In 2015, the United Nations Conference on Trade and Development (UNCTAD) identified Real Estate as one of the fastest growing sectors in the Nigerian economy, having an undeniable potential to drive economic growth.
With a projection of 10% annual growth and a contribution of N2.11 trillion($9.6 billion) to the economy’s rebased GDP which stood at USD 510 billion for 2013, the Real Estate sector was seen as viable. Nigeria possesses all the key factors for real estate investment and growth; a burgeoning middle-class population, growth in consumption and rapid urbanization.
However, with the current economic situation, Real Estate like every other sector has been negatively impacted, dampening the property market transactions to 70 per cent, hereby hindering growth.
According to Nigeria Bureau of Statistics, Real Estate Services in the 3rd quarter of 2016 grew by 2.56 %, lower by 6.62 % points than the growth rate reported for the same period in 2015 and higher by 0.44 % points compared to the preceding Quarter.
Apart from the decline in oil prices, weak performance of commodities and geo-political conflicts which led to recession, there are other vast challenges facing the sector that require urgent intervention:
Non-availability of Cheap Funds (Limited Source of Funding)
Real Estate is one of the most capital intensive forms of investment and its biggest challenge in Nigeria is scarcity of cheap development funds. Access to finance remains a great problem to developers, prospective clients and homeowners. Nigeria’s rate of home ownership is one of the lowest in Africa at 25% and this is due to lack of a robust mortgage financing system.
Financial institutions such as the commercial banks commit relatively small parts of their funds to property development at a very high interest rate up to 20%. This consequently drives property prices in a variety of ways.
The high interest rate is one of the major factors affecting the realization of affordable housing in Nigeria. The higher the interest, the high the lease or cost of acquiring the property.
Due to the recession, the situation got worse with little or no funding for real estate development in the country for developers.
- Long term debt financing and reduced interest rates.
- Pension funds are a very important factor in the overall investment market and more of this should be allocated and invested into real estate market. Real estate investments provide long-term opportunities for pension funds.
- More public/private partnerships and joint ventures.
- The Federal Mortgage Bank of Nigeria needs to intervene directly in housing construction by providing finance to designated building construction companies.
Land Registration and building approval Process
Second on this list is Land registration and building approval process. This is a major turn-off for potential Real Estate investors.
The cumbersome and costly process could take up to 6 to 24 months depending on the title and type of construction, with an average of 12 procedures thereby causing unnecessary delays.
Land and property acquisition must be less difficult for the sector to grow rapidly.
- The traditional manual process of registration should be automated online to reduce paper work and timelines. When this process is more accessible, it becomes easier and more attractive.
- Amendment of Land Use Act.
- Registration and approval process should be simplified.
Irrepressible fall of Naira
The economic impact of the fall in exchange rate has increased the cost of importations. Uninspiringly, the Real Estate industry is dependent on foreign importation for the raw materials and equipment used for construction, therefore the value of Naira remains a great factor. The dollar has tripled against the Naira in less than 3 years and the devaluation has contributed largely to the fall in Real Estate figures.
The unstable and incessant fall of our currency results in a loss for most developers thereby reducing trust in the sector and scaring investors away.
Presently, there is already a drastic drop in demand in the Real Estate sector which has resulted in a glut in supply.
- Review of recent forex policies
- A standardized exchange rate.
- Real Estate transactions should be in Naira and not foreign currencies.
- Promotion of locally produced construction materials