The Managing Director of UACN Property Development Company Plc, Odunayo Ojo, speaks with Oluwakemi Abimbola about the housing deficit in the country and other issues in the real estate sector
What is the level of foreign investments in Nigeria’s real estate sector?
Foreign investment is very crucial to the Nigerian real estate sector. Over the last couple of quarters, the inflow of foreign direct investment has been dropping and that is not unrelated to the macroeconomic activities that were going on in the country. But the foreign remittances from Nigerians in the diaspora continue to be a very strong source of investment in the country.
Since the end of the elections, we have seen a renewed interest of Nigerians in the diaspora to key into real estate investments in the country. What has changed is that many Nigerians in the diaspora are asking a lot of questions before they make investments. They want to go with credible options.
In the past, Nigerians in the diaspora used to send a lot of money to their family members and their close associates. However, given some of the terrible experiences people have had with people collecting money and not delivering the units or collapsed buildings and poor delivery, a lot of Nigerians in the diaspora are now discerning and they would do their investigations and go with only credible organisations.
That is a huge opportunity for UPDC. We have always relied on our reputation and our reputation has always been about the quality of our delivery. We have never had a collapsed building. We have always followed the rules and ensured that our projects are delivered to quality and on time.
Though we are seeing renewed interest from the diaspora market, there are significant changes in the behaviour of these investors. They ask more questions and only talk to serious players.
What can be done to reverse the trend of building collapse in the country?
Apart from the investment that is lost, sometimes, even lives are lost, which is not replaceable. Some key stakeholders are tasked to do more to prevent this from happening.
First and foremost are the regulators. They have a key role to play. They are doing a lot; it is so much work to regulate such a large industry but they need to do more.
When people submit their proposal for construction, certain questions are asked as to the quality of the materials, and the quality of the builders and all those things are normally submitted. But when it comes to implementation, it is different. Even when investigations are done on collapsed buildings, you will hear, “Oh, this permission was not granted, they just went ahead or they did not implement what they submitted.” So, monitoring and evaluation from the appropriate authorities need to improve.
However, it is not only for the government. Players like ourselves and core actors in this industry also have to do much. The professional bodies must also continue to advocate. From the Institute of Architects to the Institute of Builders, quantity surveyors, engineers, and surveyors. Every professional must make sure that their members are checked in terms of how they perform their duties on projects.
Then, developers must be checked. In the process of trying to cut corners, that is where some of the issues are. You know a collapsed building is an engineering failure.
Lastly, capacity building. One of the challenges we have in Nigeria is that the good hands are leaving. We have serious issues with capacity. There is a need for continuous training and professional development of the people who are doing the work, be it artisans, engineers, builders, or even tilers.
That is why UPDC has said that we are going to use our platform to partner with any developer in the country. No matter where you want to do your project, we will lend our capacity to you.
We do not want to hear about collapsed buildings in this country again. It is an indictment on key players like ourselves that we operate in an industry where there are still collapsed buildings in 2023.
What can government do to regulate operators in the industry?
There are regulations but they are fragmented. To an extent, the developers are not regulated. If I want to become a developer tomorrow, nobody can stop me. Although, there are bodies. There is an association called the Real Estate Developers Association of Nigeria. It is a very powerful pressure group. Most developers are encouraged to join that group. They regulate their members but it is not compulsory for anybody to join them.
However, when it comes to building, there are already established codes. There is the Nigerian Building Code. It has been gazetted and it is something that is used to check builders. For instance, when you submit your design, that design is going to be checked against the Building Code. Every structural engineer in Nigeria is trained using the Building Code. There are codes for roads but we still see roads without reinforcements. There are codes for different types of buildings- storey buildings, bungalows, etc. For foundation, you have to do a soil test, which will specify what type of foundation. Those codes are there, the issue is the enforcement of those codes.
Advocacy has started already. One of the most unregulated aspects of the industry is agency. If I want to become an agent today, nobody can stop me. However, in Lagos State, an agency has been created, where estate agents and brokers are being regulated. They advise people to verify the agent they want to sign up in their free portal, which has the names of all registered and certified agents. If you see your agent listed there, you can always report that agent if anything goes wrong. It is a work in progress.
Developers also need a level of regulation so that in the future we know who is an expert and who is not.
As a stakeholder and long-time player in the industry, how can the huge housing gap in the country be bridged?
We need to resolve the housing gap one house at a time. We just need to keep reducing the numbers. It is a structural problem that is multi-dimensional. Many intelligent people have tried to solve it and failed. We need to be pragmatic. It cannot be wishful thinking. We need to look at the enablers of housing delivery and work on them. One of the reasons houses are not being built as quickly as they should be is finance. I think we can solve most of the problems with finance. If you have a financial sector that gives double-digit interest rates for housing acquisition, then you can see where the genesis of the problem is. All over the world, for you to be able to acquire a house, you need a single-digit interest rate and long-term. What people do is that once you start working in your 20s, key into the housing ladder; a 25-year mortgage at a single-digit interest rate. As you work, you will pay for your house and by the time you are getting to your retirement, the house is already yours. You are not paying any more in your retirement. That has worked in other parts of the world.
Nigeria has a peculiar situation because the cost of funds is high. What is the genesis of the high cost of funds? It is when you and I are taking our money to the banks and are looking for the highest rate. If for a fixed deposit, they are offering 18 per cent or 20 per cent, how can they give you a loan that is single digit?
Even the Monetary Policy Rate, at which the government itself lends is 18.5 per cent. If the government is giving money to banks at 18.5 per cent, it is going to be difficult for them to lend at a single digit. But there are international funds, called DFIs, that can specifically address that. There are global and regional DFIs that can support our banking system in giving loans at relatively lower rates in the longer term. When more and more of these kinds of funds become available in the system, we are going to see them filter into the housing economy and we are going to see more houses being built.
Another major challenge in owning homes in Nigeria is land. Our land tenure system is complicated because the land is either held by some families or held by some communities traditionally. Being able to break into that land tenure system is difficult.
With the Land Use Act, the government has acquired all land in trust for all Nigerians but practically, getting access to land is pretty difficult. The easier it is for people to acquire land that is free from all encumbrances, the better. On the cost of the title; if you buy land in some states, the cost of perfecting that title alone is between 12 and 15 per cent of the value of the land. Then, construction cost. A lot of our materials are imported and they are imported in dollars. From air conditioning to tiles to sanitary wares to steel. We need our local industries to work. If we produce these things locally, then we create jobs in the first instance and then the prices will be lower.
By the time we fix the cost of land, and the cost of building, we fix financing issues; both to builders and buyers. These are the solutions to the housing deficit.
What are your thoughts on plans to merge federal housing agencies?
What we actually need is efficiency. They are all government agencies. In my personal opinion, whether you merge them or they remain independent, it does not matter as long as the system functions, you cut bureaucracy and they are efficient.
One of the reasons some of these agencies were decentralised was pragmatism so that decision-making can be quicker. You do not have a hierarchical system where everybody is reporting to one person.
There are pros and cons for every approach. However, it is the efficiency that is key. When you have two agencies instead of one, the cost of operations might be higher but things are done faster. When you have one agency, operational costs might be lower but things take longer to happen.
Lagos at a point enacted a law on monthly rental for houses in the state. Why was it ineffective?
This is not the first time that the state has tried to intervene. In the 90s, we had the Rent Edict, which states that if you live in Alimosho, you must be charged a certain amount as rent. Those things go against market forces. Prices are determined by forces of demand and supply. If the government is not building houses and charging monthly rent, how do you expect private players to comply? If the market enforces monthly payment, then monthly payment will happen but if you legislate monthly payment, it may not necessarily happen. What we need is for the supply of housing to improve so that if one person’s terms are considered unfavourable people can go elsewhere.
