FEMI AKINTUNDE, an engineer, is the group managing director, Alpha Mead Group—a total real estate and healthcare solutions provider. In this interview, Akintunde discusses the Nigerian property market, highlighting the challenges investors have to contend with, and the opportunities the market offers investors with patient capital and long term view of the market. He also speaks on the government’s current push for monthly rent. CHUKA UROKO, Property Editor, reports. Excerpts:
The property market in Nigeria is evolving rapidly. But challenges remain. As a major player in this market, what story do you have to tell? What interventions are needed now?
There are various challenges that can be categorised into different stakeholder groups. The first is with the developer and the acquisition process. In Nigeria, land belongs to the government, and anyone interested in real estate must have an interface with them and there lies the problem.
Land is not viewed as an asset that can be leveraged; it is difficult to use land to unlock wealth. Therefore, a review of the Land Use Act is required. The cost of land acquisition in certain areas is also a problem; and so is the process of acquiring it and obtaining the right title. These are made worse by the fact that even when land is purchased with the right title, the problem of “omo-onile” persists, which means it is difficult for developers who need land in large sizes.
The second challenge relates to funding developments and project management capabilities where the rising cost of building materials has increased development cost. Owing to this, return on investment on most projects is difficult to achieve by builders.
On the buyer’s side, finance costs including operation and management fees are also issues belabouring the sector. The economy-induced dwindling purchasing power has imposed a constraint on buyers – be it residential or commercial. As a result, a lot of incentives from the developer is required to enable acquisition which, in turn, reduces the margin. For commercial property, for instance, most of what is sold are foreign goods and affordability remains a challenge for most of the target audience.
Read also: What tenants do not know about Lagos monthly rent
The growing number of old buildings in most urban centres is a major challenge in this market as urban renewal is not happening. Given the opportunity, what would you suggest to the government?
There has to be a consistent urban renewal policy and the government must be intentional in this regard. The buildings that occupy the city centres and prime locations 20, 30, 50 years ago are no longer the type of buildings that should remain there today. Also, the value of land appreciates as the community evolves and develops, which means that the Lagos Island of 50 years ago was the prime, but those buildings today are not the kind that are required in certain locations.
Like countries that have successfully implemented urban renewal, government must have a policy for periodic urban renewal; it could be every 10 years to review certain locations and ask ‘’what should this location look like in another 10 years’ time?’’ There should be consistent effort and deliberate policy put in place for renewal and upgrade of such locations.
One important thing that must be put into consideration for urban renewal is the concept of national heritage; it is about culture. If you plan urban renewal for a particular location, what are assets of national heritage that you want to preserve in that location? Is it the first court in that area? Is it a particular type of building that we want to preserve? And we must continue to treat it as a treasure.
Government is looking into monthly rent but the approach is not the right one as you cannot legislate on what you do not own
Building collapse is another level of challenge in this market that is blamed largely on regulatory lapses. What should real estate developers be doing differently to tackle this problem?
All stakeholders have roles to play to buck this trend, including the government. For the government, ensuring compliance with necessary permits and regulatory standards is key. We also must move away from selective application of the laws, where influential people are considered untouchable. Regulatory agencies must be properly resourced and should be capable of executing their jobs professionally.
Developers must understand that what they do impacts lives. This places an enormous responsibility on them as people trust that the properties they are bringing to the market conform with necessary regulatory standards and are safe to live in them, either for residential or commercial purposes.
In essence, developers have to live up to that level of trust and it starts with ensuring that their designs conform with the national building code. Also, engagement of qualified consultants to guide in the construction, design and delivery of the project is important.
Retirement homes are not common in Nigeria despite the need. What measures should the government put in place to encourage private sector and pension fund investment in this sub-market?
What I think is that institutional investors are needed to smoothen the homeownership process. By institutional investors, we mean wholesale investors that have access to cash to finance big projects. Accordingly, you will be talking of institutional investors like pension funds. Pension funds are key in what we are talking about and we must realise that workers are those who contribute to the pension fund whose assets today stand at about N12 trillion. Ironically, what is invested in real estate is less than N500 million.
Only 1.8 percent was spent on infrastructure and less than 0.2 percent was spent on real estate. When real estate is not invested in, these workers will have no roof over their heads during retirement and at that time they will be adjudged to have no credible source of income to access a mortgage. Now that they are employed and contributing to the pension scheme, why can’t we have a deliberate policy that allows a percentage of their pension funds to cater to their housing needs?
Therefore, if the pension fund is being contributed by people, then let the government legislate that a percentage of the pension fund must be available to finance housing for the people. With this, we will see a game change. But right now, it is not a priority for the pension funds to finance housing, which is why developers are struggling to raise capital and there won’t be a stock of mortgageable properties.
Also, primary mortgage institutions don’t have the stock of houses that they can finance, and if they don’t have properties, they cannot finance them. I believe that an urgent intervention is needed to ensure that people don’t have to get to their retirement age before they receive a lump sum of money to build a house.
FG is working on something with the Ministry of Works and Housing but direct building is not the way forward as they are competing with private developers. What should be done, in my opinion, is a land swap where developers build a certain portion of land for the government in lieu of cash payment.
Perhaps, part of the government’s solutions to the problems in this market is the current push for tenants to pay rents monthly. What do you think? Tell us about AMDC’s Rent2own and Rent4Less products. What benefits do they offer home seekers?
Rent4Less and Rent2Own are two models that enable affordability in housing. A lot of landlords over the years are used to the idea of 1 and 2-year rent on their properties. So Rent4Less found a middle ground to meet their own objectives. Government is looking into monthly rent but the approach is not the right one as you cannot legislate on what you do not own.
What should be done is meet the objectives of the landlord and tenant for the system to work. Rent4Less approaches landlords that have large units, pay them upfront and fill up the units with tenants who want to pay monthly. Our total real estate solutions capacity also helps ensure that these assets are managed end-to-end. Our Rent2Own is a scheme that combines our affordable housing solutions and mortgage accessing capabilities to help subscribers on Rent4Less own their homes.
AMDC is among the first developers in Nigeria to have its estate, Lekki Pearl, certified to the International Finance Corporation’s (IFC) Excellence in Design for Greater Efficiencies (EDGE). What does this certification mean for a home buyer?
The EDGE certification takes you through a process on how to deliver real estate that conforms with the new global standard for climate protection. Carbon footprint is reduced, less water is used, energy is conserved and there is less embodied energy in materials. This means that the materials you use for the building are as close to nature as possible, not the ones that have undergone extreme energy processing.
Looking at the preservation of the cooling of the building, the materials that we use are such that they stop ingress of heat outside into the building, so the amount of air conditioning you need is less. The design of the building and the positioning in terms of ventilation and lighting are such that they reduce the amount of lighting you need inside the building during the day. These are part of our contributions to the preservation of the environment and are beneficial to both developers and homeowners in the long run. All our developments moving forward will also be certified to green standards.
