By Noah Ibrahim, CEO of Novarick Homes.
One of the most fundamental needs is housing and it is an important contribution to the development of society. Over time, real estate has become a global asset class and as a developing nation, Nigeria’s real estate market has continued to evolve at an impressive pace.
Owing to the growing concerns over Nigeria’s alarming population growth, there has been a surge in the emergence of a more energetic, goal-driven, and techno-savvy young working population.
With this growth comes an even more rural to urban migration and as this inflow of urban migrants continues to increase, a serious challenge arises from the lack of affordable housing.
Despite the growing demand for affordable housing in Nigeria, existing measures employed by the government and stakeholders towards the sector have yielded inadequate results as the housing deficit gap keeps getting wider.
Filling this gap has proven to be a challenge due to a few factors that range from the constant increase in rent, a significant housing deficit, and over-regulation. This has made the Nigerian property market a mix of opportunities and challenges that can only be navigated by investors who are optimistic about converting it into a viable long-term profit.
The problems with Nigeria’s property market
According to a report released by PwC in 2019, the high-value real estate market segment holds in value between $230 billion – $750 billion. Without a doubt, this is a clear indication that Nigeria’s real estate industry is viable.
Over the years, Nigeria has experienced rapid urbanisation. According to the World Data Atlas in 2020, the urban population for Nigeria was 52%. Over the past 50 years, Nigeria’s urban population grew substantially from 18.2% to 52%, rising at an increasing annual rate that reached a maximum of 3.19% in 1981.
With these encouraging stats, you would think that the country’s real estate sector would be experiencing exponential growth; however, this sector still has several issues stifling its growth and hindering it from reaching its true potential. These issues vary at different levels in the development market.
One of the restrictions to property development is the bureaucratic process of registration and allocation charges on land. This process is often filled with delays, and it can be discouraging. Nigeria is failing when it come to the registration of property with the process lasting from six months to two years, taking an average of twelve procedures. Often at times, documents get passed from several offices over a long period and because of these incessant delays, investors are getting weary with the likely chance that property developers will lose out on funding. This might also disrupt the developer’s business plan and result in exorbitant costs of construction at a high price.
In addition, it is costly to develop in Nigeria. According to the former finance minister, Ngozi Okonji Iwela, building a three-bedroom house, for example, will cost US$50 000 compared to the US$36 000 in South Africa and US$26 000 in India. Construction costs are on the high side for a few reasons; the high costs of building materials, high skilled labour costs, and the costs associated with poor roads and sewage systems. Approximately 75% of dwellings in Nigeria’s urban areas are built of concrete. Cement prices in Nigeria are also higher than in neighbouring countries and world market prices with the lack of public infrastructure adding as much as 30% to the total costs of developments.
Currently, one of the biggest challenges that property developers face in Nigeria is access to funding. With a growing middle-class population, rapid urbanization, and young demographics compared to stronger economies, Nigeria possesses all the key factors for real estate investment. Despite all this, financing has remained a problem for property developers. This challenge could be linked to the underdevelopment in Nigeria’s mortgage industry as it generated less than 100 000 transactions between 1960 and 2009.
The devaluation of the Naira has affected the cost of building materials as a spike has been recorded over the past few months due to the Nigerian construction industry heavily dependent on the foreign importation of raw materials and equipment for construction. With a devalued Naira, the cost of purchasing these raw materials and equipment will rise.
The devaluation of its currency has caused a domino effect that led to inflation, making real estate difficult to purchase for the average Nigerian. Currently, the real estate sector is facing a cost overrun and this rests greatly on the shoulders of buyers, resulting in an increase in the price of property and people relinquishing their purchasing power.
Prospects and solutions
Despite this range of pressing challenges, Nigeria’s real estate sector is set to continue expanding, albeit at a slower pace than over the past decade. The way forward rests majorly on the Nigerian government. For the Federal Mortgage Bank of Nigeria (FMBN), Federal Housing Authority (FHA), Federal Mortgage Finance Limited (FMF), Urban Development Bank (UDB) and all other relevant agencies to perform their roles effectively, the federal government needs to ensure this and ‘checkmate’ their activities.
In addition to this, the government should also make the process of registration and documentation of property less bureaucratic. Getting approval for building plans and acquiring a Certificate of Occupancy should be made easier for property developers.
The provision of social amenities such as electricity, good road networks and property drainage systems will go a long way to ease housing development in areas where these are lacking, and it will also help decongest populated cities.
It is pivotal to state that regardless of these challenges in property development in Nigeria, the sector provides employment opportunities, investment potential, and guaranteed returns on investment.