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High lending rate will raise price of real estate products, says Opara

By Guardian Nigeria
08 August 2022   |   2:39 am
Mr. Gladstone Opara is the new president of, the International Real Estate Federation (FIABCI), Nigeria Chapter. He spoke to VICTOR GBONEGUN about the impact of the government’s monetary policy

Opara

Mr. Gladstone Opara is the new president of, the International Real Estate Federation (FIABCI), Nigeria Chapter. He spoke to VICTOR GBONEGUN on the impact of the government’s monetary policy on the sector and how to meet housing demand by low-income earners.

There are fears the CBN’s monetary rate could affect the real estate sector. Do you think so?
The Central Bank of Nigeria (CBN) increased Monetary Policy Rate (MPR) for the second time in 2022 from 13.5 per cent in May to 14 per cent in July.

According to the CBN Governor, this was the only option left to tighten the economy and curtail the unabated bearish rise in inflation, which, according to the Federal Bureau of Statistics, was at a five-year record rate of 18.6 per cent in June 2022. The last time Nigeria experienced a 14 per cent rise in our MPR was in February 2019.

I believe that no matter the reason for this recent increase in MPR, it will surely exacerbate existing woes in the real estate sector. One sure and quick impact of this unwelcome move is the automatic increase in the bank-lending rate, which hitherto had been considered to be very high. Some people speculate that the interest rate will exceed 30 per cent.

The sector is already under-funded in Nigeria and access to bank funds had always been hampered by bottlenecks in the system. There is no gainsaying that it is a mirage and windy rhetoric to expect a huge success in a business where you borrow at this astronomical rate.

I am aware that some developers have tried to counter situations like this by resorting to options like rigorous off-plan sales, which never ensure enough handy cash for business or go through the risk of high borrowing interest rates. The resulting effect is very high prices for real estate products. Whatever is happening in the sector currently is a reflection of the general state of the Nigerian economy for some time now.

Yet, one major requirement of man in life apart from food is shelter. I, therefore, advocate the declaration of an emergency in the real estate sector, a cut in the borrowing rate to enable the government to achieve its housing policy target and ensure Nigerians own or have access to decent housing accommodation at affordable cost.
The deficit in the affordable housing segment is very huge. Why is it difficult to meet the demands of low-income earners?

According to the Central Bank of Nigeria, the country had a housing deficit of about 22 million in 2018, which some experts say was the highest in the world. Some estimate that as of today, the deficit has jumped up to 28 million with about 62 million Nigerians facing a housing crisis and that about N21 trillion will be required to checkmate the deficit.

Considering that Nigeria’s housing deficit in 1991 was only 7,000,000, rising to 12,000,000 in 2007, then 14,000,000 in 2010 and 28,000,000 as of today, and also taking cognizance of our exploding population from 87.5 million in 1991 to the current size of 200 million, it is not rocket science to see how alarming the situation is.

The situation is more disappointing when we consider the low deficit in nearby countries like Ethiopia, which is only 1.2 million in a population of about 103 million and 2.5 million in South Africa with a population of about 58 million people as of 2019.

Unfortunately, the majority of the under-housed Nigerians are mostly low-income earners. Some experts speculate that it is only 10 per cent of those who desire to own a house in Nigeria that can afford it either by personal construction or purchase. At the FIABCI World Congress in Taiwan in 2013, it was revealed to us that Singapore has about 95 per cent ownership rate in housing, while the United States of America has 75 per cent and the United Kingdom- has 78 per cent.

This nauseating situation has been created over the years due to the inaccessibility of funds not only to primary users like the developers but mostly to the end users, who would inhabit the houses. The cost of land is skyrocketing every day; there is so much uncertainty in government housing policies with a lack of motivation for willing house owners.

Unfortunately, most of the government programmes targeted at affordable housing have been abandoned nationwide. It is not as if the government is not aware of the need to address this nagging housing needs. Several governments have come up with different programmes and projects at different times as proffered solutions.

For instance, the Federal Government inaugurated Family Homes Fund (FHF) as part of the 2017-2020 Economic Recovery and Growth Plan (ERCG). This was targeted at boosting financing in the construction sector to be able to achieve the construction of 2,700 housing units in the short term and about 10,000 units in 2020 with the creation of about 105,000 yearly.

The National Housing Policy has always been there, designed to achieve 1,000,000 housing units per year. Unfortunately, these and other programmes have never lived up to expectations and they seem abandoned.

Worse of it is that the few ongoing developments, which are mainly by private developers are being concentrated in the urban centres leaving behind the rural areas, where many of our lower income earners reside.

The looming danger in future as our population is being targeted to double at 400 million in 2050; which therefore underscores the need to change the current apathy and lackluster attitude by the government and private developers towards affordable housing in the country.

Despite the significant contribution of the industry to the nation’s Gross Domestic Product (GDP), the sector has experienced a downturn in the last two years. What are responsible for this and how can it be improved?
Despite all the lack of encouragement by governments over the years, I may not say that there is a general downturn in real estate development over the past two years, especially for the middle and high-income earners. Yes, it is true that government participation in the sector has been plunging down south over the years, yet most of the private developers have been able to break the odds resulting in the increased number of estates, as well as a number of developers emerging all over the country.

Some of them had access to easily accessible loans from foreign creditors, while some smartly turned their customers into partners who deposit funds upfront with the benefits of reduced prices in the new real estate marketing phenomenon called “off-takers”. The issue here is that most of the developments are not commercial or industrial but mainly residential, concentrated in the urban centres and targeted toward top-class investors.

Despite the successes recorded so far, the need for lower-income earners is yet to be addressed. As I mentioned earlier, government apathy and administrative bottlenecks, and lack of control of service providers leading majorly to quackery in the industry are some of the major reasons we have experienced downturns in the real estate sector.

Industry experts say the high cost of the mortgage regime has impeded accessibility to home-ownership by many Nigerians. What is your perception of this?
Just like the recent increase in MPR, the high rate of interest even on mortgages has remained a discouraging factor to better real estate delivery in Nigeria. Many mortgage institutions exist in name and have fully diverted from their primary functions due to a lack of funds. The existing mortgage institutions should be recapitalised and fully funded to take up the huge challenges ahead. The Federal Mortgage Bank, which should be the driving force towards affordable mortgages, especially for end users, should be re-vitalised with funds.

So long as lending rates remain high, so long will mortgage remain difficult and inaccessible. And so long as ease of doing business generally is hampered by nationwide insecurity and other administrative bottlenecks, prices of real estate products will remain high further driving affordable housing away from Nigerians, especially the low-income earner.

The International Real Estate Federation (FIABCI), is a prestigious real estate organisation and has been in existence for a while. What contributions has the association made toward the development of the real estate industry in Nigeria and Africa?
FIABCI is a very wonderful international platform that has not only helped expose the international real estate to Nigerian practitioners but has also helped Nigerian real estate to be promoted at the international level.

For instance, we have been able to showcase multiple Nigerian property developers, developments and companies to an international gathering of realtors. Projects like the Eko Atlantic City in Lagos won world acclaim after it was nominated for an award in the prestigious FIABCI’s Prix d’excellence Award in Luxembourg in 2014.

Sincerely, after the presentation of comprehensive details of Eko Atlantic through lectures and videos, many Europeans, Asians and Americans approached us declaring their interests and expressing their surprise that such mega real estate projects are being developed in Africa.

FIABCI has attracted an international delegation of real estate practitioners to Nigeria over the years. Former World Presidents like Mrs Lisa Kurass of the USA, Flavio Gonzalo from Brazil, Mahmood Abass from India, Assen Makedov from Bulgaria, Walid Mousa from the United Arab Emirates have led delegations from their different countries to attend various FIABCI programmes and local tours and visits to Eko Atlantic City, Ilubirin Housing Project, Sangotedo Housing Estate, Lagos State Development and Property Corporation (LSDPC), and others.

There is also the FIABCI Property Scorecard Project, which is being anchored by the Nigerian Chapter jointly with Mr Bill Endsley of USA as our consultant. This project has been used to project Africa to the outside world, including affordable housing projects such as the LSDPC Housing Estates at Ojokoro, Ogba and Surulere, as well as the Sangotedo Housing Estate.

Our membership cuts across more than 80 countries of the world, providing an easy leeway for international transactions for local members. Many of us have been afforded the opportunity of interacting with international real estate developers and architects, such as the joint designer of Burj Dubai, world-rated economists like Hernando De Soto of Peru and world Presidents and leaders during our international programmes.

Nigeria has acted as the epi-centre for the spread and administration of FIABCI affairs in Africa and the near East Region for more than five decades. With the growth in our Young Members group for the past four years, we believe that more will be achieved in promoting real estate successes in Nigeria and Africa to the outside world in the future.

As the new president of FIABCI-Nigeria, what are your plans for the group?
As the President of FIABCI Nigeria, my main aim is to latch on to the successes made so far by past administrations and promote FIABCI as a much-needed platform for real estate practice at the international level.

Many of our real estate developments in Nigeria have been marked out for nominations for awards at the popular MIPIM Real Estate Exhibition ceremony in Paris and FIABCI Prix D’Excellence Award in 2023. We will strengthen the partnerships we already have with real estate practitioners outside Nigeria like VAAL Real Estate of Kenya, who we have encouraged to establish an office in Nigeria.

We will continue to update our members regularly with new standards and rules of real estate practice through our regular seminars, webinars, and local and international conventions. Most importantly, FIABCI Nigeria deserves a permanent secretariat and my administration is determined to deliver this before leaving office.

Non-adherence to international best practices and quackery remains a challenge for professionals and the industry. What are your ideas on how to resolve these loopholes in the industry?
This current problem is a reflection of the general decay in our entire system. Luckily, many of us tasted the good and sane period of real estate practice in Nigeria and have watched helplessly as the system decays over the years.

The major challenge has been the lack of regulation of the different sectors ranging from agency, valuation, development and others. This has made practitioners cut corners and throw professionalism to the wind. The establishment of a regulatory body like Lagos State Real Estate Regulatory Authority (LASRERA) gives some hope of the return of sanity.