next year we will upscale it. We are going to work with government to have a policy that things have to change, government must begin to look away from one aspect of the value-chain and begin to hear what REDAN is saying. In REDAN we know we that we are responsible to the people, and as part of our corporate social responsibility, we must look at people that we have taken away their land and have changed the purpose of their land from farming to real estate. What value are you giving them in return, how will that youth be involved in the development process of their land? That for me is what we are trying to do. Our target is that if government is targeting under the APC manifesto one million housing units, that tells us that we just have to multiply that same number with the number of youths. If you divide one million by 20 you will have 50,000 mandatorily trained youths per annum that is our target for each of the community not just from anywhere. We want people trained in a formal institution; we want to train people and that is what we are already doing, that is our target and that is what we also want government to put in place by way of policy.
What is REDAN doing about the 17 million housing deficit?
What we are doing is to first get the statistics, that figure was not empirically derived. But I do know that the figure could be higher or lower but the reality is that it’s a realistic figure because once you prove by the delivery mechanism, some of those who never thought they could own homes will begin to desire to own homes. So when you talk of 17 million it is okay, even if it is 10 million it is still something, even if it is five million.
Our production capacity as at now is less than 100,000 housing units per annum, so there is a problem. We have to upscale; I don’t worry myself about the 17 million; we are about to work out something with various organizations. We are going to mine data from the various State Ministries of land that allocates land, mine data from planning approval authorities, from development control institutions and town planning institutions across the country; we are going to mine data from other sources to be able to look at what the deficit is.
I also know that the National Bureau of Statistics and Nigeria Institute of Social and Economic Research are working on something. The forthcoming census, they have included in it some data on housing, so we are working in concert with these institutions. The Department of Statistics of the Central Bank of Nigeria is working on something because they have come to appreciate that fiscal and monetary policy must look at the housing indices because the problem we had in 2008 in USA emanated from the housing sector. Nigeria is coming up to that level that in future crisis in housing will affect other micro economic institutions and indices; they are interested in that. We are working with them because we have understood our role as REDAN and we are working with them to generate data for planning.
They can now say if we invest N100 billion in the housing sector this is the number of jobs that it will create. The former Minister of Finance, Dr Ngozi Okonjo-Iweala told us that when you create a house you will have a total of 8 million permanent and non-permanent employment. For me, that is a huge number. If we are able to build one million houses as the APC mentioned in their manifesto, that is 8 million employment. Even if it is only two million permanent jobs, that is huge. The data have to cut across not just the input factors of the process but also the outcome in terms of employment, multiplier effect to the economy and support to our GDP increase that is what we are looking at.
What is the relationship between REDAN and the Government?
We are hoping to be singing from the same hymn book. I have been the chairman of my state housing development corporation. One of the things that I have come to appreciate is the fact that, it is difficult for us to sing from the same hymn book because the man sitting as the political head of Federal Housing Authority or Federal Mortgage Bank or the Minister is not in control of the factors around him. There are environmental factors outside his office that affect him. That is why for us to have a sustainable platform, government will not be a player. For proper planning and efficiency, government ought be the enabler. We have not had that in Nigeria; it is not the fault of the current APC government; it has been there from time, government have always for political interest decided to become a player on the field instead of being an umpire and it has failed. We are meant to build social housing for the poor; they have abandoned that segment and are now involved in building duplexes which are meant for the rich, and have left the poor that they should serve. The same way at the federal level before the APC government came, the government then decided to do ministerial housing scheme as a player in the field. A player at the same time as well as a referee, muddling up the entire setting.
The current government even went a bit higher by saying ‘we don’t interface with other players; we want to do it alone, no interface with the private sector. We don’t want to recognize the role the private sector is playing’, that for me is not the way forward. But being that they have not been in government for long, just two years, we will give it to them, hoping that by now they must have seen the obvious challenges. You cannot operate effectively with the exclusion of the private sector. I think it is something I would strongly advice the Minister and other State Governments let us sit down under a national housing forum and determine what to do, to make sure that the housing sector produces to capacity in terms of employment, multiplier effect to the economy, GDP increase and shelter. Because the truth of the matter is that, housing is no more about shelter provision but
about employment. We have about 65% youth unemployment in the country, according to the National Bureau of Statistics. The way to go is not to go and dash them money. But we need to have an enduring sustainable industry, activities that will soak in these youths, and that for me is what we must look forward to.
What is the funding situation of the housing sector?
The funding situation is the same in every part of the economy. It is very dry. If you look at the reality on ground today, 20 years ago we were funding literally everything as government but we realize we cannot go that way again. Privitization and commercialization has come to stay. The current global approach is that private capital, funds on a sustainable basis, growth in any economy whether it is foreign direct investment or local investment in conjunction with foreigners. But for any investor to invest in any sector the return on investment must be okay. You don’t regulate return on investment, if you regulate return on investment and it is not acceptable by the players in that sector they will move to another sector. Dangote is involved in almost everything, if you close one sector he moves to another sector, therefore the core issue for me when it pertains to housing is how do we make the system to be okay for investors to invest in.
As for us the key issue should then be where are we, and what should we be doing in respect to making sure that if you are going to be an investor whether the investment is from government or private sector, commercial bank or anybody, how do they come in and exit? The exit strategy for housing now is not clearly defined and made as smooth as possible and reduce the difficulty involved in it, thus it will still be difficult for people to invest in the sector and if it is difficult for them to invest in the sector you can’t get the needed finance. If you put a government provided fund it will be difficult to recycle that fund because it will be a one-way traffic.
Finance in housing is supposed to be able to be recycled and it can only be recycled when the wheel for cycling is well oiled and that is not yet done. Whether in terms of infrastructure, processes and restructuring various institutions are involved in it. That is why we are having the national housing forum to let people know that we are not saying in REDAN that we need construction finance but if I get construction finance and I build those houses and am trapped for the next seven months who pays the cost of funds for what is not my fault?
by John Osadolor