Market News

By Victor Gbonegun

With a fresh policy underway to ban the use of foreign currency for local transactions, there are concerns that the proposed legislation will inhibit foreign direct investments and trigger ‘black market’ transactions in the real estate market, VICTOR GBONEGUN reports.

There are apprehensions among professionals that the move by the National Assembly to ban the use of foreign currency for local transactions may further compound the woes of investors in the real estate sector.

The bill titled: “A Bill for an Act to Alter the Central Bank of Nigeria Act, 2007, No. 7 to prohibit the Use of Foreign Currencies for Remuneration and for Other Related Matters” passed its first reading in the Senate recently, which aims at ensuring all payments, including salaries and transactions are conducted in naira, as well as eliminate discriminatory practices and strengthen confidence in the local currency.

Sponsored by Senator Ned Nwoko, who is the Chairman of the Senate Committee on Reparations and Repatriation, the bill also makes it mandatory for exports and workers, including expatriates to be paid in naira. Nwoko said the widespread use of foreign currencies in Nigeria’s financial system undermines the value of the naira and perpetuates economic challenges.

He noted that using the dollar, Pound Sterling, and other foreign currencies for domestic transactions is a colonial relic that continues to hinder Nigeria’s economic independence. The bill also proposed that “crude oil and other exports be sold exclusively in naira, compelling international buyers to purchase the currency towards driving demand and value.”

Nwoko further argued that the law will “position the Naira as the central currency for all financial operations, reinforce its dominance in the economy, as well as abolish informal currency markets that undermine the formal economy and encourage unethical practices such as round-tripping by banks.

Suppose the bill scales through, the policy will throw up many dynamics in the sector, which is yearning for improved foreign direct investors having contributed a little above 5 per cent to Nigeria’s Gross Domestic Product (GDP) in 2024. Bola Tinubu administration policies have continued to weaken the naira as the exchange rate to the dollar now stands between N1,550 and N1,700 to $1.

Experts said the proposed policy may force property developers to introduce special clauses in transaction agreements. Over the past couple of years, Nigeria has reeled under heightened reliance on dollars for transactions, including the import of building materials, school fees, home rentals, lands and building purchases, a development which has posed challenges for the Central Bank of Nigeria (CBN) in maintaining monetary stability.

Currently, some luxury apartment developers advertise the sale or lease of their properties in foreign currencies, particularly in U.S. dollars. For instance, in Lagos, locations such as Banana Island, and Victoria Island, which are classified as one of the most expensive and exclusive neighbourhoods in Africa, sale or lease of property is mostly denominated in dollars.

The average cost of buying a three-bedroom apartment could be as high as $161,000. A plot of land on Lagos Island could be as high as over $7 million or $6 million. Operators prefer to denominate their property in dollars because it is stable and more advantageous.

With the dollarisation of these transactions, the naira has reportedly faced considerable risks as Nigerians spend a high volume of the local currency to purchase a few goods. Experts explained that only developers who collect payments in dollars can start new project developments because they are not affected by the naira devaluation as any change in the foreign exchange market devalues the currency, resulting in an overall increase in prices and abandoned projects.

Former Head of the Department of Estate Management and Valuation, Federal University of Technology Minna, Prof Olurotimi Kemiki, argued that the law will make it difficult to attract new foreign investors. However, he also predicted that the market may also witness frequent reviews of rents or leases to reflect the prevailing exchange rate.

He projected the possibility of a ‘black market’ for affected properties, explaining that there could be a rise in secret transactions for those who might not want to leave their present accommodation either residential or commercial properties.

Kemiki told The Guardian that in the long term, potential investors could become more cautious in property investments, carry out meticulous calculations and insert certain clauses in agreements to secure their investments in Nigeria.

He said ideally, investors in the property sector who currently use dollars for their transactions either for lease or sales should not be blamed because they consider USD as a stable currency, unlike the Naira which fluctuates almost every minute.

Faced with such a situation, he said, investors who are investing in Nigeria, especially the foreign direct investors, get their credit facilities mostly in United States dollars and look at a situation whereby their earnings can also be in USD to have a steady forecast for their business.

However, he noted that the situation hasn’t been helpful for naira stability as the currency is constantly chasing dollars to buy property or lease property in Nigeria.

President of the International Real Estate Federation, (FIABCI) Nigeria Chapter, Mr Akin Opatola, admitted that most highbrow properties are benchmarked in U.S. dollars because of the inflation in the economy. However, he noted that practitioners who do that are seen as unprofessional.

He said: “I don’t like the dollarisation of the economy. If we don’t support our currency and keep using other people’s currency either Euro, Pounds or dollars, the country can’t get better.”

He noted that an operator who plays in the sector using the local currency and is quite aware that the value of the naira has reduced, may not maintain the same asking price for a property even if the customer is coming for the property in two or four months.

“We also know that CBN frowns at the dollarisation of property apart from the latest move by the national assembly to stop the trend. That’s why when prices are quoted in naira; there are clear instructions alongside stating that the price quoted is only valid for a particular period.

For instance, a developer may have to include a clause that seven days afterwards, the price will increase depending on what inflation is, by that time. The move by the National Assembly is a step in the right direction but it is going to be difficult if the bill is passed,” Opatola stressed.

In attracting foreign direct investments into Nigeria, he said money will always follow value even as it is easier to quote prices in dollars for foreign investors interested either in choice areas like Eko Atlantic, Banana Island or Victoria Island because they can easily compare what is the price for similar property in Kenya or Accra-Ghana and in some parts of Europe.

Past Chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV) Kano chapter, Mr Abdulaziz Abdulatif, expressed optimism about the positive impact if the bill scales through. Specifically, Abdulatif said the ban will improve the supply of property, and stabilise the market.

“If the country can achieve that, it will increase supply in the local market because the situation in which we are currently is like having two different markets: one controlled by dollars and another for naira transactions.

“It will also help strengthen the currency. For a developing nation like Nigeria, there is no reason for us to allow our property market to be priced in dollars. Most of the things we buy to build structures are in naira value,” he said.

He added that the move will normalise the price of rent and property. For instance, “if you have someone who is paying rent in dollars, like $1,000, you can say you are not increasing the price over time, but in the naira component, your rent can be increased yearly.”

Abdulatif said: “I have a property that has been in the market for sale, the owner kept it because they have some foreign nationals as directors. Every three months, they kept shifting the asking price based on instability in the currency market. I had to warn them that it would not earn them anything because Nigeria has its independent currency.”

He observed that for the property benchmarked in dollars, it is like they are not in the market because it is only a few people; high net worth individuals that can access that market.

The former chairman further said: “We have a country, whether it is an inflationary economy or not, the legal tender is the naira and property owners are not the only ones in the market. We must face the reality of the economy together and stop putting pressure on the currency because those who want to buy property always run to the parallel market to source for the dollar.”