‘Dynamic mortgage industry is a function of virile economy’
CHUDI UBOSI is the President, African region, International Real Estate Federation (FIABCI) and principal partner, Ubosi Eleh and Company. He spoke to Property & Environment Editor, CHINEDUM UWAEGBULAM on ways to sustain the gains in the real estate sector. Ubosi laments that estate agency practice has remained unregulated due to government’s preference to have it as a general enterprise activity.
Funding real estate investments have been a major problem in the housing industry, many people clamour for alternative funding from pension fund. With over N800billion available for real estate in 2015, why are Pension fund administrators not interested in the real estate sector?
The issue of using pension funds to finance the housing deficit is a debate and question that has been around for long. Almost akin to the issue of using funds in the dormant account of financial institutions to fund real estate.
From the very opaque nature of real estate transactions in Nigeria to the paucity of verifiable data, the lack of bankable documents, the difficulty and huge cost of obtaining Governors consent to transactions as required by the Land Use Act, to the fact that even a government issued Certificate of Occupancy is not incontrovertible proof of ownership etc, the pension fund administrators have shied away from real estate transactions.
Only a few pension funds have put some of their investible funds into real estate. The major fear of administrators is that because they have to take responsibility for the successes and failures of their investments. More often than not, real estate for a lot of the reasons enumerated above real estate is seen as a risky investment despite the attraction of huge profits for those who take the risk.
We must also remember that currently, government backed securities and bonds are returning dividends of nearly 18 per cent – risk free. Real estate even at the best of times may return 8 per cent – 10 per cent with all the attendant risks.
We recall that you’re the first chairman of the Association of Estate Agents in Nigeria (AEAN), which was launched about five years ago by the Nigeria Institution of Estate Surveyors and Valuers (NIESV) to streamline activities of Estate Agents and check the activities of non-professionals in the business. Why is estate agency still an all comers’ affairs? Don’t you think that what is needed is government backed national estate agency registration board?
Yes, the Association of Estate Agents in Nigeria (AEAN) was midwifed by the Nigerian Institution of Estate Surveyors & Valuers (NIESV) to bring best practices to the profession of estate agency and to check the unwholesome practices and incursion of non-professional. The major challenge remains that even the government ab initio has always viewed estate agency as a general enterprise activity, which can and should be embarked upon by all who desires. And indeed that is what has happened and the result is what we have today with the profession having a very poor public perception and full of fraud.
In many other climes, real estate agency and its practice is highly regulated. It is possible that in Nigeria, the government (Federal, State and at an individual level) have not realized the significance and potential for economic advancement of real estate, which currently contributes 2/3 per cent of the national Gross Domestic Product (GDP).
There is a saying that an investment in real estate is probably the most expensive expenditure or investment that 90 per cent of individuals will make in their lifetime. So why would we not take it as seriously as it deserves? Would you allow a butcher undertake a major surgery on your heart because he is adept with a knife and can cut flesh? Whilst it reads like an unusual comparison, truth is that that is what happens when at all levels consumers put their trust in the hands of non-professionals concerning their real estate transactions.
Yes, we do need a National Real Estate Agency Registration and Regulatory Board that will oversee the practice of estate agency. The board will stipulate the necessary qualifications, trainings and conditions for entry into the profession and proffer penalties and also stringent punishment for those who practice without the profession without the proper qualifications. A law needs to be passed through the National Assembly to give teeth to this and at the AEAN and NIESV levels; efforts are in top gear to do it.
Recent reviews have revealed that the real estate sector is showing a slight positive growth or modest recovery in the first half of this year. What’s your take on this? Is there strong link between economic performance and prime rental growth?
Our firm (Ubosi Eleh and Company) undertakes and produces a quarterly survey and report on real estate and rental trends. At the end of the second quarter, indications are that there is a modest recovery in the real estate sector. This recovery is not an indication that rents are rising. No. It is possibly more of an indication that consumers and investors are adapting to the realities of the economic downturn and have decided that business must go on albeit at a reduced pace. Therefore, we are witnessing increased requests for residential property but at reduced rents, especially in the prime locations around the country. Payments are more often limited to one year only.
Regarding Class A commercial developments, the demand has been muted despite all the sweeteners that most developers and their estate agents are throwing in to attract tenants. This is understandable as rents for this class of property are denominated in US Dollars.
Retail rents in the malls have remained stable as shop owners and consumers struggle to come to terms with higher prices for items as a result of foreign exchange rates and availability, reducing purchasing power and lower patronage as a function of a tough economy and environment. Warehouse rents have remained low and dropping. More and more warehouses are coming into the market for sale and for lease as importation and manufacturing (two major drivers of warehouse space demand) drop.
As to whether there is a link between economic performance and prime rental growth, the answer is – YES. There is a direct proportion relationship. As the economy improves rents tend to rise and vice versa.
The real estate market has been so hugely impacted by currency controls because some prime property are priced in dollars and mortgage sub sector is still grappling with issues of long term funding. What can be done to rejig the real estate sector?
We must all remember that a lot of the prime Class A commercial development were funded with facilities taken from foreign financial institutions and so are denominated in US dollars. A majority of them were commenced when the exchange rate was 160/$. Now it is 360/$. The future viability of many of these developments will remain in doubt if a refinancing option is not made available to the developers or promoters from their foreign banks.
Once refinancing is agreed upon and the pressure is taken off the developer then rents can readily be further dropped to attract tenants and at least ensure occupancy that will begin to generate an income stream and show cash flow both to the financiers and the developers.
The mortgage industry in Nigeria remains one sector that has not found its feet. Today, we all want to see a sector that will offer long-term funding facilities for real estate acquisition – 20 – 30 years, at an interest rate sub 3/4 per cent per annum. But a dynamic mortgage industry is a function of a virile and structured economy. It cannot operate in isolation. Therefore, until then, we must make do with commercial loans, which basically masquerade as mortgage loans with interest rates as high as 28/32 per cent per annum and repayment periods of 12/18 months.
The International Real Estate Federation (FIABCI) and the UN Global Compact Cities Programme signed a high-level agreement of cooperation during the World Congress in Luxembourg for global sustainable property development. How do this impact on Nigerian developers and real estate practice?
As you have rightly observed the agreement between FIABCI and the United Nations was to encourage standardized global sustainable property development. FIABCI, is a real estate organization with over a million members all over the world from the various facets of property development and the whole idea is intended to attempt to standardize as much as possible the different world wide building codes, regulations, procedures etc.
In Nigeria, those of us who are members of FIABCI have bought into the charter and will imbibe the codes and ethics of real estate practice and estate development.
What are the real estate contribution and challenges to Africa sustainable development? How do we sustain the real estate segment within Africa?
On the average real estate contributes 3/4 per cent of the GDP of most countries in Africa. This is done both directly and indirectly – construction, mining and production of building materials and consultancy. But there are still challenges to sustaining development in Africa. These challenges include funding for development of real estate, funding for purchase by way of mortgages, development of affordable functional housing, issues of title, provision of support infrastructure etc. These are factors and issues we are very familiar with in Nigeria and Africa as a whole and really do not require further expatiating.
Global Housing Foundation (GHF) operates a $250 million ‘micro-mortgage’ financing initiative supported by FIABCI, which is facilitating access to loans to the estimated 350 million slum dwellers. When will Nigeria and other African countries start benefiting from this scheme? How do we tackle housing for slum dwellers in Nigeria?
The GHF in conjunction with the UN-Habitat provide housing for the poor. It was started by an individual named Rene Frank and has been a huge success.
Currently, their focus is primarily in South America – Panama, Ecuador – where the fund has made a huge impact. I am uncertain about their criteria for where and how they choose their locations but I am also aware that FIABCI plays a huge role in this project and with time, attention will shift to Africa and possibly Nigeria.
Tackling housing slums in Nigeria is unfortunately an issue where a lot more lip service has been paid than action taken. It requires the concerted efforts of all stakeholders apart from the government. I believe the first step should be to identify and map out all the slums nationwide or State by State – in their hundreds of thousands. Identify as many of the residents as possible and determine the possibilities of re-housing them, providing the necessary infrastructure and services that will upgrade the neighborhoods. The truth is that it is a herculean task and the earlier the effort of tackling these slums commences, the better for us all.