Housing/Property
Nigeria’s Housing Sector In 2011
The housing and property sector, like any other sector of the economy witnessed some challenges, as well as made a level of progress in the year 2011. The sector offers one of the basic necessities of life (shelter) that every human being desires to have, but it is very unfortunate that the processes that are involved in housing and property development and home ownership are very costly, and which of course have accounted for its rare affordability.
Activities in the year began with various groups and professional bodies making inputs on how to tackle the numerous challenges of the sector, ranging from building collapse to Land Use Act, and means of encouraging Mortgage Institutions to operate with tax exemption.
When the Nigerian Institute of Structural Engineers (NISE) within the period engaged themselves, seeking for preventive measures to structural failures, which effect had been disastrous, and with their resolve to play their roles as professionals in seeking for how to prevent building collapse, the Association of Professional Bodies of Nigeria (APBN) on their part tried to ensure effective and efficient housing delivery and orderly urban development in Nigeria urged government to exempt Primary Mortgage Institutions (PMIs) in the payment of taxes.
One major thing that shook the housing sector in 2011 was the high cost of cement, which is one of the basic raw materials used for construction.
Right from the beginning of year 2011, the price of 50kg bag of cement rose from N1,500 to about N1,900 in January, and continuously rose to between N2,400 and N2,600 per bag in April, 2011 which trend made it difficult for developers and intending home owners to properly carry-on their project execution.
The situation then was almost getting out of hand, as the masses lamented over the high cost of cement, as no proper reason could be given for the skyrocketing price before the federal government’s intervention through the economic team.
As a matter of fact, the constituted Nigeria’s Economic Management Team came on board when cement price had risen to about N3,000 per bag in Lagos area, and was so alarming that construction chiefs called on the economic team to take the issue of production and distribution seriously.
The concern of the economic team then was to tackle the fluctuations in cement prices, as they were mandated to crash the prices so as to make the product available and affordable, thereby boosting the construction industry.
Reacting to the development, the President of the Nigerian Institute of Estate Surveyors and Valuers (NIESV), Mr Bode Adedeji, while urging the economic team to rise to the challenge of tackling the skyrocketing cement prices, said that the rise in cement prices would further worsen the spate of unemployment.
“The escalating price of cement will compound the myriads of challenges facing the housing and construction sector of the economy. Further crises in the sector will compound the youths unemployment problem, and the newly constituted Economic Team of Goodluck Jonathan must accord this issue a priority”, he said.
Although the Economic Team impacted on the prices of cement at the first instance, as the price of cement was reduced to pave way for meaningful development in the building sector, but the effort was not sustained, as prices began to change marginally.
Inspite of the various challenges in the year across the country, and these achievements are noticeable in both.
Within the first quarter of 2011, the Federal Mortgage Bank of Nigeria (FMBN) approved the sum of N17.6 billion loan for estate development in the Federal Capital Territory (FCT).
The loan was approved for 32 estate developers to build 6,214 housing units in the FCT, and this amount constituted 25 per cent of the bank’s total loan portfolio at the period of approval.
Mr Gimba Ya’ukumo, the Managing Director of FMBN disclosed that the FCT alone generated N20.7 billion, out of a total of N64.8 billion the bank collected through the National Housing Fund (NHF) scheme as at December 31st 2010.
Also within the period, the federal government commissioned a set of 141 housing units in Irette, Owerri in Imo State capital. This is part of the Federal Government’s plans to provide new layouts in city centres across the country, as a means of reducing urban congestion.
In 2011, the rate of building collapse was drastically reduced, as compared to previous years. There were just few reports of collapse of building in the year across the country, and this could be possible through awareness campaign by various professional groups and government agencies.
In Rivers State, the demand for housing stock grew within the first quarter of the year, but gradually diminished within the second quarter, particularly for residential accommodation.
Within the later part of the second quarter to the third quarter of the year, some residential apartments were vacant, especially in the categorised of self contain, one, two and three bedrooms apartments, as investigations showed that the cost of rental was high, coupled with limited cash flow in the system.
The Diamond Bank Estate Company offered for sale and rent, some of their properties at the Diamond Estate along Ada-George Road by Elioparanwo Road in Port Harcourt, and the advert publicity went on in newspapers for almost one year without any bargain struck on sale or rentage of the properties.
Also, Afribank estate had similar project, but with very minimal response, but findings revealed that such properties offered for sale and rental are for the high income earners, whereas, the bulk of demand for housing are in the low and medium income categories who need affordable houses.
Ideally, demand for affordable mass housing was very high, but the supply was very low and inadequate, and the advanced had been that mortgage facilities were not available, as such takes in longer time to recoup, than the investments made for high income earners, which mortgage period is short and with high profit, as buyers capable of parting with as much as N35 million to N45 million.
Knowing this fact, the Governor of Rivers State, Rt. Hon. Chibuike Amaechi in his interaction with Journalists in the last quarter of 2011 reiterated government efforts in providing affordable housing for the people.
He said government will not let the Diobu housing estate to die, as it is meant to benefit low income earners, and that N21 billion will be committed to it, in the long-run, while about N9 billion had already be committed.
One outstanding problem that put a challenge to housing development in 2011 was that of mortgage financing, as many primary mortgage institutions were not willing to commit their inadequate resources to a long-term mortgage programme.
So as to strengthen the long-term mortgage funding in Nigeria, the Central Bank of Nigeria (CBN) in the middle last quarter of 2011 issued a deadline for recapitalization of all PMIs across the country.
CBN through a directive from the director, other financial institutions department (OFID), Femi Fabanwo at directed that all the PMIs that operate at the state level recapitalize with the sum of N2.5 billion, while those that would operate as a National PMI to recapitalize with N5 billion or before December 2012.
Actually what the people are looking up to is a situation where there will be mass housing, and such that will be affordable and readily available.
It is for this same reason that a group, the Social Housing Advocacy Group (SHAG) in later part of October, 2011 came up with a resolution, which was signed by its chairman, Architect Nya-Etok Ezekiel, stating its resolve to champion the realization of delivering one million housing unit annually in order to increase the housing stock where the low income group will be the specific target group.
The group also declared support for sustained investment in mass housing and affirmed that housing development is the bedrock of the economy of developed nations, which contribute between 30 to 70 per cent of their Gross Domestic Product (GDP).
In all the housing sector in the 2011 witnessed some major events in terms of progress, even in the face of some challenges of sorts.
However, these challenges have given room to programmes and decisions among various groups and government agencies, aimed at advancing the sector and it is obvious the better things are coming on board through such decisions being taken.
Corlins Walter
An international housing professional, My-ACE China, has expressed support to the Rivers State Governor, Sir Siminalayi Fubara’s housing policy and the potential for accelerating housing delivery to the people of the state.
China, who is also the founder of international real estate empire, Mayor Of Housing, said this in Port Harcourt, while fielding questions from senior journalists on the assessment of the governor’s policy thrust and implementation strategy.
Weighing in on the inaugural speech of the Rivers State governor, with specific focus on housing delivery, China said that Fubara has struck the right cord by identifying social housing as key priority area his administration would invest in through pragmatic public-private partnership initiatives.
In his “Blueprint for consolidating The New Rivers Vision”, Fubara had said, “As Rivers State continues to urbanise, the demand for decent housing also escalates. New Rivers Vision’s housing policy would support private sector investments in housing development to reduce the deficit.
“Although progress is slow, the potential in the state’s social housing sector is enormous. Therefore, we commit to expanding opportunities and incentives for individuals and real estate developers to invest in providing affordable houses for citizens.
“Accordingly, we shall: provide an enabling environment for massive housing development programme through public-private partnership participation; improve land acquisition and development by removing all encumbrances through reduced fees and timely approval of title documents to attract and encourage estate developers to deliver affordable housing; provide housing loans for civil servants to acquire or build their own houses with flexible long-term repayment terms; leverage the Federal Government to site low-cost housing schemes in the state for citizens to acquire for the families; and support the Rivers State Housing and Property Development Authority to promote and invest in the development of housing estates to serve the needs of citizens either alone or in partnership with the private sector.”
Explaining the import of the policy for Rivers people, China said that Social Housing was the answer to the huge deficit in the sector because it provides ‘Affordable Housing’ for majority of low-income earners, adding, “It is a scheme where a government subsidises the cost of housing to a group such as indigenes, civil servants, or under-privileged persons.
He praised Fubara for the initiative, adding that many professionals in the sector were ready to help government drive the policy to highest level of success.
“Most times, government provides what we call long-term either rent-to-own models with low simple houses that are basic, which minimum wage earners can achieve as their aspirations to home ownership. It is usually a government-controlled housing scheme.”
Pushed on what the new Rivers State administration can do to actualise the desire, the sustainable housing expert said, “I was very delighted with the new Governor, Sir SiminalayiFubara, when I discovered that social housing was the priority of his administration.
“What the administration can do to actualise this are four fold. First is decentralisation of government/parastatals and infrastructure. For instance, for you to achieve a social housing scheme, the government would go to upcoming areas where land is affordable; where construction would also be affordable. But you would notice apathy by Port Harcourt residents to go outside the city centre. Now, with rising cost of transportation, and where all the civil servants work at the State Secretariat in the city centre, and if a housing scheme is at Omagwa or Obiri-Ikwerre, and a worker has to travel from Omagwa or Obiri-Ikwere to work, the cost of transportation, which has been worsened by subsidy removal, would be counter-productive for the low-cost houses.
“Yes, you gave somebody house but it is not cost-effective to him because transport fare eats it up and renders the house non-affordable. So, the first thing the government needs to do is to make an immediate plan to decentralise some of the parastatals so that people can work and live close to or where the affordable houses are located.
“The second strategy is to make basic infrastructure like schools, health centres and markets available where the Social Housing Schemes are located.
“The third pathway to success is for government to subsidise and privatise the construction of any housing project. The major mistake with government-owned enterprises in Nigeria is that the initiatives are run by government appointees and officials. When another administration comes, the project suffers. Then, corruption, which leads to padding and inflation of costs in components,hampers the implementation of the projects because unlike many other ventures, housing is very sensitive to quality control. If you try to lower standard or other forms of corruption in a government housing scheme, the quality would be so compromised that the project might not be completed or meet standard specifications. Such project should not be handled by government bidding and vending system or persons not experienced in social housing.
“Government needs to get experienced industry players to provide the model and discount the model, and take the discount directly to the developer, and then, let the off-takers be pre-qualified by the government but they (government) pays whatever the amount is directly to the off-taker. That way, the government only comes in to subsidise the developer, and the pre-qualified off-takers take the houses at affordable rate.
“For instance, if an average two-bedroom bungalow would take N20million to procure. Then, the government comes to two parties; a developer and a private mortgage firm. The developer builds the house for N20million, the government decides to do a 50per cent subsidy, so, they pay N10million as counterpart funding for a civil servant, then,the mortgage firm comes in and pays the N10million. The civil servant can then service the N10million to the mortgage firm through either their national fund or their salary. That way, a civil servant actually is only able to pay the monthly repayment to own the house over about 10 years to the mortgage firm. The government ensures the quality of the houses, and because it is private sector driven, there is no room for corruption because the scheme is quality and profit driven, the firm has his name to protect. The government only comes in to ensure accessibility.
“The fourth option the Rivers State Government needs to do is to fish out the qualification of the housing design. There is a new trend called minimalism architecture, where bogus houses are not allowed but simple eco-friendly functional houses. That is why the Mayor of Housing is one of the first companies in Nigeria to retain a minimalist architecture, someone that ensures the houses are simple enough to avoid waste in construction. This is because there are too many dead spaces in houses that consume money but are not functional in return and utility to the end owners.
“In summary, decentralising public amenities at the level of the social housing scheme; privatisation to make it private-sector driven with government coming in for subsidy, and then, very deliberate design to eliminate bogusness to gain affordability and eco-friendly functionality. With these, I am sure the dream of His Excellency to achieve social housing would be very successful.
“One of the things that stood out in his inaugural speech is social housing. I look forward to its implementation so it can bring resurgence to the housing sector here in Rivers State,” China said.
Justifying social housing as the best strategy to close the housing gap, and highlighting where the scheme has been successfully implemented, China listed the US, London, and other places, including Nigeria in the Second Republic (early 1980s) when there were low-cost estates, adding that social housing policies have failed, in most part, in Nigeria since after the 1980s because of high level of corruption and bureaucracy.
He noted that, social housing would fail again, if government gets involved directly in the pre-qualification, construction and allocation processes, because, according to him, “a lot of value is lost in the corruption chain”.
“When government wants to achieve social housing, the corruption and bureaucracy in the system would stifle it. The only option is to have it driven by the private sector. You have to get a credible firm to construct it just as you give construction firms to construct roads for you. Government is to supervise the value chain while private sector handles the nuts in the chains. It has worked in a lot of places, and it is one of the ways that government uses to intervene in housing crisis. Nigeria is now in a state of emergency because we are talking of 22 to 28million housing deficit,” he said.
Speaking on the difference between social housing and normal housing schemes, China explained that, “The difference between social housing and normal housing schemes is that social housing is usually subsidised by the government.”
He made recommendations to help government efficiently implement the policy.
China said, “We live in an import-dependent economy, and once forex goes up, everything goes up. We are also in a logistics-dependent country. So, when fuel goes up, everything goes up too.
“That is why the hyper-inflation that began two years ago when fuel went to N186 has remained there. It has gone to 21per cent for two years, and with the new surge after subsidy removal, it will only go higher. If deliberate interventions are not made to buffer the effect, inflation will only get worse. The cost of housing will also be affected by inflation, unless the government can cushion the effects through social housing.
“Two things can be done: Subsidy or discount on social housing; consideration of minimum wage review because when the cost of housing has been subsidised, the off-taker (workers) would still need to do their own counterpart funding. If minimum wage is not enough due to high transportation cost, you will still record very high level of default in the payment regime. If that happens, the system might have problem.
Another thing that can help is the technology deployed in building those houses. We need to look at what substitutes exist in low-cost schemes. Low-cost housing must not be low-quality housing. There is minimalism architecture where the houses would be designed to have facilities for basic shelter and not luxuries or bogus facilities that cost more. The tech determines the cost. If you run it as normal government contract where contractors come and bid, it will make a mess of the whole thing.
“We know that government vendors do a lot of padding. Therefore, government will need to go out of its way to invite already tested brands in the housing value chain that are already developing low-cost houses, and then have a public-private partnership (PPP) arrangement with them to favour the off-takers. Social Housing is all about cost. If it is not affordable, then, it is not social housing.”
China said that a good number of experts and private sector investors were already waiting to take advantage of the governor’s policy strategy to make affordable and accessible housing available for millions of low-income earners, who had been left behind in the equation in order to bridge the wide gap in the housing deficit.
By: Nelson Chukwudi
With commercial real estate market impacted by major disruptions, including the global financial crisis and the COVID-19 pandemic, property valuation jobs are becoming hard to find among professionals.
The sector has also been slowed down by uncertainties in the market and turbulent Nigerian economy, especially monetary and fiscal policies.
Besides, the market has also been hit by the rise in building materials, especially cement, rods and sanitary wares that made it impossible for investors to delve into commercial real estate developments, while facility managers tripled their charges due to energy and other maintenance costs.
For instance, a 50-kilogramme bag of cement earlier sold for N4, 200 has shot up to N4, 700 in some locations. A set of sanitary wares now goes for N50, 000, against the earlier price of N45, 000 and a tonne of iron rods climbed to N500, 000 from N490, 000.
The total value of global commercial property fell by five per cent in 2020, to $32.6 trillion, at a time when global economic output contracted by more than three per cent.
In Nigeria, especially Lagos, commercial real estate sector declined by 14 per cent in 2022 compared to 2021 amid currency challenges and rising inflation. Interestingly, office demand remains within the premise of either quality or affordability.
Notably, the office market continues to exhibit varying levels of occupancy across different grades. The B+ grade segment appears to have the highest occupancy level at 78.36 per cent, while the A and B+ grade segments have 71.35 per cent and 75.35 per cent occupancy levels respectively.
Estate Intel said the office sector in Nigeria recorded a decline to 16 per cent of total stock from the 25 per cent recorded in 2022. However, it stated that the sector has continued to remain resilient in terms of occupancy rates despite pandemic headwinds and leasing activity still being driven by relocations.
According to Savills World Research, the value of all the world’s real estate reached $326.5 trillion in 2020, a five per cent increase on 2019 levels and a record high. Growth was driven by residential, which is by far the largest real estate sector, accounting for 79 per cent of all global real estate value. It saw its value increase by eight per cent over the year, to some $258.5 trillion.
The world’s most significant store of wealth, real estate, is more valuable than all global equities and debt securities combined, and almost four times that of global Gross Domestic Product (GDP). The value of all gold ever mined pales by comparison at $12.1 trillion, at just four per cent the value of global property.
For instance, International Monetary Fund (IMF) said tighter financial conditions tend to have a direct impact on commercial property prices by making it more expensive for investors to finance new deals or refinance existing loans, thereby, lowering investment in the sector.
They could also have an indirect impact on the sector by slowing economic activity, reducing demand for commercial property such as shops, restaurants and industrial buildings.
Estate surveyors and valuers, who confirmed the decline in commercial real estate in Nigeria, however, said the sector is currently peaking up again. “The major challenge is lack of commercial spaces as investors shy away from developing commercial real as part of fall out of COVID- 19 challenges.
“Now that businesses are coming back to traditional offices, we have gaps that will take some time to fill,” according to the Chairman, Faculty Plant and Equipment Valuation, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr. Kevin Ofili.
He admitted that the decline in commercial real estate transactions have affected valuation jobs. “Naturally, because of void earlier created by COVID-19, valuation jobs as it relates to office buildings dropped significantly since 2020, but studies for developing new office buildings is picking up again,” he said.
Ofili said government is spending less in capital-related expenditure and Central Bank of Nigeria (CBN) continuous increase in Monetary Policy Rate (MPR) is a major challenge to valuation and other services-related jobs in Nigeria.
“Once business activities reduce in any society, valuation assignments will reduce couple with continuous rising interest rate in Nigeria and world over,” he said.
Ofili called for special incentives from government, such as tax incentives for developers and to lower property-based taxation for uses in the short to medium term. He also suggested compulsory valuation by government in dealing with excise duties assessment among others like compulsory insurance valuation for government premium payments.
For the Chairman, NIESV, Valuation Professional Group, Gbenga Ismail, the market is stagnant and not many new developments in the pipeline and valuation instruction has reduced, as main valuation instructions are for mortgages commercial loans and financial reporting. “So, if mortgages are reducing definitely valuation instructions will reduce,” he said.
He also pointed out the main issue is advancement in technology. “It is becoming easier to determine valuation process coupled with this is policy. If policy does not insist on valuation then no corporate will do it. So, policies like financial reporting are expected to increase valuation.”
Ismail, who is also Vice Chairman, NIESV Lagos, said the good old days have gone, like in Asset Management Corporation of Nigeria (AMCON), when the process required that valuations be done before a transaction is concluded.
“Government should also request valuation under Bureau of Public Procurement (BPP) rules before any real estate procurement is done.
“All valuation reports are financial reporting instruments. The purpose of the report is to guide before any major decision is taken. What the valuer does is to provide market intelligence through the report to add to what you already know,” he added.