Posted By: BUKOLA BOLAJOKO
Mr. Diran Adetunji, an Abuja estate surveyor and valuer, speaks on the place of the real estate sector in Nigeria’s economy and its prospects this year, among other issues, in this interview with BUKOLA BOLAJOKO.
How important is the real estate sector to the economy?
All over the world, real estate is very important and crucial to the economy and to the development of the nation. The importance of real estate sector cannot be over-emphasised. Apart from the fact that it creates and generates enormous employment opportunities, it also assist in ensuring that the citizens are empowered and their living standard is enhanced. When you have a major real estate activity in place for instance, there would be opportunities for plumbers to handle sanitary works. The services of artisans, electricians, civil and mechanical engineers, and even food vendors would also be required. In other words, people would be employed and empowered economically, and when people are gainfully employed, particularly in the real estate sector, it generates some other enormous activities, with a lot of positive trickle down effects for the people.
How would you describe Nigeria’s real estate in 2016?
Needless to state that the economy effectively ran into recession, due to the fact that it (the economy) contracted seriously in the fourth quarter of last year. The change in the government, coupled with the worldwide change in virtually every sphere of life, financial, economic, climate and several other areas all combined to define the real estate outlook in 2016. Also, the economic meltdown of the recent past; the effects are yet to completely disappear. Unfortunately, some nations, Nigeria inclusive, were not pragmatic enough to diversify sources of income, and expectedly, they ran into economic booby traps as other mono economy nations, and subsequently cannot withstand the pace at which the developed nations introduced creativity in all spheres of their life. The developed countries are busy devising other sources of energy; hence the wholesome demand for crude oil is no longer fashionable there. When you look at what Nigeria generate from crude oil today, you ask yourself how that paltry sum can effectively finance the budget of Africa’s biggest market and most populous nation
All these have negative effects on the entire economic outlook, and when you now look at real estate, which is volume driven, you realise that it has a much negative effect on the sector. Even a small project of two-bedroom flat will run into millions of naira, and the mortgage institutions, which are supposed to provide and offer palliative measures for people buying houses or people going into property development are not really developed or strong enough to offer such services. Most primary mortgage institutions you see are practically and fully engaged in the usual banking business. So, you don’t have solid mortgage institutions that can support property development business and enhance it further. The banks don’t want to engage in real estate financing because it is a long-term gestation project, so loans given if at all are for short term runs, and you cannot use a short term loan for a long gestation project. All these create a major crisis in real estate.
This is not to cast aspersion or score a political point, prior to the current regime, real estate business and activities were buoyant and dynamic, perhaps due to free money here and there. Crude oil prices were high, production levels too were sustained, demand for it was stable and consistent, and money was everywhere in all the sectors and the FDIs too were coming. Funds trapped abroad were repatriated, and all these made the difference. These funds found their way into real estate because of the traditional belief that real estate investment is the only one that has an edge against inflation. You will never get it wrong with real estate investment due to its various unique concepts of location advantage, capital growth, and returns on investment, which makes real estate investment worthwhile. But right now, we are in recession fully, and that we operate a mono-economy complicates the problems with the price of crude oil nose diving to an all-time low, high energy cost, weak exchange rate all conspired to impact on productivity and competitiveness across all sectors of nation economic activities. By the time you add this to the unrest in the Niger Delta, militancy and destruction of pipelines, leading to shortfalls in supply, the unfriendly agricultural environment occasioned by the rampaging attacks of Fulani herdsman on the farmers and their farm produce, all have affected the national income, as well as every other sectors of the economy and the real estate has its share of the problem. When you go round the major cities of Nigeria, you find out that many buildings are unoccupied, and nobody is actually requesting for them, meaning that transactions have gone down drastically.
Should we expect a different outlook in 2017?
It will be truly magical for real estate to bounce back to vibrancy and buoyancy in 2017. Unless there is a major policy shift in the direction of housing and infrastructure development, I don’t see the real estate sector prospering in 2017. After the World War II, the western nations embarked on the Marhall Plan, which created enormous activities in infrastructure development. This is the sector with the ability to absorb a large chunk of unemployed people. We should look at the present situation as if we are emerging from war with the need for massive infrastructure development and similar activities. The government had introduced the Single Treasury Account; I will suggest that these funds should be administered by a few credible banks for government with the mandate to allocate funds and loans to different sectors of the economy to create vibrant economic dynamics because we cannot afford to be static. I think it is important on the part of the government to look into this aspect and have a rethink, because a few notes of naira that are working are better than millions lying idle.
Let me quickly add that real estate sector is a highly specialised area where government must introduce and implement the right policies. The government must engage the professionals in the industry for better results because you must listen to diverse opinions at times such like this. The Nigerian Institution of Estate Surveyors and Valuers is veritably placed to give the government the much-needed advice on how to restore the real estate business into vibrancy, structure the mortgage institutions and increase our housing stocks. Hitherto, the problems have been created by putting in place those who do not know much about real estate sector, hence you realise that most of the property developers are traders, otherwise, the issue of 17 million housing deficiency would not have arisen.
What do you think should be done to quickly come out of the recession?
It is a paradox that a nation like Nigeria, one of the leading nations in the comity of nations, finds itself in a recession. It is quite unfortunate. We don’t have to be in this recession in the first place because in terms of human and material resources, we have them in abundance. One would have expected a nation, such as ours to have envisaged and fully prepare for the raining day. If the right things had been done, we would not have been in recession. But to get out of the mess, the government must develop institutions. When you have strong and viable institutions, it will be difficult for people to run government as if it were their private estates and the nation would be better for it. We must begin to build institutions and stop building individuals. If you have strong institutions, funds meant for particular purposes would not disappear into private pockets.
Another step we must take is to embark on massive investment in the construction and reconstruction of infrastructure. With this, many people will be gainfully employed. We must also diversify the economy as a matter of priority. We must invest in agriculture, this is the only country in the world where I see green grass grow on the rock, yet we spent billions of dollars importing rice from Thailand. This is shameful. Policy inconsistencies have contributed largely to this, and it is about time we harmonise our policies. We had the Operation Feed the Nation and we had the Green Revolution. The government should dust these policies, harmonise and implement them immediately.
The tax regime should also be looked into. At the moment, it exerts too much pressure on the private sector. Mind you, it is the only sector that is employing now, and the sector must not be stifled to death. A willing horse must not be ridden to death.
I am also of the view that those given the responsibilities of policy formulation should take proactive steps in creating enabling environment for real estate to drive the economy and ensure that mortgage institutions make cogent contributions to that extent. Granted that the government has set up the Nigeria Mortgage Refinancing Company (NMRC), we expect the mortgage institutions in Nigeria to come up with suggestions on how to revive the moribund sector and make it a driver of property acquisition, real estate and national development.
What is the state of the Abuja property market?
Abuja is a peculiar case because if you consider most of the rents and value of properties that are obtainable in Abuja, they do not have any economic justification because this is a civil servant city, take it or leave it. It is different from cities like Lagos, Kano, and Port Harcourt, which are laced with commercial potential and activities. You will find out that there is economic justification for rents and property values in those places. There are no industries here in Abuja; no manufacturing outfits.
Most properties that you see here are built for opulence. With the seat of the government relocated to Abuja, with embassies relocating their operational headquarters to Abuja, with government and parastatals chief executives here, the classes and configuration of houses were constructed and tailored to meet the taste of these people. So, you realise that when there is a change in economic situation just as we find ourselves now, we are at the mercies of God to navigate through the current storm in the property business. So, basically what I am saying in essence is that coming from that perspective, it has created a big problem for us. We are the hardest hit by this economic recession and the entire change mantra.
The crisis in Abuja is terrible. If you take a drive round the city, you will see that properties are just there, people and companies are not taking them. I can tell you categorically that some landlords are now telling the agents to reduce rents. It is as bad as that.