Nigeria’s housing sector filled with uncertainties – Afolayan
Chief Olabode Afolayan is the immediate past President of the Real Estate Developers Association of Nigeria. In this interview with MAUREEN IHUA-MADUENYI, he advises the government to create a legal framework to accelerate land-related transactions
How is the current depreciation of the naira impacting real estate development?
In the last couple of months, it has been so terrible that business is becoming almost impossible and we have come to realise now that the cost of not doing anything is far cheaper and better than the cost of doing something. The cost of not doing anything is just to keep up with your running costs, but the cost of doing business is so unpredictable and difficult that it is higher than the cost of not doing anything.
These days, anything you do keeps changing and our projections are always changing. Recently, we got a job with a client to put up three-bedroom flats, six in a block and 18 blocks in total. We got it about five months ago, signed the contract and moved to site; but right now, the cost of the project, that is our own contract value together with the profit as of the time we signed the contract, is almost 70 per cent of the real cost. On daily basis, you see changes in the cost of building materials, even the locally sourced ones.
Even the saw millers are coming to complain about the cost of replacing their equipment. Developers are seriously affected because 90 per cent of construction-related materials are imported either in form of equipment or finished goods. Most of the doors in the market now are Chinese products; how do you fix that? The only thing that is close to certain now is the cost of labour and it also keeps changing because artisans now look at the value of a contract and bill you. In those days, you pay N500 to fix a China door; now, they charge as much as N2,000.
In the light of current economic realities, what should Nigerians expect from real estate developers?
As it stands today, people should see the prices of property as uncertain because what is happening is not giving anyone any direction other than uncertainty. As it stands now, it is almost getting beyond the reach of the average man. The middle class is almost completely eroded now, because not all of them can afford what is on ground. Even the so-called rent-to-own that is being introduced as a way of mortgage, how many people can afford it? How many people can afford to rent a decent one-bedroom apartment?
A one-bedroom apartment in Abuja, for instance, costs between N800,000 and N1m. Averagely, you are paying between N80,000 and N100,000 per month from your salary for a room; so, what is your salary? It shows that even a director in a ministry may not be able to rent a decent one-room apartment because he may not earn up to N200,000 or N300,000 a month; so, how can he meet up?
Property in Nigeria has been described as one of the most expensive in the world, even before the naira fluctuation. Why is this so?
One of the problems is the cost of land; all the factors of production are expensive, but most of them are tied to land. To get land far away in a remote village is even expensive. Titling is another problem because a land without a title is as good as nothing. To get title for your land is a big problem; the cost is very high and by the time you add all these, the final product goes up.
You also talk about infrastructure; no land in the country is in a way that you get good infrastructural development, which makes up a location. A plot of land in Lekki or any choice place in Lagos, for instance, will be a lot more expensive than in Mowe simply because of the infrastructure. By the time you spread this on the land and move to the cost of capital and how to raise funds for development, everything goes so high.
No bank gives loans on single digit interest; some give as much as 30 per cent. The other aspect is material; look at the cost of cement; we are in the raining season when we experience low construction activities but the price of cement is high. How about iron rod? Everything that has to do with building is so very high.
With the current state of the economy, is the country still in line for the predicted growth potential in the real estate sector?
The irony is that from time to time, there will be challenges; what makes the difference is the ability to live up to them and translate them into opportunities. For us, we are not losing out because we have come to see it as an opportunity. What we need to do, for those of us in the construction business, now that imported materials are getting out of reach, is to develop our own made in Nigeria materials. That is locally sourced materials that will give us affordable homes and stand the test of time.
A lot of focus has been on the challenges of the sector, what are its prospects?
The biggest prospect is our population. We have over 170 million people in Nigeria and everyone desires a home. Apart from the population, the demand is so high, meaning that if we can push a lot of products into the market, houses that are affordable will have a lot of prospects. The real estate sector in Nigeria still has prospects; once the products are affordable, they will be taken. The only thing now is for us to sit back and look at what the market needs.
What should investors look out for when investing in the real estate sector?
The basic thing is to identify the needs of the people and their means. Marry their needs to their means and get products that they will find affordable and useful. For instance, if I go to a village where we have primary and secondary school teachers, all I need to do is to identify them and offer them one to two-bedroom apartments and see what they can pay. What they can pay should be able provide the products.
Investors should always be careful about a potential market by clearly defining needs and means. The fact that you are married with children and need a three-bedroom apartment does not mean it must be provided; you should be able to afford it. That is why we are excited about the developments in the mortgage sub-sector in the past few months, the recapitalisation of the primary mortgage banks and the creation of the Nigeria Mortgage Refinance Company, which will provide liquidity for the sector.
It means anyone who has income overtime can apply for mortgage with which they can own a home.
As a developer, what are you expectations from the current government in terms of housing policies?
What I want this government to do is to see how they can make land more available and affordable. They should look at the process of land acquisition and titling; we don’t need to change the law, amending the law is also not enough, there should be the political will to enforce it. The government should encourage the provision and development of affordable homes by making land available on the basis of public-private partnership to reduce cost and turnaround time.
Government should also begin to provide guarantee to encourage employers to provide corporate guarantee for their employees. This will drive mortgage so that as soon as houses are provided, there will be enough transaction.
Finally, the government should create a legal framework to accelerate land-related transactions, including mortgages; this will make transactions a bit more liquid just like the way we do with selling cars, for instance. Land transactions should be easy so that people can invest their money in housing and tie their investments in real estate and convert them to liquid cash anytime they wish.
PUNCH.
