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The last quarter of 2017 has yielded several innovative ideas that will arguably shape the Nigerian real estate and infrastructure industry in years to come. Much of these ideas centre around the need for sustainability, standardisation, and innovation in the industry, at the forefront at key events including the Lagos Business School (LBS) International Sustainability Conference, the West Africa Property Investment Summit (WAPI) and the Lagos State Building an End-to-End Ecosystem for Affordable Housing workshop. They all share a similar theme or objective – how to draw in large-scale international and domestic investments to meet Nigeria’s immense real estate and infrastructure shortfall recorded as approximately $50B required annually through 2030 (McKinsey Global Institute).
Addressing this shortfall was discussed at length at the ‘supporting socio-economic resilience through sustainable infrastructure’ session at the LBS Sustainability conference. Infrastructure, which includes real estate, power and transportation, is a major component of the Federal Government’s Vision 20:20:20 goals given its impact on both the economy and on citizenry (jobs, lifestyle etc.) The panelists shed light on some of their achievements thus far including Africa Finance Corporation’s 2.6 billion USD in capital invested in infrastructure over the past few years. Also discussed were affordable green technology features currently utilised in the real estate space including solar panels, reutilised rain water, motion sensitive lighting, high performance external cladding to control heat and so on. These reduce operating costs while improving the quality of life for employees. A major idea reiterated throughout the conference was the importance of partnerships for sustainable development and scalability to be achieved. Only through such partnerships with both public and private institutions can there be an executed plan to establish the operating environment essential to enable large scale investments into the country.
A key challenge for international investors into the space is the availability, transparency and consistency of data which in turn impacts property valuations. During the panels ‘Data, Data, Data’ and ‘Property & land valuation rechecked’ at the WAPI summit, the issues around data quality and availability were discussed. Not only are property related data warehouses largely non-existent in Nigeria, but inaccuracies in much of the available data makes it unreliable. Part of the issue is the inconsistency in the standards being used. A good example is with the property measurement standards. The usage of multiple standards such as IPMS, the Code of Measurement practices, or BOMA makes it difficult to accurately compare one asset to another. This problem with standards extends to valuations. Industry experts at the WAPI session held a lively debate around which valuation standards were acceptable in Nigeria – the Red book RICS standard or the soon to be launched Green book standard by the NIESV. Similar conversations had been held earlier in the year during the Stanbic and Nigerian Stock Exchange (NSE) sponsored workshop on REITs. To address this issue, industry leaders agreed to set up stakeholder meetings to make recommendations on the appropriate standards to be implemented across the industry. These stakeholders also agreed to discuss the sharing of basic data elements to ensure some level of consistency in reporting standards –a major step in the right direction.
Finally, innovation in the financing space appeared as a major theme, particularly relating to affordable housing. At the Lagos State Building an End-to-End Ecosystem for Affordable Housing workshop, the true magnitude of this shortfall (approximately 17 million annually) and required innovative solutions were discussed. According to Charles Inyangete of the Nigerian Mortgage Refinancing Corporation (NRMC), approximately NGN 4 trillion is required to meet the annual housing requirement, representing about 50% of the Federal Government’s 2018 budget of NGN 8 trillion. There is a real opportunity for private institution such as pension funds, insurance providers, mortgage banks and foreign portfolio investors to participate, but the public sector low risk bonds offering 16+% returns currently crowds out the private sector and this has to be addressed.
Given the magnitude of the affordable housing dilemma, any proposed solution requires the development of a true eco-system whose players are dynamic, innovative and work collaboratively. The various stakeholders at the event presented their innovative ideas. First was the NMRC. According to Prof Charles Inyangete, NMRC’s role is to jump start the market by connecting the mortgage industry to the capital markets through the issuance of bonds with guaranteed AAA ratings. The bonds are listed on both the FMGQ and Nigerian stock Exchange thus offering liquidity due to active trading. NMRC further seeks to de-risk the mortgage process by establishing uniform underwriting standards for mortgage origination.
NMRC has also established a Housing Market Portal that speeds up applicants’ pre-qualification process. The portal serves as an excellent source of off-takers for developers. Qualified applicants can immediately connect with developers who can begin building the home while the mortgages are being created for NMRC to refinance. One such developer is Ecostone – an American developer whose technology solution will enable the deployment of up to 30,000 homes annually. Ecostone is currently partnering with both the NMRC and the Federal government to address the need for speed and scalability in housing.
While NMRC addresses the refinancing requirement (with a six month waiting period before refinancing can occur), Mortgage Warehousing Funding Limited (MWFL) is a recent innovation designed to address the pre-financing requirements for qualified mortgage banks or member mortgage banks (MMBs). MWFL provides short-term financing of 0-6months to MMBs who utilise the funding to underwrite mortgages. After the six month wait, NMRC can then refinance the mortgage. This means that NMRC takes over the loan obligation from MWFL. The MMBs then pays off MWFL’s short-term financing and, in exchange, obtains NMRC’s long-term financing option – a true match between long-term assets (mortgages) and long-term liabilities (NMRC Loans).
Sonnie Ayere who is the Chairman/CEO of MWFL, also discussed an innovative solution that will lower mortgage interest rates and provide pensioners with both a home and annuity income upon retirement. Sonnie called upon the Pension Commission to establish a Housing Fund that will give pensioners the option of contributing 20% of their pension towards this fund that would yield 5% interest. 80% of their contribution remains in the 18% yielding fund, and 20% goes to the housing fund yielding 5%, resulting in an average yield of 15.4%. In exchange for this lower total yield (15.4% vs. 18%) however, the pensioner is able to contribute towards buying an affordable home at a single digit interest rate of approximately 8-9%. Once housing price inflation over 20 years is incorporated, the pensioner is potentially better off as they retire with both annuity income and a home with an increased value.
Other stakeholders discussed additional ideas. Insurance companies and their partners (NRMC and MMBs) discussed the collateral replacement indemnity programme which is to address the 30% equity contribution requirement for home ownership. The product acts like a mortgage guarantee as the insurance company will provide their customers with the equity + 3% spread over a three year term. In the legislative space, the establishment of mortgage laws were discussed (successfully launched in Kaduna and soon to expand to other states). Capacity building training being offered to banks to build skills in the sector and the public to educate them on these opportunities was also mentioned.
Partnership and collaboration are key if real estate and infrastructure needs are to be addressed in Nigeria. The good news for 2018 is that active steps are being taken by key industry players in both the public and private sector to work together to bridge this gap.
Chinwe Ajene-Sagna
