The future of West Africa’s real estate
African Urban Developer Rendeavour says the opportunities for economic transformation will be greater on the continent than anywhere else because the potential for catch-up and convergence is greater. Stephen Jennings, Founder and CEO, Rendeavour spoke to CNBC Africa’s Onyi Sunday about the future of real estate development in West Africa.
There are great opportunities in Africa. Just talk us through the sectors that hold these opportunities.
The opportunities are very broadly based. They range from agriculture, obviously – we are seeing industrialisation in a number of countries, infrastructure is huge, power is huge, urban development and a full range of consumer and finance sectors. We are seeing growth, modernisation and fantastic, investment opportunities across that full spectrum of activities.
Let’s focus a bit more now on Real Estate Development in West Africa. What do you make of it so far?
When we talk about real estate we are really talking about urban infrastructure. Clearly across West Africa we have huge housing deficits. We have huge urban infrastructure bottlenecks and constraints. At the same time we have tremendous population growth, and over the last 15 years we have had per capita GDP growth so there is a big mismatch between supply and demand and that actually creates a very big opportunity.
Going round a country like Nigeria, and let us use Lagos State as an example. There are new structures coming up in every section of Lagos State. My question really is how affordable is it? There are houses but there are so few people living in them. When we talk about bridging that gap in housing development. How do you begin to go about this? What models do you embrace at this point in time, if we are really going to be providing housing in West Africa?
We have a thousand hectare PPP with the Lagos State Government in the Lekki Free Trade Zone. So the first point is the scale of the challenge. Nigeria has a 20 million unit housing deficit and it’s growing at about two million units a year, so the solutions need to be very big and very structural. They can’t be piecemeal and they can’t be gimmicky. The first problem is housing is not affordable. The cost structure is too high, the regulatory environment is incredibly inefficient. On the property rights index, Nigeria ranks 25 out of 28 in the region, so titling issues, the cost of managing and enforcing your property rights are extremely high so the whole cost structure needs to be brought down, by improving in many areas the business environment and making housing affordable.
I think it’s interesting that you brought up the regulatory environment. How does it work in other countries?
Here in Nigeria you can find apartments in the same area with a price difference of a million naira, and some times it’s so ridiculous that buyers wonder how they’re going to come up with the money to pay for the property. Whose responsibility is it to dictate how much a particular apartment or house should go for. You just mentioned the cost of production. Most times these houses are built by individuals. They buy the land, and then they build the house, so how do you begin to tell a developer how much a property should go for in the market.
That’s not the way I look at it. It is a systemic problem of a massive scale and it needs to be resolved in a systemic fashion. It sounds complicated, but it’s actually not. If we look across Africa, we see very steady improvement in ease of doing business. Kenya has advanced 40 places in the last two years. That has a profound impact on the ease of doing business and the cost structure across the entire economy, they are targeting a further 20 places over the next two years. There is no reason at all why Nigeria cannot do the exact same thing. So that means you don’t have to target individual developers or specific programs. It means the cost structure for the entire sector comes down, and the affordability of houses improves for everybody. That’s what needs to happen.
The costs of enforcing your title are extremely high in this part of the world. There hasn’t been streamlining or co-ordination, and there is no use of new technology. These mundane changes, taken together could have a massive impact.
Your company has about 12,000 hectares?
We have about 12,000 hectares of urban land across subsahran Africa.
Talk us through some of the projects that you’ve embarked on in Sub Saharan Africa.
We have two projects in Ghana, 2 projects in Nigeria, 1 in the DRC, one in Kenya, and one in Zambia. That’s essentially Satellite cities, where we build new towns from scratch. We put in all the urban infrastructure. All the water, all the roads, all the ICT, we do all the master planning then we do a mixed use, mixed income, urban development. Our communities will range up to 180,000 residents, so we will need to cater for CEOs through factory workers, and we need to have price points that accommodate all of those people.
What country in Africa would you say is getting it right at the moment and what sort of cooperation do you get from the governments?
I think generally we get good cooperation from the governments because we have fairly large scale projects. We certainly have very good dialogue with the Lagos State government and good support from the FCT minister in Abuja who is supporting our project over there. We have to look over 10-15 year horizons. It’s easier to criticise Nigeria in terms of what has happened in the last couple of years, but Nigeria has just had a one in 50 year commodity shock so we have to look at things in that context. When we look at the momentum across all of the markets over the last ten to 15 years, it’s very impressive. It’s very steady. Perhaps Nigeria needs a little bit of catch up now, but I’m sure that is what we are going to see.
When you say a little bit of catch up, just tell us areas where you want to see that catch up happen.
It’s really about the overall business environment. It’s very easy to talk about quick fixes, and gimmicky programs but fundamentally, they are not going to change investment, housing costs, or the ease of doing business. It’s getting the macro stability and its getting the micro economic fundamentals conducive to doing business and making investments.
Do you think the fact that Nigeria is heavily dependent on imports, makes it more difficult for real estate to develop?
No I don’t. Until the last couple of years, Nigeria has been one of the high growth economies in Africa. You had a tremendous growth performance, you had a lot of dynamism, you had your fair share of reform, despite the fact that through much of that period oil prices were high. I think that there are a lot of lessons from the last few years. I don’t think that Nigeria performed worse than it’s oil dependent peers, like Russia, Kazakhstan and Angola. Clearly we need reform, we’re encouraged by recent announcements about reform initiatives and the reform program but now we need to see implementation.
What West African country do you think we have seen commendable reform take place in?
Clearly the one that stands out is Ivory Coast. They had a civil war. They were in a really bad situation and there were very low expectations, but they got a very strong technocratic president and a lot of basic common sense reforms and surprise, surprise, from war they go to being one of the fastest growing economies in the world. A lot of development has started and they attracted a lot of investment Like I said, it sounds complicated but it is not.