As increasing purchasing power and a sizeable housing deficit fuel demand for accommodation and retail facilities, Nigeria’s real estate sector is slowly emerging as a promising destination for capital returns on both affordable and high-end housing.
To enable citizens to benefit from the influx of housing developments in the works, efforts are underway to broaden access to financing to those who traditionally have not been able to access it. At the end of 2011, for example, the Federal Mortgage Bank of Nigeria (FMBN) launched the Informal Sector Cooperative Housing Scheme, which will allow low-income earners working outside of the formal sector – some 85% of the 50m Nigerians legally eligible to work – to access mortgage loans from the FMBN. The idea is for people to form cooperatives that will enable them to benefit from mortgage loans.
To ensure the scheme is benefitting its target population, the bank has partnered with the National Orientation Agency, which has agreed to mobilise Nigerians working in the informal sector to form the collective associations that would qualify to receive FMBN loans and generate interest in homeownership. Under the programme, individual borrowers can put a 15% down payment on new property and receive a loan with a 6% internet rate. A minimum monthly contribution of N450 ($2.85) is required to obtain a loan.
“Nigeria is one of the biggest places in the world in terms of real estate investment,” Ayman Al Kurdi, the head of sales at Dubai-based Kings Land Real Estate Broker, told local media. This is due in part to the fact that the industry is young and thus attractive for both domestic and international investors, Al Kurdi said. “The prices are quite high, but that only portends that the competition is thriving and the capital development is also there.”
To accompany these new loans, there are also plans in place to construct more affordable housing in the country. The Delta State Integrated Development Project (DIDP), a public-private partnership that is part of an overall strategy to develop the Delta state, is working on two commercial housing projects – one in Asaba axis called DIDP Downtown, which will provide 10,000 apartments and is set to be unveiled this year, and the other in Warri axis named New Oil City. These developments are planned to be funded solely by investors, with minimal assistance from the government.
Additionally, the Federal Housing Authority has plans to construct 5000 low-cost housing units in the Gwagwalada are council of Abuja. For this project, the Federal Capital Territory Administration has allocated 21 ha of land.
However, despite these projects, more work needs to be done if the government is to fulfil the nation’s unmet demand of 16m housing units, much of which is the result of high prices.
“Residential units continue to be overpriced,” Erejuwa Gbadebo, the CEO of Broll Property Services Nigeria, told OBG. “This is on one hand due to high overheads as a result of high fuel prices and the high cost of construction, and on the other a reluctance of landlords to drop prices [because they are] looking for well-paying oil companies and the like.”
However, international investors are already taking note of the growing opportunities in the sector. In January GEP Nigeria, a joint venture between Oman-based GEP (BVI), a subsidiary of Zawawi Group, and Nigeria-based TBF Group, announced plans to invest in and build 1m luxury and affordable homes. The joint venture will see the construction of mixed-use developments that include facilities such as schools, hospitals, entertainment facilities, shopping and commercial centres, transport systems and telecommunications infrastructure.
Despite the growing enthusiasm of investors, a number of challenges persist. One major obstacle is a bottleneck in funding. FMBN has reported a shortage of N100bn ($631.71m) in the National Housing Fund (NHF), which is comprised of mandatory contributions from companies and individuals earning above a certain threshold, due to non-compliance on the part of employers.
Employees earning above N3000 ($19) per month are expected to contribute 2.5% of their salaries to the fund. Banks and insurance companies are also expected to invest in this fund, but some participants have not been fully compliant.
There is still work to be done to ensure affordable mortgages and an adequate supply of homes. Nonetheless, with greater efforts to broaden access to financing, international interest and major projects in the pipeline, real estate can indeed become a growth industry.