‘Less interface between officials, land users will make prices affordable’
Professor MODUPE OMIRIN is the Head of Department, Estate Management, University of Lagos. She spoke to VICTOR GBONEGUN on why the government should pay attention to the real estate sector rather than milk the industry through multi-taxation and unhealthy policies that constrain economic development.
Stakeholders have expressed concern on the escalation of land prices in major cities. What kind of reforms do we need in land administration in Nigeria?
There are many issues that result into escalating land prices. The most important of them is when you have dwindling supply in the face of growing demand. Land is needed not only for housing but also for several other uses. In an environment, where investment opportunities are limited, people tend to look at land as the best investment. So, instead of looking for land to build structures, people are looking for land for speculation reasons, expecting that the prices will go up soon and then they can sell at a huge profit. That’s part of what constrains the supply of land for development generally in the cities.
Talking about the kind of reforms needed, we must face the fact that there are some aspects of land reforms even though is not intended, sometimes end up making land transaction more costly than necessary. For instance, in Nigeria, the request for Governor’s Consent as detailed in the land use act makes it possible for government to charge a fee for getting that consent. Of course the land price is not just the cost of the land, it comes with that added factor and not that alone, there so many administrative charges plus the fact that the land ministry is always under pressure. It’s unfortunate that the different levels of government has certain element of corrupt people in it, you find out that there are people you call gatekeepers who are like touts, officials who deliberate keep your documents until you play game and others that makes things rather difficult for those who wishes to pursue uses of land for legitimate reasons.
There should be less inter-face between users of land and officials directly. A system where everything is done digitally, where people interact more with machines; there is no opportunity for anybody to demand bribes, the system is much better, and transparent. That kind of situation will help to reduce the cost of land.
Some years ago, the Lagos State Governor of that time said land was to Lagos State, what oil is to the Nigerian economy. There is that perception that the land resource should be milked for the purpose of gathering revenue for the government and so prices are exorbitant and sometimes you have officially determined ground rents and things like that, which sometimes don’t reflect reality. Some of that has been addressed through the Land Use Charge but those who are in charge needs to have correct perception even though land is a valuable source of government revenue, it is also a social good. The more expensive it is, the costlier it would be to provide land related benefits for the citizenry. Like housing, if a landlord buys land exorbitantly, he would have to recoup the capital and definitely the rent charges would reflect that and so we need to balance our perception of what land is in land administration.
As you know, the real estate sector is still affected by the economic indices, how can the federal government attract more investment into the sector?
In last few years, we have witnessed a lot of foreign investors, showing interest in the Nigerian property market. This is not unconnected with the mortgage debacle that occurred in 2008 in the United States of America, where a lot of international investors lost money and many of them started looking for other avenues to invest their monies outside the US. Apart from that, there are global investors who like to build global portfolios so that they could have investments in other countries, which balance investment in negatively correlated economies so that when one is not doing well, the other will definitely do well for steady income.
Locally, we have investors who understand the dynamics of the real estate sector and perceive the benefits of buying land. If you look at how much real estate sector contributes to the national Gross Domestic Product (GDP), it is relatively low. Although we can blame the way the calculation are always done and factors that are taken into consideration. In other countries like the US, the real estate sector contributes a very substantial proportion to the GDP because the framework is put in place to boost investment in the sector.
Real estate industry is a very powerful instrument that can be used to keep an economy viable because if money is pumped into real estate, where there is demand, chances are that as you provide spaces for rents or lease, new spaces that have been created would demand water, electricity, more building materials and the industries producing those things would wake up and be more active and generate employment. The real estate sector can be a powerful tool for revamping ailing economy. As a result, it is very necessary for government to pay attention to what is going on in the sector and not to be too anxious to milk the real estate sector through over taxing. If there is high cost of investment in the sector, you are actually constraining economic development.
In a situation where there is deregulation and where the real estate sector is encourage to really boom, you would notice that the economy would be busy and there would be a lot of things to show forth. As an analogy, some years ago, it costs a lot of money and time to make a single call to Ghana or the US, you have to get to NITEL’s office and cue up but now that we have a different situation, with mobile telephony, imagine the number of people and companies who are into that business and the level of competition. That brought down the prices to a level that I can now get a handset for three thousand for something that cost about N120, 000 in those days that has no camera, no internet nor do voice recording. But now, the N3, 000 telephone can give all of these features, and more.
We need to infuse some degree of deregulation in real estate that would infuse competition and bring down prices, create more choices for buyers and the quality of houses will improve and demand will be more effective and the economy will also improve.
Nigerian cities are burdened by increasing urbanisation, which have impacted housing. How can we tackle rural –urban migration?
What government should do is to always pay attention to rural development. As long as we concentrate on improving infrastructure and promoting the positive elements of urban areas, we will continue to make the area attractive to the detriment of rural areas. The average rural dweller will continue to see the cities as the land of opportunity, comfort and better living. Government should encourage the economy of rural areas so that employment can be generated there, which would keep the young people seat in that environment. It is not easy for people to survive economically when they first arrive in Lagos as low-income earners.
Sometimes I look at those guys selling handkerchiefs and biros in the traffic and I wonder how much do they make in a day. They are likely to be sleeping rough, eating rough and wearing discarded clothes all in their belief that you have to struggle to make it in the city, whereas if they had some means of generating income and better employment in the rural areas, they might have stayed there. We need amenities and infrastructure in the rural areas, ensure that viable employment opportunities, quality of education that people gets in the rural areas is commensurate with what they get in the urban areas. We also need to provide recreational facilities because when people leave rural areas, they are expecting that they would have more interesting things to see in the cities. Government should also give incentives to private investors to establish industries and other kinds of ventures that would generate employment and pay the people well rather focusing more on the cities.
The private sector has maintained a lead at housing provision in the country in recent times, yet a lot needs to be done. What recommendations would you be offering on deepening their activities in housing sector?
I discovered that a lot of private sector investors are really motivated to build houses because they can perceive that there is demand but something arises too, how effective is that demand. People needs homes but how many of them can afford the kind of unit that would guarantee the profit that the private investor is looking for? That is one of the reasons the private investors tend to concentrate on the high-end of the market building for the upper middle income and luxurious homes. When it comes to the lower income, you don’t see much happening except the informal sector which somebody called, petty landlords who don’t operate within the formal market but many of them replicate their investments very rapidly because they understand the dynamics of providing housing units at that level.
In the course of my interactions with those in the formal market, I find out that they face a lot of constrains such as finance. It is a huge one because borrowing money in order to executive a housing project. It is extremely expensive in the light of the interest charge on loans by banks, which are at commercial rate. Much of the interest charge reduces the profit margin for developers. Getting the land allocation is another issue, there a lot of charges that makes it difficult to get the land and building houses at a price that people can easily afford. Sometimes, a government would starts a scheme and be willing to give developer opportunities to get the land at a cheaper price unfortunately their term would end and the new government taking over would simply do away with such scheme and start a new one. Whatever might have been paid might be completely lost. These challenges are real. Government should do a thorough evaluation of these challenges faced by developers through an inter-face between government’s agencies that are in charge and the developers.
There should be an inclusive approach to policymaking and allocation of lands for housing in various areas where housing units needs to be built. It is also important to ensure land servicing or encourage the land swamp model where an area is earmarked, investors are encouraged to deposit a good sum to demonstrate their seriousness and there would be allocate areas. It is now up to them to persuade the local communities that are already in the land to stay and be integrated into the plan they have or to negotiate with the communities, pay them compensation and let them go.
The idea is government doesn’t need to speed a kobo, but the private investors bear the cost, provide infrastructure, road, drains to specifications and they would get their money back from the allocation.
They could be asked to return part of the areas to the government for use but the part they are holding could be developed into a housing scheme or commercial scheme depending on what the area is zone for.
There are concerns on the use of capital-based property tax assessment system in Nigeria. What would you rather suggest to authority?
The capital value approach is not popular because people believed that it would make tax rate heavier than necessary and they argued that it might not make it easy to fairly access the capital-value because you don’t get many property sold all the time at the market. They also said the process is a bit arbitrary, especially how to arrive at the percentage of what is paid and so on. Also from theory, there are arguments that using capital value might be a little problematic, especially when we don’t have highly competent valuers.
The other approach uses the annual rental value, which is more accessible, transparent, and everybody knows the rental values that are prevailing in any location so it’s fair, easier for the taxpayers to access it themselves on how much they should be paying. There is also the mass tax valuing which is easier administratively speaking and you use statistical tools.
Personally, I believed that using the annual rental value is a better and much easier like I said for the people to identify with.