Though Nigeria is adjudged Africa’s largest economy and the continent’s big brother, it is a pitiable dwarf when compared with other African countries in terms of home-ownership level. It is the lowest at 25 percent of its estimated 200 million population.
In Benin Republic whose population is 11.8 million, almost half of Lagos, the home-ownership level is 61 percent, Libya with a population of 6.8 million as of 2019, has 41 percent, South Africa has 56 percent for its 56 million population while Brazil, USA, Kenya and Singapore have 63 percent, 70 percent, 73 percent and 90 percent, respectively.
Nigeria’s low home-ownership level is directly linked to its housing deficit, which is variously put at 17 million, 20 million and 22 million units, depending on who one is speaking to.
Experts have attributed the problem, which is invariably a low hanging fruit for savvy investors, to a number of factors. At the heart of these factors are land and the regulatory policies around it. The World Bank in 2016 estimated that Nigeria would need over N59 trillion to close the housing deficit. This represents the value of investment opportunities in the country’s housing sector.
In the country’s major cities, especially Lagos, rising demand, emerging middle class, rapid urbanisation and the level of infrastructure have kept land prices high. This is made worse by the country’s land tenure and property ownership system, which, according to Andrew Nervin, chief economist at PwC, is the most rigid in Africa.
Nasir el-Rufai, Kaduna State governor, affirmed this at a real estate event in Lagos, saying, “The major issues that continue to affect housing delivery in Nigeria, which also account for the wide demand-supply gap, include constraints related to high cost of securing and registering land title.”
It was a day conference organised by the Royal Institution of Chartered Surveyors (RICS) Nigeria Group, and El-Rufai listed inadequate access to finance, slow administrative procedures and high cost of land as other major issues affecting housing in Nigeria.
Kola Ashiru-Balogun, chief operating officer at Mixta Nigeria, is worried that though there have been interventions by private sector operators and agencies of government to improve housing in the country, they are not succeeding because they are not harmonised.
This, he said, was why the contribution of the housing sector to GDP was so small and the impact so minimal when it was supposed to be more. El Rufai agreed, saying in economies like the USA, Britain and Canada, the housing sector contributes between 30 and 70 percent of their GDP.
“Investment in housing accounts for 15-35 percent of aggregate investment worldwide and the sector employs approximately 10 percent of the labour force worldwide,” the governor said.
He reasoned that the real estate sector could play a much bigger role in the Nigerian economy, arguing that, if carefully done, investments in the housing sector could drive economic vitality and create jobs.
“In many developed nations, the property sector in general, and the housing segment in particular, is a bedrock of the economy and an important tool for stimulating growth. Housing construction indices are some of the most common measures used by analysts to gauge economic trends in Organisation for Economic Co-operation and Development (OECD) countries,“ he said.
Apart from its bottom positions in home-ownership level and even in registering property, Nigeria also lags its peers in the Real Estate Investment Trusts (REITs) business, especially in the level of investment, market capitalisation and return on investment in that asset class.
Globally, REITs are similar in characteristics and these, according to Stanbic IBTC Capital Limited (SICL), include portfolio of quality income-producing assets, tax efficient investment vehicle, assets with stabilised cash-flows, liquidity via stock exchange trading, deep investor pool, and strong regulation and market transparency.
Though REITs started in 2007 in Nigeria, about six years before it started in South Africa in 2013, and about five years after it started in Singapore in 2002, there is no justification for the wide difference between the number of REITs in those countries and what obtains in Nigeria.
Whereas, Singapore has 37 REITs and South Africa has 29, Nigeria has only three. The US, where it started in 1960, has 224 REITs, while the UK has 37.
In terms of market capitalisation, SICL in a paper it presented at a business conference organised by the Lagos State branch of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), noted that as against $1,000 billion, UK’s $73 billion, Singapore’s $34 billion, and South Africa’s $19 billion, Nigeria has crawls behind with $0.2 billion.
Return on investment in REITs in Nigeria is also far below what comes back to investors in this instrument in other economies. Despite its large-size market, return on investment in REITs in Nigeria is 7 percent as against 16 percent in Singapore, 15 percent in South Africa and 9 percent in Kenya.
Nigeria’s back seat position in this market finds explanation easily in issues that are fundamentally wrong in the attempts to grow the market. There have, however, been vigorous attempts to grow this market as could be seen in the modest N2 billion Skye Shelter Fund floated in 2007.
Others are Union Homes and Sun Trust, which followed with N12 billion and N20 billion offerings, respectively. UAC Property Development Company’s (UPDC) 2013 offering of N30 billion, which declined to market cap of N26.7 billion in May 2017 is the largest and most successful offering so far.
“There are, evidently, issues regarding the quality of assets available and concerns around the tax implications, among others,” says Ayo Ibaru, director, Real Estate at Northcourt, suggesting that to reach performance levels of national economic significance, adjustments need to be made.