Lack of transparency affecting foreign direct investment in real estate, says Agbato

Dr. Samson Agbato is an estate surveyor and valuer. He spoke to CHINEDUM UWAEGBULAM on the burden of multiple taxes, strategies to reposition real estate sector amid the COVID-19 pandemic and other issues.

With Nigerian building industry depending heavily on the importation of materials and equipment, the devaluation of naira has placed a huge obstacle on the development of real estate sector. What options and strategies should have been initiated to overcome these challenges?
The housing deficit in Nigeria is estimated at 17 million, suggesting that many people are homeless or are living in a less quality homes. The problem of housing has been partly attributed to the heavy importation of building materials and the devaluation of naira. The way out of this deficit is no doubt unnegotiable given the expansion in the population of the country.

To address this, government should be making land accessible at an affordable price; support local production of building materials to discourage their importation and the cost of processing property registration should be reduced to encourage people who wish to own properties.

There should also be long-term loan to be made available at a low interest rate and affordable terms; and earlier policies should be revisited and implemented accordingly.

The real estate sector has been burdened with multiple taxes. In practical terms, how have these affected real estate practitioners and investors?
The real estate sector plays an important role in the Nigerian economy, and government makes a lot of money from it through taxation. Among the taxes payable on real estate investment are consent fees on the land transaction, land use charge, withholding charge, Value Added Tax, ground rent, and development levies.

Consequently, the knowledge that multiple taxes will be charged on real estate investment is a disincentive to investors at both local and foreign levels. Particularly, foreign investors would prefer to invest in other countries where there are tax incentives like tax reliefs and holidays.

However, recently, the reason why a lot of investors enter into joint ventures development is to reduce the high risk associated with multiple taxes. Another consequence of multiple taxation is the extra burden it brings on tenants/buyers, thereby affecting low-income housing market.

In Nigeria, many graduates are unemployed. What opportunities abound for young entrepreneurs in the real estate business?
According to Bloomberg, Nigeria is the country with the second highest rate of unemployment in the world. The rate of unemployment in the country rose to 33.3per cent in the fourth quarter of 2020 from 27.1per cent. This figure is projected to increase further this year and by 2022.

Given the high rate of unemployment in the country, graduates are always advised to get some entrepreneurial skills. Diverse opportunities are open to young entrepreneurs in the real estate business. Some of these opportunities include but not limited to property mutual funds, investment trusts, real estate notes, and short letting of properties.

The concept of risk is important for a young entrepreneur to understand. Being a starter, consideration should be given to an investment option that allows him/her to limit his/her risk and to minimise his involvement in active management.

The real estate investment trust (REITs) have seen an exponential growth in the last couple of years, with real estate futurists predicting that they will become even more profitable. When investors acquire property through a REIT, they become beneficiaries of the investment and become eligible for a share of any annual profits that the property makes, through sales or letting.

Real estate sector is facing challenges such as dwindling consumer disposable income and inadequate mortgage services. How has this affected home ownership in Nigeria?
The disposable income of Nigeria in fourth quarter of 2020 was estimated at N20.33 million. There is an improvement in this figure compared to Q4 of 2019 which was N19.72 million. In figure of the fourth quarter of 2019 showed there was a decline compared to what the figure was in the fourth quarter of 2018 (N20.01 million).

The Nigerian real estate sector has yet to fully recover from the 2017 economic recession before the emergence of the coronavirus pandemic in 2019. The dwindling consumer’s disposable income has placed the rate of ownership of real estate in Nigeria at 25per cent, which is way behind other African countries like South Africa (56per cent) and Kenya (75per cent).

The pandemic has disrupted performance of private developers, making the sector among the worst losers of the current crisis. What are the strategies to reposition real estate sector?
The COVID-19 pandemic affected different industries. The real estate industry is not totally immune to the vagaries of the economy. The memories of the change that the pandemic has brought to the real estate sector will not be forgotten so soon.

It is not untrue that many people are yet to be vaccinated, suggesting that many people are still leaving under the influence of nosophobia.

This, therefore, calls for a drastic need to reposition the Nigerian real estate sector. Some of the strategies to be employed are one, the use of digital technologies. We are in the era when the details communicated in pictures are not sufficient to convince a prospective buyer/tenant. A virtual site tour is a much better option to adopt to generate the interest in buyer’s mind, without the need of leaving his/her home.

This way the developer can eliminate frequent site visits for the potential customers and also can show its property to the customer’s family and peers too. In the same vein, augmented reality, inspection drones, among other digital technologies can be deployed.

Two, safety management. While activities are gradually getting back to normal, it is important to put all health and safety precautions in place. It is important for real estate developers to take precautions such as ensuring every worker puts on protective mask, maintain social distancing, wash their hands, etc. This will not only ensure their safety but also make them more committed to their works.

Three, digitisation of documents. Verification of documents is a very important part of any property sales transactions. Mostly, the real estate developers were used to providing hard copies of their property documents and restricted the reach to the public. But digitising the documents and sharing the relevant documents to the public online will not only increase the transparency but also will increase the credibility of the project. The customers will be more confident to buy the product even if they are far away.

Four, robust construction management. This is a challenging time to manage the construction progress with limited human resources and uncertainty in the fund and material supply. Developers can focus on reducing wastes and utilising the most from the available resources.

Work allocation of the workers is also essential. With limited workers, real estate developers need to be accurately allocating tasks to avoid delay and reworks. If required, they can involve the buyer in the process and take his inputs at regular intervals to avoid reworks at the finishing stage.

Five, strengthening customer relationships. Empathy should be shown to customers. As real estate involves high investments, customers facing problems due to pandemic won’t be able to release funds at right moments. Frequent and rigid follow-ups may hamper the relationship as well. Therefore, understanding their situation and showing empathy will not only ensure that you will be in their priority list to pay dues but also will win the goodwill among the customers. This will be a good strategy to have a word of mouth marketing and referrals from your existing customers. Real estate developers can also start connecting previous customers and show care to their situation, which may generate a positive reputation and may also generate new contacts for sales.

Six, e-commerce. Malls have been replaced with online marketplaces forcing even more brick and mortar stores to close shop. While this trend is good for consumers and retail businesses, it has an adverse impact on mall owners and occupants alike as the pressure to shut down brick and mortar shops will grow. There is, therefore, the need to augment the marketing of real estate with e-commerce.

Technology is revolutionising real estate sector. How has Internet and social media marketing fared in Nigeria? How can industry players overcome increased fraudulent activities in real estate sector?
The real estate sector is influenced by the industrial revolution, which is caused by the advent of technology and the internet.

Before now, it is a thing of serious concern to get the adverts of real estate products to the targeted audience.

Specifically, with the advent of the social media, there is absolutely nowhere an information of the sale or lease of a real estate product cannot get to in the world. Within a few seconds, the whole world can have access to the information. This has made the real estate marketing, lease/letting, and sale very efficient than what it used to be before the advent of technology.

Despite the enormous benefits of the internet, there are misuse of it these days. There are unscrupulous elements who use the internet deceitfully. It is worrisome that the numbers are increasing each day, but different measure have been suggested for curbing such fraudulent act. Some of these measures include to confirm if the documents provided for the transaction are genuine. This can be done in the land registry; care should also be taken to ensure that the property that has been used as collateral is not dubiously sold to one, and due diligence should be taken when dealing with subsequent transactions that has not been perfected in lands registry.

Nigeria still lags behind in access to performance indices or accurate information on supply, demand and property sales. Has this impacted on Foreign Direct Investment (FDI) in real estate sector?
According to the Jones Lang LaSalle’s Global Real Estate Transparency Index, in 2020, Nigeria climbed up from 83rd position to 68th position (in 2016) among the 99 markets that are measured. This suggests an improvement in the ease of doing business, no doubt.

However, it is not out of place to say that the country has not done enough to encourage foreign direct investment. The low level of transparency still experienced in the country has been a disincentive to foreign investors who need data, rather than a guesswork, to make reasonable and profitable decisions. Lack of transparency has affected foreign direct investment in Nigeria in a number of ways. Lack of transparency imposes additional costs on business.

In Nigeria today, there are rising cases of bribery and corruption, which acts as disincentives to foreign investors. It also inhibited cross-border merger and acquisitions. Foreigners are more concerned about the protection of their property right. This take long to achieve in Nigeria given the high level of bureaucracy.

Unfortunately, it is discouraging to report unchanged figures of demand, supply, and property sale or figures that do not reflect economic realities of the country. For example, housing deficit of Nigeria has yet to change from 17 million even as the population of the country keeps exploding.