NIGERIA @ 57: Real estate sector: A cup half full and half empty
A close look at the Nigerian real estate sector shows a scenario akin to a cup half full and half empty, considering that this is one sector where there is an oversupply with high vacancy rate in one breath, and an intractable supply deficit and an embarrassing low home-ownership level in another breath.
An estimated 17 million housing units deficit existing side by side with almost 50 percent vacancy rate in this same sector give a clearer picture and deeper understanding of the present state of the sector. This, perhaps, finds explanation in the fact that, over the years, the sector has experienced a fundamental shift from being public sector-driven to the private sector which is holding the ace, at the moment, in the various segments of the sector including residential, commercial, industrial and retail.
A short course down memory lane will suffice here. From 1960, immediately after independence, up to the 1980s, the government was fully in charge of this sector and the focus was on infrastructure development, residential housing development in Government Reservation Areas (GRAs) all over the country for experts, senior government officials, etc.
Government housing development agencies also focused on building residential housing for low income earners, government offices and parastatals; there were very few retail, industrial and commercial developments, and structured development matching infrastructure.
After this period, from early 80s up to early 2000s, the country witnessed both economic and population growth, leading to collapse of infrastructure due to lack of maintenance and increase in demand and utilization. But there was national economic growth driven by oil, giving rise to private sector interest and investment in commercial, industrial and residential houses, especially by major corporations. This was not, however, without challenges because cities were developing and expanding without a commensurate expansion in infrastructure.
From late 2000s to date, this sector has seen what could be termed phenomenal growth. But this growth has been largely skewed towards a narrow market, catering to a very tiny segment of the population – the upper and upper-middle class who can afford what the market offers.
This period has also been defined by growth in retail, commercial office and, to a lesser degree, residential developments. The developments have been made possible by increase in population, especially the middle-income bracket with increased demand for housing; growth in the industrial and commercial sector driven by multi-national corporations venturing into the Nigeria market and also major investment organizations. There has really been growth in housing stock, but that growth does not meet the demand of most of the consumers.
Despite occasional stop-gaps posed by challenging economic conditions, this sector has grown in nominal terms. The retail segment, for instance, has witnessed what could be termed a revolution. Hakeem Oguniran, the managing director of AUC Property Developing Company (UPDC), once noted that from a zero base, the retail market has attracted foreign direct investments estimated at $3 billion deployed to the development of about 20 shopping malls and centres in Nigerian cities.
The same thing has happened in commercial office space which has attracted so much investment interest that today that there is an oversupply. The major cities of the country, especially Lagos, have their skylines dazzled with office towers rising between 15 and 25 floors.
But this is just one half of the story of this sector. The other half of the story tells of a sector that has all the potential that could make it lead economic development in this country, but has not been able.This is because, as noted earlier, the private sector operators have their mind fixated and, like investors, are after the upper segment of the sector where ‘the bread is butter’ and this does not address the needs.
With a population estimated at 180 million, a housing deficit put at 17 million units by the United Nations over a decade ago, a home ownership level that is a little above 10 percent of the nation’s population, the market fundamentals are not only strong, but also compelling, yet the narrative is negative.
“The demand for housing in Nigeria is significant and growing at a fast pace”, affirms Roland Igbinoba, President/CEO, Pison Housing Company, but notes that this demand is characterized by high inequality which has created a dichotomy between the demand for luxury secure accommodation for high-income earners and low-cost affordable housing for the low and middle-income earners, who incidentally constitute over 70 percent of the population.
Igbinoba explains that based on this dichotomy and due to the market dynamics and economic mechanism, the supply gap for low and middle-income groups is huge, reaching a crisis level in some cities in the country. “The dichotomy in housing demand has resulted in outright shortage of housing units, especially for the lower income groups, rising house rent and consequently, the emergence and proliferation of slums and squatter settlement at an alarming rate”, he says.
Across the country, the supply of housing is relatively fixed despite government’s concerted efforts since independence to ensure adequate housing for all Nigerians. These efforts to adequately cater for the housing needs of an average Nigerian has not yielded many results over the years. For instance, between 1974 and 1980, there was the plan to deliver 202,000 housing units to the public, but only 28,500 units representing 14.1 percent was delivered.
Also, out of 200,000 housing units planned to be delivered between 1981 and 1985 only 47,200 (23.6 percent) were constructed. Under the National Housing Fund (NHF) programme initiated in 1994 to produce 121,000 housing units (within the same year) in state capitals where dearth of housing was acute, it was reported that only 1,114 units (less than 1 percent) were completed at Kado Estate in Abuja.
.“Nigeria’s formal housing market is small and as such serves a minority. This is largely because very little land has formal titles. Based on a report by the Chairman, Presidential Technical Committee on Land Reform (PTCLR), Peter Adeniyi in 2013, only 2.5 percent of all lands in Nigeria have titles since land registration began in 1863”, Igbinoba lamented in an emailed response to a question.
Apart from land, there are other factors that contribute to low housing development level in the country. “The lack of adequate infrastructure represents one out of several issues the federal government has consistently failed to deliver over the years”, affirmed Olurotimi Akinlose, CEO, Residential Auction Company (RAC).
Continuing, he said, “lack of effective housing policies, a fragile and ineffective mortgage market, lack of transparency and regulatory policies, lack of ethical standards and data also contribute to the state of housing in the country”.
Igbinoba added that Lack of appropriate legal rights is a fundamental factor that has weakened the capacity of housing markets across the nation. “Globally, it has been established that efficient housing markets thrive on the certainty of legal rights of borrowers, creditors and outside investors and the predictability and speed of their fair and impartial enforcement.
In spite of everything, MKO Balogun, MD/CEO, Global Property & Facilities International Limited, sees the real estate sector on growth path, adding however, that all structural challenges must be dealt with for Nigeria to benefit from the growth of the sector.
Akinlose agrees, adding, “opportunities for development and growth abounds. Nigeria has a large and growing population and a recent report by the United Nations states that Nigeria will be the third most populous country by 2050. This means the country will need more housing units and other elements of the real estate sector such as retail malls and leisure centres to meet the expected needs”.
But Igbinoba reasons that, for all these to happen, the government has to define long-term policy goals as well as medium and short-term programmes that would constitute a road map to achieving greater private-sector participation and address housing problems of those population segments that cannot yet be served by market forces, even with government incentives.
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