Opportunities in Nigeria’s housing deficit

Investor-interest in the Nigerian real estate sector does not consist in the country’s housing deficit which, unwittingly, has become a cacophonous sing-song, but rather in the inherent opportunities in the deficit estimated variously at 16, 17, and 18 million units.

Besides the deficit which the World Bank and the National Bureau of Statistics (NBS) agree is over 17 million units, Nigeria has a very fascinating and compelling demographic story with a population of almost 180 million, an annual population growth rate of 2.8 percent as at 2015, and an annual urbanisation growth rate of 4.7 percent.

The housing situation in the country is almost at crisis point, but it is pertinent to point out that the situation is not peculiar to the country because, globally, according to a UN statistics, about 1.6 billion people live in substandard housing while over 100 million are homeless. In Nigeria, over 100 million people are considered to
live in substandard housing.

Various factors have been identified as being responsible for this housing problem and most prominent among them is the slow growth and almost dysfunctional mortgage system in the country.

Ngozi Okonjo-Iweala, Nigeria’s former finance minister, once disclosed that the size of the country’s mortgage
finance as a share of its Gross Domestic Product is 0.5 percent, which is way below 2 percent for Ghana and same 2 percent for Botswana. In a paper she presented last year at the 6th Global Housing Finance Conference in Washington DC titled ‘Unleashing the Housing Sector in Nigeria and in Africa’, the former minister also pointed out that these figures contrasted sharply with estimated mortgage finance-to-GDP ratio of 80 percent for the UK, 77 percent for the USA and an average of 50 percent across Europe.

This is a major limiting factor, yet an opportunity in its own right because close watchers of the country’s mortgage market estimate the value of mortgage gap here at $56 billion, meaning that it presents high and very attractive investment proposition.

We believe in Nigeria’s great demographic story, its impact on the real estate sector and the high investment opportunity which the sector offers, but we know also that challenges and constraints remain which, in our opinion, have to be overcome in order to attract more investors to the sector.

Nigeria is a high risk country talking in terms of ease of doing business and it is no wonder that World Bank’s Doing Business 2015 Report ranks the country 181 out of 189 economies in the ‘Registering Property’ index.

Costs are generally high in almost everything pertaining to construction, especially processing land documents and registering a property, skilled labour and building materials, making the country one of the most expensive to build a house in. All these, one way or another, discourage investment.

We are not unaware of some level of investment that this sector has seen in the past five to 10 years, especially in retail and prime office development, but it could have been more if the environment had been more enabling and encouraging.

To encourage more investors, therefore, we urge policymakers to ensure that access to long-term finance is guaranteed to enable investors attract consumers from both the upper and lower end of the market to deliver more products.

We agree totally with Ibiene Ogolo, a real estate development expert, that the gaps in government-run infrastructure need to be plugged to guarantee efficient urban development and that roads, electricity, security, etc are significant areas that the government needs to invest in to ensure that estate developers enjoy best practice residential and commercial property standards.

Favourable macroeconomic policies need to be promoted because, in our view, that will encourage private sector investors to partner with the government in providing low-cost mass housing. Such policies, in our mind, would lead to low interest rates, stable exchange rates and low inflation to encourage investors move into mass housing projects and low-income earners move from rented (substandard in most cases) housing to their own affordable mortgage enabled homes.