By Dr Freeman Osonuga
Literally every economic and political factor in Nigeria indicate that the Real Estate ecosystem can only expand for both private and public investors.
2019 was a great year for Nigeria’s housing market, with demand rising by double-digit figures. Property listing enquiries surged 72%, according to a year-end report by Nigeria Property Centre.
In 2020, Nigeria moved up 15 places on the Jones Lang LaSalle’s Global Real Estate Transparency Index, from its 83rd position in 2016, to 68th out of 99 measured markets, clearly showing an improvement in ease of doing business.
Following the set-up of the Nigeria Mortgage Refinance Company (NMRC) In 2012, by President Goodluck Jonathan, US$300 million from the World Bank was made available by the NMRC for mortgage lending banks with increased access to long-term funds aimed at facilitating in excess of 450,000 loans for low-cost housing units over the next five years.
But that is only half the story.
Over the last 30 years, the housing deficit in Nigeria has increasingly gotten worse with the housing deficit increasing from 14 million in 2010 to over 17 million now, with Nigeria needing to increase its present capacity of provision of 100,000 units per year, to at least 700,000 extra housing units every year for at least the next 20 years if housing must match population growth and urban expansion, according to to PwC report.
In Lagos alone, the housing deficit is estimated to be in the region of 2.5 million units.
While the federal government has a social housing initiative called Family Homes Funds (FHFL) aimed to invest about N1.3 Trillion to provide about 500,000 homes for low-income households by 2024; and the Lagos state government has also under the Lagos Home Ownership Mortgage Scheme, from 2016 started implementing different Rent-To-Own projects such as the Sir Michael Otedola Housing Estate, Odoragunshin, Epe; CHOIS City, Agbowa; Oba Adegboruwa Estate Igbogbo, Ikorodu; Alhaja Adetoun Mustapha Estate, Ojokoro; and Hon. Olaitan Mustapha Estate, Ojokoro all aimed at providing accessible homes to Lagos residents, there is still a very huge housing deficit that needs more than the government is presently doing.
However, the real estate market in Nigeria faces some challenges too, which intelligently engaged, can boost the market, provide needed value for home-owners and high return on investment for property investor.
1. Exorbitant cost of house construction.
Cement prices in Nigeria are the highest in the world, at about 30-40% higher than other African countries and world market prices.
It is extremely expensive to build a house in Nigeria. This is due to factors such as high cost of skilled labour, high cost of building materials, and a terrible or inexistent infrastructure system.
It is pertinent to note that according to Former Finance Minister Ngozi Okonjo Iweala, while it costs about N13 million to build a three-bedroom house in South Africa, to build the same three-bedroom house in Nigeria, you will need an upwards of N20 million.
2. High Cost of Property Registration.
Nigeria ranks among the worst globally with respect to the cost of registering a property, as well as the ease of property registration.
It costs about 70% more than the average for Sub-Saharan Africa and almost three times the OECD average to register a property in Nigeria. According to the World Bank’s Doing Business 2020 report, Nigeria ranks at 183rd out of 190 countries. In Lagos State, property registration costs about 11.1% of the value of the property, with an average of 12 procedures, and can take as long as 105 days to complete. For the sake of comparison, in South Africa, registering a property costs at most 6.1% of the value of the property, and requires only 33 days and no more than 5 procedures.
3. Limited Access to Mortgage.
While mortgage financing facilities are available, the criteria for qualification are steep.
A National Housing Fund managed by The Federal Mortgage Bank of Nigeria (FMBN) exists, but to qualify to access it, prospective house owner needs to make a down-payment of 15% of the value of their desired property and make contributions with FMBN over a minimum of a period of six months. As a result, many prospective homeowners are unable to access this facility.
To show how unused the facility is, it is pertinent to note that not more than 5% of the 13.7 million housing units in Nigeria are financed with a mortgage.
Clearly, these challenges are real and constitute a major inhibitor to accelerated home ownership by prospective homeowners. The challenges are also one that cannot be effectively taken on by the government alone. It requires a collaboration or partnership between the government and the private sector.
Now imagine what the landscape would look like if these identified challenges can be overcome by private public partnership.
A partnership that empowers private investors and developers to easily acquire, develop, and register property, as well as tax breaks or waivers given upon the facilitation of these needed infrastructures needed to make real estate development less cumbersome, and less financially prohibitive.
A partnership that makes it easier for homeowners to access the mortgage financing facility ensuring a faster uptake of developed property, as developed by private investors and developers.
A win-win partnership where the government, the private investors, and the homeowners come out as winners.
That is the partnership and possibility that the real estate industry in Nigeria needs to have.
Written by Dr Freeman Osonuga Dr. Freeman Osonuga is a Multi-award-winning Nigerian Real Estate Entrepreneur and global leader who effortlessly dons many caps and has made an easy meal of successfully being a Real Estate Broker, Philanthropist, International Public Speaker, Medical Doctor, and a successful entrepreneur all in his stride!