Experts in the real estate have expressed worry that the sector which recorded growth of about 2-3 per cent towards the end of 2018 has receded due to uncertainty in the country. The Nigerian Bureau of Statistics (NBS), in its Q1 2019 report, revealed that the GDP growth for the real estate sector was 0.93 per cent.
With the existing oversupply of houses in the market, many landlords have adopted strategic leasing options to attract tenants to their buildings. The options include attractive financial incentives such as extended rent-free periods as high as 12 months, longer beneficial occupation periods of six months and tenant’s fit-out allowance of as high as $400 per square metre.
But the low liquidity in the economy occasioned by poor government policies makes it increasingly difficult for tenants to pay rents, while others are moving down to low rental areas to be able to cope with the cost of accommodation.
Experts are blaming the government’s policy of high mortgage interest rate regime as a major hindrance to home ownership among the larger population, while the prevention of money laundering and terrorists financing through property transactions policy of government has led to idle money and liquidity issues in the sector. This has given rise to unoccupied buildings that dotted major cities in the country.
The reality could also be seen from the number of property listed for sales without positive outcomes, even some government agencies, including the Asset Management Corporation of Nigeria (AMCON) as well as commercial institutions are not spared the downturn. As a result, trillions of naira, which could have been used to boost the economy are stuck in the sector which has been considered one of the good things that happened in Nigeria before the recession.
In a recent World Bank projection, about 108 million Nigerians are estimated to be homeless, based on an average family of six people per housing unit, because of government’s inability to provide the required number of houses.It was learnt that the challenges in the real estate has made its contribution to the GDP to remain at 25 per cent, unlike what obtains in other countries.
Experts said addressing the huge housing deficit would require a mortgage finance policy with a single digit interest rate. Should mortgages become cheaper to finance housing in Nigeria, supply, they said, would rise to provide the proclaimed shortage of 17 million houses.
In the developed economies, the mortgage industry makes significant contribution to economic development with a single digit interest rate. In Nigeria, however, this is not the case. The inflation rate and its attendant high mortgage rates impede demand for housing, consequently, developers are not stimulated to build more.
This explains why in Nigeria mortgage’s percentage of the GDP has remained low at 0.5 per cent, leaving it several steps behind other emerging markets such as Mexico, Malaysia and South Africa, where contributions to the GDP are as high as 10 per cent, 25 per cent and 29 per cent.
Currently, Nigeria’s mortgage banks charge between 19 and 24 per cent. And this could go higher, depending on the risk volume, which has affected the real estate’s potential as a goldmine for investors.At a mortgage bank at Admiralty Road, Lekki Phase one, the interest rate offered depends on equity made available by prospective clients.
For instance, a subscriber, who paid N5 million as equity for a mortgage facility of N10 million got a 20 per cent interest rate, while the one with N2 million equity for the same facility was charged 22 per cent.
Another mortgage bank at Broad Street, in Lagos, charged a younger subscriber with longer cash flow 22 per cent, and an elderly person with lower cash flow 24 per cent, because he is closer to retirement.
At commercial banks, the rates are much higher, because the real estate is categorised as a high-risk investment with interest rate at 22 to 23 per cent, depending on relationship with the bank.A major commercial bank at Adeola Odeku, Victoria Island, pegged its mortgage rate at 22 per cent, basing its offering on the high risk associated with recovery of real estate assets because of delay in the nation’s justice system.
A senior official of the bank, who did not want to be named, said getting a single digit rate depends on several factors that include land and building costs as well as litigation cost, which could drag on for up to 10 years because of the right of appeal in court.
The Federal Mortgage Bank of Nigeria (FMBN), which is the only institution offering about six per cent, is overwhelmed with a large number of prospective subscribers. Right now, the FMBN’s impact is about one per cent, because of limited funding.
Also, getting the National Housing Funds (NHF) is a big task because of the bureaucracy and number of people on queue.A frontline real estate operator and Managing Director of Propertygate Development and Investment Plc, Mr. Adetokunbo Ajayi, said the main problem emanating from the government and financial system is the absence of mortgage finance.
According to him, “the real estate is a high value capital item, which means that even if you are building for the poor, as low as N500,000, for the poor, the money is like a billion naira and you cannot expect him to put his hand in his pocket and give you N500,000. 00 at once.”