For the past two years, Nigerian banks and real estate developers have invested heavily in the high-end real estate sector, encouraged by high levels of liquidity following a number of consolidations and skyrocketing prices. This year's drop in oil prices, however, and the collapse of the stock exchange, has led to a renewed interest in the solid, if less lucrative, affordable housing segment.
The constant level of demand for lower-income residences is a bright spot on the horizon for property developers, who have been hit hard by the slowdown in upmarket transactions. For the past decade, buoyed by expatriate demand and the oil boom, prices rose between 50 and 60%, according to Larry Ettah, the chief executive of the United Africa Company (UAC). But this year's volatile oil prices have reversed these trends and some analysts are now predicting a 15 to 30% correction, forcing developers to diversify their investments.
Banks are not alone in seeking respite in the low-end segment – as prices have begun to contract, 50 private development companies recently jockeyed for the 17 slots to pilot the government's public-private-partnership housing programme. The plan calls for the construction of more than 15,000 houses throughout Lagos. Under the initiative, the government will provide land and the developers will supply the capital to carry out the 18 approved projects.
Members of the Real Estate Development Associate of Nigeria announced an even more ambitious plan to construct at least 500,000 affordable housing units every year. Chief Olabode Afolayan, the president of the association, touted the broader effects of the programme, which he said would stimulate the real estate sector and the economy as a whole. "Can you imagine the quantity of cement, roofing sheets, nails and all sorts of building materials that would be involved? All of these buildings will require enough materials to help support the manufacturing sector," he said.
This increased private sector interest should help ease the government's burden. Still, while the government has made some moves to ameliorate the shortage in the past, including launching the National Housing Programme in 1994 to build 121,000 low-cost houses and simplifying the process of property registration, some have argued that more should be done to encourage low-income development. "This can be done by offering such incentives as tax holidays and heavily discounted cost of land," Moses Ogunleye, the Lagos state chairman of the Nigerian Institute of Town Planners, said.
Although developers say that Nigeria's high-end demand has slowed along with the world markets, there is no shortage of people who need affordable housing. A booming population and growing urbanisation have made it difficult for the housing stock to keep up with demand. In 2007 (the last year official figures were available), the housing deficit stood at 12m units, according to Tunde Ipinmosho, the head of corporate communications at the Federal Housing Authority (FHA).
While government initiatives are likely to remain an essential piece of plans to reduce the shortage, private companies are increasingly competing to contribute. Nigeria's mortgage market is underdeveloped, accounting for less than 0.5% of GDP, but private firms such as First Bank of Nigeria Mortgages (FBN Mortgages), Union Homes, Mortgage PHB, Sterling Homes, UBA NRN Scheme and ASO Savings and Loans have all launched programmes to provide financing. ASO's loans in Abuja have been so successful that in March the company announced plans to replicate the scheme, which financed over 14,000 people's homeownership during the past two years through loans totalling N40bn ($265m), in Kano. In addition to direct loans, the mortgage companies will partner with private developers, offering construction financing, as well as purchasing units to resell at subsidised prices.
The developers' increasingly diversified involvement is good news for the government. As external forces continue to make affordable housing the most stable investment, the public sector may be able to sit back and watch the private sector close the gap.