Real estate accounts for 11% of $36.4bn investment in infrastructure construction

Of the $36.4 billion expended or invested in infrastructure construction in Nigeria in the past 12 – 24 months, real estate development accounts for 11 percent of this sum, having attracted $3.96 billion (N780.12bn) investment within that period.

Real estate market in Nigeria is currently valued at approximately N6.5 trillion and is estimated to grow at an average of 10 percent over the next few years.

The sector, according to 2015 Housing Finance Africa Publication, which gave these indications, contributed 7.6 percent to the GDP in the third quarter of 2015, rising a little above its estimated contribution as of April 2014 when the GDP rebasing exercise was carried out by the Federal Office of Statistics (FOS).

An interesting revelation about this sector from the rebasing exercise was that the sector was about 40 percent larger than what was previously thought; it contributed approximately 7 percent to the GDP; was the six largest sector of the economy, and was also the fastest growing.

However, despite these fantastic fundamentals, Nigeria has a disturbing housing situation with a staggering 17 million housing deficit that requires building one million housing units yearly for the next 20 years to bridge the demand-supply gap.

Analysts explain that this deficit will remain for as long as government does nothing to address the country’s infrastructure deficit and also for as long as ‘everybody’ continues to build for the narrow upper-end market which, at the moment, appears saturated with very low occupancy rate.

Jim Ovia, founder/chairman, Zenith Bank plc, says all developers are building for profit, explaining that building for profit means supplying the product where there is high demand.

Most investors, local and foreign, in Nigerian real estate market favour the commercial segment of the market, which Gbenga Olaniyan, CEO, Estate Links Limited, explains reflects the country’s disposition as a trading economy.

“If you start a residential development on a 1,000 square metres of land, it may take you 12-24 months to off-load, but if you start a commercial development, say a retail mall, on same size of land in a good location, you are likely to finish selling the available spaces in less than six months, and sometimes off-plan before actual construction starts,” he argues.

This, more than anything else, explains the country’s low homeownership level at 25 percent, lower than Indonesia at 84 percent, Kenya at 73 percent and South Africa at 56 percent.

The 2015 Housing Finance Africa Publication also attributes this disturbing housing situation in the country to inadequate access to finance, slow administrative procedures, high cost of land registration and titling, and import restriction on building materials.

According to the publication, only 3 percent of the population in Africa has income sufficient to support mortgage, which Adeniyi Akinlusi, MD/CEO, Trustbond Mortgage Bank plc, attributes to low income level of many Africans, Nigerians inclusive.

Poor access to finance, poverty and the expensive profile of the available products in the market are reasons for as high as 51 percent of Nigerians living in rented accommodation and 40 percent of them paying between N20,000 ($100.48) and N100,000 (502.40) as rent yearly.

Similarly, about 80 percent of the adult population in Nigeria are living in rented apartments, which compares unfavourably with 20 and 25 percent in Ghana and South Africa, respectively.