Government should create incentives for developers of social housing, says Odusolu
Babajide Odusolu is the former Managing Director, Ogun Property Investment Corporation (OPIC) and Chief Executive Officer, Octo5 Holdings Limited. He spoke to the Property & Environment Editor, CHINEDUM UWAEGBULAM on issues hampering real estate sector and why reform is needed to quicken the provision of low-income housing
With the nation’s huge housing deficit, the real estate sector ought to be a top-three sector for the economy. What are the challenges and ways to make the sector contribute positively to the Gross Domestic Product (GDP)?
You are absolutely correct. In other economies with a deliberate and well-articulated policy designed to stimulate and grow local consumption, the real estate / housing sector is recognised as a primary trigger and value sector. Even here, despite the almost insignificant sectoral support, it is noteworthy that real estate was one of the primary drivers of Nigeria’s surprise exit from the recession. As a matter of record from the National Bureau of Statistics, trade, telecommunication, agriculture and real estate drove Nigeria’s exit from recession. In fourth quarter, 2020, real estate contributed 5.7per cent to national gross domestic product, making it one of the top eight positive contributors.
So, what are the major challenges impeding full growth of real estate?
First, you will observe that none of these sectors were dependent on government spending, rather they required favourable policy formulation or as in the case of trade, simply allowing market forces to set the tone. If government at both Federal and State levels were to be serious about triggering growth in the real estate sector, it should provide long-term flexible support for credible, proven developers; provide fiscal concessions to drive down cost of construction materials, especially steel; cables; cement and aggregates; provide fiscal incentives for developers to invest in primary infrastructure (which most of credible proven developers already do).
Note, this industry does not require subventions, rather it requires an enabling environment, which is surely lacking.
There has been low investment in housing due to COVID-19 pandemic and inadequate sources of funding. What other options are available for private developers to finance housing?
Since the pandemic, investors are more cynical and demand proof of concept viability to access funding. It is a notorious fact that our myopic banks do not fund genuine real estate projects, those that did, funded the upper end and are forced to carry stock; very few invest or support the middle market, which is the source of the bulk of true demand.
To further complicate the situation, agencies such as Family Homes Funds (FHF) and Nigeria Mortgage Refinance Corporation (NMRC), which are trying to avoid the mistakes of the Federal Mortgage Bank of Nigeria (FMBN) and fund real demand, are hampered by inadequate supply, which is the proverbial chicken and egg situation.
We now have better opportunities for demand side support, but very little support for the supply side. Government institutions erroneously assume that most developers are fronts, which is not true and rather than provide support, end up choking the industry.
Many developers now rely heavily on syndicated private bonds to source take-off capital and thereafter bundle their offtake to mortgage facilitation entities. Sadly, the unnecessary bureaucracy around titling and foreclosure have combined to make Nigerian real estate less attractive to long-term capital, which would otherwise be playing heavily in this market.
The sector had faced policy summersaults by successive administrations, which hindered home ownership and compounds increasing housing deficit in the country. How does government protect housing industry from policy inconsistencies?
As I said earlier, government policy is neither long-term nor holistic. It has ranged from supporting private development, successfully in Lagos, which opened up many new communities, especially in Lekki and along the Lagos / Ibadan expressway corridor to Obasanjo version, which had a mixed success across the Federal Capital Territory.
Obasanjo version was the root cause of the current challenges by vesting all lands in the hands of government, which created both tollgates for proper enterprise and an unsavory black market for land grabbers.
The initiative called the Ministerial Housing Scheme has been a colossal failure and the newly introduced Social Housing Scheme, if not tweaked will end up in the same way. So, the simple answer, government in itself is a major architect of the industry crisis and it only thrives when it permits private capital / developers to function and government sticks to being an unbiased arbiter and enabler.
In real estate sector, the perennial mismatch between desired homes and what is available for career professionals not a major challenge?
The government can tackle this problem through policy and granting attractive terms to developers willing to develop and deliver homes priced between N10million to maximum of N35million. Through the FMBN, NMRC and FHF provide off-take guarantees for all career workers with valid TIN, NIN and BVN for their first homes. Developers armed with such guarantees can source capital and deliver these homes rapidly.
For homes priced between N2 million – N10 million, which are technically social housing schemes, the government should sign guaranteed purchase contracts with developers willing to invest in the sector, commit to taking a minimum of 40 per cent of the homes developed and pay for it in milestones with Central Bank of Nigeria guarantee.
Then sweeten it with tax concessions for anchor material suppliers, who provide rebates to social developers; give such developers tax holidays and make it a condition that such homes must be in peri-urban centres and then focus government capital on creating primary infrastructure, especially good roads to such neighbourhoods.
After your stint in the public sector, do you share in the opinion that Land Use Act should be reviewed to ensure economic development and easy access to land?
My stint in the public sector as Managing Director of Ogun Property Investment Corporation (OPIC) was a major eye-opener. We succeeded because OPIC by its very nature was a hybrid entity. It was a public sector entity designed and intentionally enabled to play in the commercial space. I was also lucky to have a forward thinking business-minded boss in the person of Senator Ibikunle Amosun, immediate past governor of Ogun State, who created an enabling environment and political cover.
This enabled us create many award winning projects that helped transform the Ogun State Economy. However, the experience of Ogun State and my knowledge of Lagos State and Abuja shows that these three states are outliers. The only way to create a truly enabled economy is to modify the Land Use Act. As it exists presently, it limits and constrains rather than enable development. What we need are better and digitised land title registries. The consent provisions need to be amended and made less cumbersome.
Many people see sites and service scheme as an effective strategy for solving housing problem of low-income earners. Why is the scheme unpopular with the federal and state governments? What reform is needed to reinvigorate the scheme?
As one of the pioneers of sites and service schemes in Nigeria and having done it successfully across both private and public sectors, my response might sound rather surprising.
Sites and service are credible and good tools for wealth protection and aggregation, but very poor solutions for addressing the housing supply gaps. By its very nature, it essentially increases scarcity of viable land banks, which is a critical tool for addressing housing deficit.
But the solution would have been for governments to invest in creating these layouts but most cannot afford the cost. So, the solution again is to create fiscal incentives to motivate developers to invest in social housing. If governments introduce such options, including tax credits, credible developers will be highly incentivized to create inclusive communities with social housing components.
An institution that used such variant to address its needs is the RCCG Camp, which is a massive city developed by incentivizing individuals to develop and cede units to the church rather than buy the land.
There have been several criticisms about your tenure as OPIC Managing Director by the state Assembly on missing funds and land sales. How true are these accusations?
I am extremely proud of my record at OPIC and grateful to Amosun for trusting me with the opportunity. I am also glad that the Ogun State House of Assembly (OGHA) probed my tenure as the MD of OPIC.
It is interesting to note that as the largest commercial enterprise owned by OGSG, we were the most audited entity with annual audits conducted by the state’s Ministry of Finance, auditor general office, ministry of budget and appointed external auditors.
So, the OGHA probe for me was a final seal or confirmation of the fact that we ran a good operation. The records of the probe are in the public domain and it is instructive that after all the public accusations, we were at best accused of not meeting some routine public sector audit rules. No money was found missing and rather it was noted that we did very well building Internal Generated Revenue (IGR) and profile of the State through real estate.
During the administration of Senator Amosun, Ogun State profile was dramatically transformed to be a top three IGR generator in the federation. OPIC was a key part of that transformation and we remitted more revenue to the state within six years than the corporation had done for the previous 30 years.
I must thank the Speaker of the OGHA and the House Committee on Public Accounts, as their probe was the best exam anyone that accepts service can endure as a critical assessment of performance.
I encourage successful professionals to accept the call to service, but they must go there prepared to be tested and when done, prepared to be critically assessed.
Similarly, government must do more to ensure a proper blend of public and private sector policies to ensure that people with good reputation aren’t scared of service. I served and survived because my boss as a renowned accountant guided me and ensured that we achieved massive feats.
What are the lessons learnt in providing housing in the public sector?
My biggest lesson came from the creation of Orange Valley, the first gated community that placed Abeokuta on the map as a viable place to live and work; the second was the makeover of Agbara, which triggered massive new investments from organised private sector and was sadly undone by the criminal lack of investment in the access road infrastructure by the then Federal Government, but the biggest and most lasting lesson was the creation of New Makun City, a purpose built mixed scheme along the expressway, which sold out within two years of being created by us.
It showed that when government liberalises titling and provides primary infrastructure, the private sector is ready to come in and invest. Housing, while a social need and business endeavour does not need government funding. What it requires is a positive fiscal policy environment; positive regulatory environment and support through provision of primary infrastructure such as roads.
Since returning to the private sector and rebranding Legacy as Octo5, we have been amazed by the huge positive demand for housing, especially in the middle market and this proves that the market is indeed an untapped ocean beset by avoidable weeds and distractions.
What is OCTO5 doing now?
Aggregating the lessons learnt developing our communities and also in service, we have rebranded as OCTO5 to make economic wealth through home ownership a reality for career professionals.
We believe that any professional with at least N100, 000 monthly as disposable incomes can and should be a landlord. That is the mission driving our new developments in Oworonshoki and Epe in Lagos and along the Airport Road and Karmo District in Abuja.
Using our STOW app, which is a demand aggregator, we plan to provide homes for at least 100,000 professionals directly, while simultaneously stimulating a guaranteed market that makes opportunities available to at least one million other professionals.