Stories by Maduka Nweke
Nigerians have often found it difficult to access mortgage facilities to buy or build their own properties for several reasons. Apart from the fact that collaterals for getting such mortgages are far fetched, regulatory bodies have not deemed it right to moderate it for the benefit of the low income earners.
Also, mortgage facility can only work when a percentage of one’s income can pay the mortgage. So that tells one the kind of house he can afford. So if, for instance, one earns N20,000 a month as a low income earner, in a year, he will earn N240,000. The maximum he can contribute is 30 per cent of that income to housing. If he is going to contribute 10 per cent of N240,000, then we are talking of N72,000 a year.
That is the lowest for a person who is on N20,000 a month. Now, if he is going to contribute N72,000 a year, you can imagine what he can afford. That will be a percentage of the interest he is paying and he also needs to pay the capital back. So we can start to do the calculation to see the kind of house he can afford. Therefore, if, for instance, his mortgage is 5 per cent of the property he is acquiring, then if N72,000 is 5 per cent, it means his property would not worth more than 20 times of N72,000. So he cannot afford to buy a house that is more than N1.5 million. So what kind of house can he get with N1.5 million. Such person probably can only afford a room where he is going to share a toilet and kitchen with other tenants. It is called communal housing in the US. And some of these communal houses can only become two bedrooms, three bedrooms and four bedrooms for larger families. So this is how you build a mortgage system. It has to tailor to the income of the person.
In the views of Mr. Ladipo Lewis, Chairman, national Institute of Architects (NIA), Lagos chapter, the picture painted above is the worst case scenario. He said, “I am sure most people earn more than this. But imagine if it were a little bit better, then such things can work but as I have said, government does not have all the money to build houses. In fact, governments run into deficits when they do such things and if you look at what happened in the Soviet Union, that type of largess affected them.
“If you look at today, countries like Venezuela did it. Now they are reversing the policy where the government used its money to build houses for the people and practically gave the houses to them for free.
Now those properties have appreciated in value, the owners want to sell them because they can’t afford to live in them anymore. So what we are looking at is because it is an economic system, you can’t bypass it; you need to work at it to create it.
“And when you create it, it creates revenue. The truth is this, if we actually develop the infrastructure and an enabling environment, people who collect interest rates at 1 per cent, 2 per cent abroad would come to Nigeria and be able to provide affordable housing for the poor.
If we do that, if we create that enabling environment, then the investment would come in, then cost of housing would drop. There would be an abundance of it but we also have to watch it. Do you know why?
“When we create that enabling environment, we can also create a bubble and when the bubble bursts, it would also be bad for the economy because if there is too much investment in housing, you overbuild and the price would crash.
That is what happened in 2008 that affected the whole world. There was too much investment in real estate and it was manipulated, debts were being accrued and there was no security backing them.
You just have to sign an agreement and move into a house and start to pay the mortgage.”
“A lot of that affected development. It created a burble. So one has to be careful about that. So it has to be something that is structured and monitored. There were zero down payment packages created in America and investment in real estate was being seen as the most viable. Then these debts were bundled and sold to other people who did not look at it that these things were not backed with any security. When you do a mortgage, the security is the property but the engine is the person who lives in it. Income is what you are dependent on. If you recover the house, it is worthless if there is nobody to pay the mortgage for it,” he concluded.
Ajah community laments invasion of school premises by Lagos govt
Residents of Ira Nla Ajah community in the Etiosa Local Government Area of Lagos State have protested what they described as the unlawful invasion of the premises of Ruby Hall Schools, a private educational institution located in the area, by agents of the Lagos State Ministry of Environment.
According to Alhaji Ajiboye Moruf, a community leader who spoke to Daily Sun, officials of the Lagos Ministry of Environment handling a channelisation project in the swampy enclave encroached on the school premises, pulling down part of its fence in an effort to pass a drainage route through the institution.
Moruf stated that attempts by well meaning individuals in the area to persuade the MOE workers to leave the school premises alone since there is a natural waterway that evacuates flood water out of the community anytime it rained were rejected.
He alleged that the MOE officials had allegedly met with wife of a former Attorney General of the Federation on the said site a day before the construction of the canal through Ruby Hall Schools, Ira Nla Ajah, Lagos.
He alleged that the said woman must have convinced the MOE officials from Alausa to divert from the natural waterway into a new canal that passes through the school compound.
Daily Sun was told that the wife of the former Attorney General of the Federation had in the past used bulldozers to pull down Ruby Hall Schools’ fence and sold six plots from the school’s land claiming that the government gave her the permission to do so.
But the question many residents are now asking is how the Lagos State government that places high premium on the education of its citizens would empower a private company, Equinox Nigeria Limited owned by the said woman, to forcefully confiscate part of the school land while also creating a canal through the remaining part of its premises. Furthermore, Ira Nla villagers have also been wondering if the state government and Equinox Nigeria Limited considered the safety of the children at Ruby Hall Schools before embarking on the project.
They are therefore calling on the state government and its officials to protect the interest of the less privileged, stressing that the balkanisation of Ruby Hall Schools was tantamount to abuse of the property right of the school and its proprietors.
The community called on the state government to reconsider its purported support to the said lady to forcefully take over part of Ruby Hall Schools’ land by immediately removing the newly created canal from the school’s compound and paying adequate compensations to the management of the school.
Meanwhile, efforts to reach the proprietors of Ruby Hall Schools proved abortive as calls to the telephone lines of some of its officials were not answered but Mr. Sunday Etim, a security guard at the school, simply told Daily Sun that ‘Oga’ has petitioned the Lagos State government over the matter.
Most cost-effective ways of managing estates
land appears to be most critical factors of production, in terms of cost. It is also one of the greatest challenges and deterrents to real estate development in Nigeria. It is the high cost of land and a culture which values resold properties with 70 per cent consideration for land value and 30 per cent consideration for the occupying property.
The value of land in Nigeria is high. Consider this; two acres of land in Victoria Island, Lagos, the equivalent of San Francisco, California, recently sold for $12 million, which is at the equivalent of $1 million per plot of land. Such high costs are hard to find in developed economies but it is a present reality in Nigeria’s major cities from Lagos to Abuja, Enugu and Port Harcourt. Oddly enough, this piece of land is considered a good deal.
When faced with such charges and not understanding Nigeria’s appetite for real estate, most investors run away. However, put in perspective, this challenge is a minor one because in truth the value can be realised upon development, resulting in great return on investment.
A great challenge posed to real estate development in Nigeria is accessibility of funds and cost of funds. The average bank loan in Nigeria is around 17-23 per cent interest rate, which in America would be considered credit card rates. This makes development quite expensive and pushes developers to build for-sale properties shying away for rentals and other long term investments. Also, funds, when accessed, often do not cover the full value of development but a fraction leaving developers with a high cash input.
These challenges can be surmounted through sound economic evaluation of prospective investments, pre-sales of properties and acquisition of foreign loans of investor capital.
The most frustrating of the challenges in real estate in Nigeria stems from governments’ bureaucratic, ageing and sometimes corrupt agencies, which hamper and delay the process of documents processing and plans approval. This can be surmounted with a good legal team, strong research on the properties being acquired and perseverance and strict pre-adherence to recommended procedures.
According to Herbert Onodingene, Principal Partner, Herbert Onodingene and Partners, Estate Surveyors and Valuers, employing the right professional, technical/management staff, and regular training would go a long way in keeping the staff of the estate abreast of the trend in town. Otherwise, they could be charging either higher rates or lower rates.
They could also be chasing products that are no longer in vogue during maintenance and giving the public bad impression. “To manage your estate better, good management of the power house, the diesel usage and power apportionment are very critical. In this regard, the estate manager must stick to the maintenance agreement without any default. This would go a long way in making the estate manageable, otherwise, if the occupants complain of power outage for long, it would become counter productive.
“Proper pricing and purchase of quality materials for repairs is a sure way of keeping your tenants. This is so because if you fail to consider the location of your estate, you would make the mistake of purchasing high class materials that the low income earners living in the estate cannot pay for.
If you do this, you may eventually keep your estate in perpetuity with no one coming to ask for rent. The problem is that the rich may not like the location and the poor would see it as exorbitant thereby keeping the owner in dilemma.
“Another factor is selecting quality tenants to live in your estate. If you perchance rent your estate to cats and dogs when your maintenance agreement put the cost of repairs and replacement on the owner, then everyday you would be buying and calling artisans to fit one thing or the other. This would make you to direct all your attention and income to that estate. It is not worth it at all.
“There should also be proper communication between the property managers and the tenants. This would go a long way in keeping the estate and ensuring tranquility within the rank and file in the estate. If there is no love within the estate, either there would be regular fights or resentment among neighbours,” he concluded.
An economic challenge lies in the cost of developing buildings in Nigeria. Today a dependency on imported finishes (tiles, lighting, among others), and wet construction methods using cement and blocks unnecessarily increases the cost of building in Nigeria. A new consensus rises around the need to take a western approach to construction using locally manufactured products, timbers, dry wall and other dry construction alternative. While this sounds great in debate, the ground resources like manufacturers, traders and distributors who should create access to these materials are almost nonexistent.
The Nigerian real estate market is open for business, with a housing deficit of over 17 million units, a rapidly urbanising population, a growing middle class and an affinity to real estate as an essential asset, investments made here are primed for success.
Many challenges exist as in any other industry but it is in surmounting these challenges through strong research, adequate preparation and innovative deployments that one stands to reap the most returns. Contrary to popular notions, citizens can afford new developments, they desire new approaches and would compensate for the challenges.
In investing in real estate in Nigeria, you stand to reap tremendous financial returns whether you are renting or selling, building single family homes or mass housing estates.
BIFM Nigeria set to launch FM Business Confidence Monitor
BIFM, the leading professional body for facilities management (FM), has launched its Facilities Management Business Confidence Monitor (BCM) Nigeria, in partnership with leading business publication.
The research aims to gain the full confidence of the FM sector by canvassing the views of the sector’s senior decision makers as well as the teams delivering those services. It will ask for opinion on current business performance, the business outlook for the coming months, and individual career prospects of people working within facilities’ services organisations, large or small, at all levels and encompassing all roles.
Speaking on the BCM, Chair of BIFM Nigeria, Wale Odufalu, said, “information is key to making strategic decisions with timely and relevant information, uncertainty is reduced and organisations can make more informed decisions. Unfortunately, the lack of industry data is one of the challenges faced in the FM industry in Nigeria.
BIFM Nigeria believes the BCM will provide valuable insight and value to FM professionals and the business community, on the business outlook for the next 12 months as it garners opinion from industry players at different levels from both the client side as well as the supply side of FM.”
Odufalu continued, “BIFM’s community group in Nigeria was set up to support the growing FM industry and an increased number of FM professionals from across the country. With BIFM supporting a BCM in Nigeria, it demonstrates the respect of the existing FM market as well as the potential growth opportunities for the sector.
“We are also delighted to have the support of the leading business publication in the country, Business Day. Its informative editorials, news and reports have commented on various areas of the economy such as construction, infrastructure, maritime, agriculture, oil and gas, to mention a few. It is therefore a great delight to see this respected media partner coming on board to work with the FM sector in Nigeria.”
Peter Brogan, BIFM Research and Information Manager, added: “On completion, the BCM will be able to show how confident organisations are about the prospects of the FM industry in Nigeria over the year ahead and how the existing performance of FM professionals are rated within the market. This is a very exciting project for us.”