JOSEPHINE OGUNDEJI speaks with the Chief Executive Officer of Reb360, Tope Mark-Odigie, on the challenges plaguing the real estate sector in the country, among others
What are your thoughts on plans to merge federal housing agencies?
My perspective on merging housing agencies is rooted in the belief that true progress in our country can only be achieved through comprehensive reforms. Simply merging the federal and housing agencies won't suffice; it's crucial to revamp their mandates and ensure that the new management implements a unified ethos throughout the newly formed organization. Otherwise, we risk perpetuating the same inefficiencies that have plagued the old agencies, which is a major reason for Nigeria's persistent housing deficit. It's evident that our housing agencies have not been as effective or productive as they could be, and real change requires more than just structural consolidation.
The Central Bank of Nigeria's persistent hike in interest rates is having a ripple effect on the mortgage market. As a consequence, financing costs are rising across all segments of the real estate sector, posing challenges for both lenders and borrowers alike. What is your take on the impact of mortgages in the sector?
I came across a research conducted by a group of economists from Nigerian universities, which explored the influence of interest rates and loan interest rates on the mortgage system. Surprisingly, the study found that these rates had little impact on the mortgage system because most builders in Nigeria do not rely on bank loans. Instead, a direct correlation was observed between the cost of construction and the cost of housing. Whenever there are challenges with the foreign exchange market, such as the devaluation of the Naira, it results in an overall increase in prices. This devaluation has put significant pressure on developers and prospective real estate buyers, as the cost of construction has risen substantially.
However, the most pressing issue faced by developers in relation to the fluctuation of the dollar and Naira exchange rates is the volatility in prices. This has led to a state of hyperinflation, making it extremely difficult to predict price trends over the short term. The real estate industry is grappling with this challenge, as the fluctuating prices have rendered traditional cost estimation methods, like bill of quantities, ineffective. Too many unpredictable variables come into play, and as a result, developers cannot reliably forecast the prices of construction materials and other essential items. This situation has had a profoundly negative impact on the real estate sector, primarily stemming from the policy of allowing the Naira to float freely, as it has eliminated stability in pricing models. Developers cannot predict what the prices of any item would be, and that for me is a huge challenge.
Lagos at a point enacted a law on monthly rental for houses in the state. Why do you think it was ineffective?
You cannot legislate on people's character, people's habits. You cannot use a law to change people who people are. It's like the same thing with Nigeria trying to use a law to change our spraying habits. Nigeria, as a people, will love to spray money. So whether there is a law or there is no law, people will spray money.
Similarly, Nigeria has a character, a habit of collecting annual rent. So using a law to change it is not going to happen. The only thing a law can change is if a government is the one powering that system, a government law can change it. The real estate industry, the housing industry, is not powered by the government, is not powered by institutions and private individuals. Hence, you cannot tell private individuals how they should run their business. The real estate industry, the housing industry is not powered by the government, is not powered by institution, it's powered by private individuals. And you cannot tell private individuals how they should run their business. So creating a rule or creating a law to say everybody must pay per month is not going to work if you are not the one funding those that are building the average Nigerian landlord, the average negotiation landlord uses their real estate as their pension plan. You can't tell them how they should get their money. So that for me was a huge mistake.
What is your take on the outcome of Foreign Direct Investment in the sector is it dwindling or growing, and why?
The Nigerian real estate sector is influenced by the country's economic performance, with foreign investment fluctuating based on the health of the economy. Many real estate funds come from Nigerians in the diaspora, but currency devaluation and economic instability deter foreign investment. The lack of major players in the market hampers structured foreign direct investment. To attract more foreign investment, Nigerian real estate companies need to scale up their capacity and become more attractive partners for foreign investors seeking stability and effective management.
The Federal Capital Territory's Minister recently warned that buildings erected unlawfully would be demolished. Do you think it is the right approach or are there better ways of handling real estate issues in the FCT?
The Federal Capital Territory is the capital of the nation, and they are one of the country's most planned cities. FCT is one of the country's most planned cities. Fiscal planning is extremely important. It is good in terms of managing pollution. It is good in terms of creating a beautiful, beautiful interface that can lead to tourism in the community, as well as the fact that it is generally good for proper development because you have created an ecosystem, industrial area, residential area, government area. There is proper planning. Fiscal planning cannot be done away with, and the lack of fiscal planning is why we see there's so much traffic in Lagos State. There's so much pollution in Lagos State. So, if FCT decides to go the line of demolition, I understand because of the importance of real estate, I will not blame them. However, I believe in prevention being better than curing. Prevention is a better approach. Don't allow buildings to get erected without proper permits without fiscal planning because if you do, it is cheaper for you not to let it be built than for you to start demolishing as it is. FCT demolition has been in the forefront since, and I'm sure it's going to continue under the current minister of FCT, and I am not going to come against it. I also want to use this platform to appeal to real estate developers to ensure they get all necessary permits before going ahead with construction because what you will lose is a whole lot if you are found on the wrong side of the law, and your building has to be demolished. Really sad.
The surge in rental costs has prompted city dwellers to downsize or downgrade to more affordable apartments to stave off harsh economic situations, especially the cost of living. What can be done to ameliorate the rental burden?
The surge in rental prices is a response to inflation. Nigeria is undergoing hyperinflation. The cost of everything has gone up. The dollar went from exchanging for 400 and something to being exchanged for 900 and something to 1000 to a dollar. It is impossible for the price of rent to remain the same, so rent had to increase. Rent is a reflection of inflation, and inflation is a reflection of the economy. You cannot fight rental increases by fighting the landlords; you fight rental increases by boosting your economy and driving down inflation. We haven't found the right formula yet, and it's causing a lot of dues and hardship for many Nigerians who are suffering or having to move to the outskirts to do business in the city. But it's going to get worse before it gets better. That's the truth about rental income and the economy generally as of today.
With the recent clash between the Federal Mortgage Bank and the Nigerian Labour congress on mortgage accessibility in the labour sector, if NLC withdraws, would there be any negative impact on the housing sector?
There is room for improvement in how the federal mortgage system runs. We are an economy that is largely informal and the federal gold mortgage serves only the formal and structured sector. It is not solving majority of the problem. However, the backbone of the federal mortgage bank is Nigeria Labour Congress. If the NLC backs down, there is no mortgage bank anymore. So it's important that the federal mortgage bank takes the feedback from NLC as a major indicator of where they need to focus their attention. A lot of attention needs to be placed on making sure that people don't just contribute to the mortgage system for years and are unable to acquire homes, you know, and the ease that process it, not just in paper but in real life. So I think that the clash should be good for the real estate industry. I hope the clash does not lead to a complete disengagement because I think that the mortgage is the mortgage.
The sector does not have enough listings on the Nigerian Exchange Limited. Why is the real estate sector not leveraging the opportunities in the Nigerian capital market?
Most real estate companies are not listed on the Exchange because they are still playing small. In Nigeria, most real estate companies are not publicly listed due to the requirement of playing on a larger scale with significant stability for listing. Investment in real estate is informal, unlike the structured banking and manufacturing sectors. Some companies are now obtaining short-term funds from the capital due to industry volatility. While this boldness in securing funds is a positive development, it may take 20-30 years for substantial real estate conglomerates to list publicly and have a significant impact on the market.
Nigeria's real estate industry is burdened with the bureaucratic process of land registration, which last as long as six months to two years, taking an average of 12 procedures, and costing about 20.8 per cent of the value of the property. How do you think this situation can be eradicated in the industry?
The Nigerian real estate industry is too important for processes to be slowed down by bureaucracy, as it can make things more expensive. In Lagos, a lot of work is being done to reduce the time required for approvals, including sea of food permits, building permits, and other processing times. There are ongoing conversations between regulators and developers in Lagos to shorten these processes, increase efficiency, and enhance compliance. Currently, the cumbersome process often leads developers to bypass the necessary approvals, which is a problem.
The Department of Public Planning and other relevant agencies in Lagos are implementing new measures to address these issues. In Lagos, there is noticeable improvement in open and regional planning and fiscal planning authority, but in other states, there is still a need for similar efforts. The goal is not to add more bureaucracy but to ensure compliance and reduce the alarming cases of housing and building collapses, which have been on the rise in Lagos, Ibadan, and Abuja, leading to fatalities. This situation does not inspire confidence in investors who seek an industry with robust regulations to prevent such losses. We don't want more bureaucracy; we want efficient ministries and agencies at both the state and federal levels to perform their duties promptly. This will improve the ease of doing business and enable companies to comply with the country's laws.
Real estate investors are subjected to multiple taxations, the taxes and levies paid by them include development levy, income tax, building plan approval levy, property tax, and land use tax, and there are also cases where real estate investors are expected to pay renovation tax whenever they want to renovate their properties. How can these tax levies be handled to ensure ease?
Nigeria has a multiple taxation system across all industries, and we are looking forward to this new administration's promise of reducing taxes to single digits, and preferably even lower. However, there's a difference between taxes and levies. Levies are operational costs, and there are many department agencies, ministries that are affiliated with real estate that require approval and for each of those approvals, you need to pay. It is a burden on the developers, which I am hoping the government would listen to our cry and reduce.
All these multiple levies, all of the approvals, come within just one company. So once I want one agency, once I get my building approval, I have gotten the building approval. I don't need to go and get approval from other agencies. Everything is centered on one. I don't have any problem with the government asking for taxes to be paid. I want efficiency in how the government delivers their services, and I believe that all developers want a corrupt-free system so that we are not paying multiple taxes just to fund a system that is corrupt and the work they are meant to do is not being done.
So we would like the new administration to reduce the taxes, then with the levies, let us minimise all these multiple agencies that I was seeking approval for into one agency that handles all things we needed for building, and we are paying just one levy. It would increase the speed and pace of development. It would increase the willingness of developers to jump into the space as well.
And overall, while talking about developers, private individuals, many of them just build without approval, and it is a huge risk. So while the taxes are hurting businesses and the levies are slowing and reducing profit margins, it is important that the government listens to the businesses that they need to keep the country afloat and help them instead of hurting.
What are the future prospects of the real estate sector in Nigeria?
The Nigerian real estate sector is still going to continue to boom. However, the speculative angle of the Nigerian real estate industry is dying. So, the speculative angle, which is the idea of buying as a speculator with the intention of selling it for a premium value, is fading away.
The true real estate market will not go down in Nigeria because we are a fast-developing country. We have a median age in the teens, meaning that the majority of the population is less than 20 years old. What that means is that because the majority of our population is less than 20, there will be a growing need for housing. The demand for housing will continue to grow. So, the industry is not going to suffer any decline anytime soon, and it's just a case of growing and taking on bigger projects, especially for mega cities.
I see the future of real estate in mega cities evolving from building wide to building high. So, Lagos needs to stop having two-story or three-story buildings, and every building in Lagos's major city center should be 10 stories or 15 stories tall. We're talking about going high because we don't have enough land mass in all the cities. This approach would help reduce congestion, create more space, and change the skyline of major cities, impacting how people live.