Housing deficit: How developers, home seekers can tap opportunities
Though it has become a subject of debate and contestation, Nigeria has a housing deficit estimated at 17 million units arising from high cost of property acquisition, mortgage rate, and lack of incentives for housing suppliers to enable them to put more products on the market at affordable prices.
In spite of its large size population, ‘robust’ economy and big-brother-status, Nigeria is almost always playing a catch-up in Africa as other countries, especially South Africa, which is considered the second largest economy in the continent, are ahead in many aspects of national development.
For South Africa’s 2-3 million housing units deficit and Ghana’s 1.5 million units, Nigeria is burdened with 17 million units which experts and other stakeholders say is no longer tenable for reasons of population growth and lack of verifiable data.
The federal mortgage bank of Nigeria (FMBN), the country’s apex mortgage bank, recently estimated the deficit at 17-20 million units with potential cost (value) of N6 trillion ( about $16 billion) and 900,000 annual unit deficit increase.
But “the 17 million units deficit is no longer tenable”, the Nigerian building and roads research institute (NBRRI) insists, quoting findings by Worldometer, 2017, which notes that from 2012 to date, Nigeria’s population has increased from 168,240,403 to 191,835,936, showing a significant increase of 23,595,533 people to the population.
“The housing deficiency has, therefore, climbed and is likely to worsen in the nearest future if urgent steps are not taken by the government in conjunction with all stakeholders to address the problem”, Danladi Matawal, DG/CEO of the institute, said warns.
This is a huge challenge, no doubt, but industry experts see in that challenge low hanging fruits for potential home owners, investors and the economy at large, explaining, “property developers, investors, potential home owners and the Nigerian economy will benefit hugely in the course of bridging the housing gap which has made property acquisition a luxury in the country.
“There is a big opportunity for real estate developers and off-takers as the deficit shows the industry is one with huge demand. Developers can tap from this housing demand by building smart and affordable houses compared to the conventional building,” Hakeem Sodiq, CEO of Zama, a real estate advisory firm, said.
Another industry expert who pleaded anonymity said the opportunity resulting from the deficit in the country is the type that can benefit average Nigerians, investors and the economy at large.
“If developers are able to provide smart houses at affordable cost, they will be able to make a lot more profit than they are making now. For the potential homeowners, which mainly fall under the middle and low income earning class, an affordable house with flexible payment plan will make it easy for them to actualise their dreams of owning their own houses,” the expert said on phone.
“When both developers and potential homeowners are able to achieve their dreams, it will rob off on the economy and thus contribute more to the country’s GDP,” he added.
The World Bank recommends that in order for Nigeria to keep up with the demand for housing, 700,000 houses are required annually to match growing population and urban migration. But Erejuwa Gbadebo, CEO, International Real Estate Partnership (IREP), says Nigeria needs dependable data on its housing sector.
“One of the biggest problems that we have is lack of data. People still quote 17 million units because there is no other data to prove or disprove it. We talk of homes demolished, burnt or new ones built, but the question is who is taking record of the number of houses that are being built and the ones we are losing?”, she queried in an interview.
One of the first things the industry should do, she advised, is to start taking stock of what is available—what house-types are there and what they change hands for. “There should be a central system either online or from bodies such as Nigerian institution of estate surveyors and valuers (NIESV) that should guide investors and potential home owners.
Meanwhile, the property industry in the second quarter of 2018 contributed about 7 percent to the nation’s Gross Domestic Product (GDP) compared to its 5.63 percent contribution in the first quarter.
This is an appreciable improvement but could have been more if the policies were right and the challenges were less. Sodiq said the federal government has a role to play in helping to solve the challenges of the industry.
“The government can help through reduction in the cost of developing properties. Government can make provision for low land acquisition cost or even have a subsidy on land rate in some specific areas in the country. This will go a long way in incentivising investors and developers who, on their own part, will make properties available to the end users at an affordable rate,” he explained
It could be could be argued, however, that the government and other stakeholders seem to have been paying attention to the sector this year through capital injection, collaboration and through setting up of initiatives. But not much has been said about the legal framework which many see as a major setback in the market.
The government attention to the sector may have started impacting marginally on the property industry, even though it is still in contraction mode, the rate of contraction slowed in the first half of the year, through to June 2018, as compiled from the figures by the nation’s Bureau.
At the end of the second quarter of 2018, the real estate sector reported GDP growth of -3.88 percent compared to the -9.40 percent rate reported for Q1 2018. That slowdown in contraction rate by 5.52 percent points is lower than the previous quarter figures.
The Association of Housing Corporation of Nigeria (AHCN), said recently in a statement that the under-development of the mortgage sector for driving home ownership was worrisome as more than 90 percent of new homes utilise funds from personal savings for incremental construction.
Available statistics shows that mortgage to GDP ratio in Nigeria is estimated at 0.6 percent, as opposed to 2 percent in Ghana, 31 percent in South Africa, 32 percent in Malaysia, 77 percent in the United States and about 80 percent in the United Kingdom.
Nigeria’s mortgage rates are also considered by industry experts as one of the highest around the world, considering it ranges between 7-10 percent for the Federal Mortgage Bank 0f Nigeria (NHF) and between 15-25 percent for commercial mortgage institutions.
Meanwhile, mortgage analysts cited that the debt to income in taking mortgage in Africa’s largest economy is about 30 percent of the monthly salary earned by any one that wants to take up mortgage as a means of funding a house.
“How many Nigerians can tell you that they can confidently use 30 percent of their salary to pay for property? But if the government can provide infrastructure that can help reduce cost of developing houses, this can make it easier for an average Nigeria to access property at a rate affordable to them over time,” Sodiq said.
Due to the impact of the economic recession the country went between 2016 and 2017, there has been a decline in purchasing power of Nigerians who are experiencing non-payment of salaries, high unemployment rate and high consumer prices. Second quarter figures from NBS further show sluggish and even deteriorating state of the Nigeria economy.
The country’s GDP expanded by 1.50 percent year-on-years in real terms to N16.58trillion in the second quarter of 2018. This is –0.45 percent points slower than 1.95 percent recorded in the first quarter of 2018. “The relatively slower growth when compared to Q1 2018 and Q2 2017 could be attributed to developments in both the oil and non-oil sectors,” NBS said in its report.
Endurance Okafor