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Most developers borrowed money for their construction
In Nigeria, prioritizing local investors over foreign ones can bolster national economic stability and growth. Encouraging domestic investment ensures more wealth retention within the country and strengthens local businesses, contributing to a more resilient and self-sufficient economy.
As the National President and Chairman of Council of the Real Estate Developers Association of Nigeria (REDAN), Prince Akintoye Adeoye holds a prominent position in Nigeria's real estate sector. In his recent interview with DAYO AYEYEMI, he sheds light on the numerous challenges facing the industry and offers potential solutions.
Adeoye likely discusses a range of issues impacting real estate development in Nigeria, including regulatory barriers, infrastructural deficiencies, financing constraints, and market dynamics. He may also touch upon the importance of government intervention and policy reforms to address these challenges and create a more favorable environment for real estate development.
Given his leadership role within REDAN, Adeoye's insights are likely to provide valuable perspectives on the state of the real estate sector in Nigeria and the pathways forward to overcome its challenges.
How are the real estate developers coping in this challenging business environment in Nigeria?
Many developers relied on loans for their construction projects, but they're facing significant challenges now. The Central Bank of Nigeria (CBN) has increased the interest rates, known as the MPR, twice in the last six months. Additionally, the cost of building materials has doubled for many products. This is particularly tough for medium and upper construction, as around 80% of the materials are still imported, making them vulnerable to exchange rate fluctuations.
Developers are feeling the strain, especially those involved in offtake business where prices are fixed, subscribers have a set payment period, and selling prices cannot be disclosed. These challenges underscore the difficulties developers are grappling with in the current economic climate.
While it's important to note that the situation isn't entirely bleak, the prevailing negative trends in the economy are undeniably impacting developers across the board.
Given the challenges highlighted regarding developers' predicament, there are valid concerns about whether it's feasible to address Nigeria's substantial housing deficit.
To bridge this gap effectively, a comprehensive and intentional approach is crucial. This involves revisiting critical aspects such as the land administration system and mortgage mechanisms in Nigeria. Without addressing these fundamental issues, even government initiatives aimed at subsidizing and providing housing may face significant obstacles.
Indeed, securing the necessary funding for potential homebuyers poses a significant challenge. While the Federal Mortgage Bank of Nigeria plays a crucial role in providing mortgage financing, its resources are limited. Therefore, it's imperative for both government and individuals to explore additional avenues beyond the Federal Mortgage Bank's offerings.
One potential solution lies in government action, including measures to recapitalize the Federal Mortgage Bank and ensure strict implementation of the Mortgage Act. This act mandates insurance companies and banks to contribute a portion of their profits to support a pool of funds designated for mortgage financing. By bolstering these efforts, the government can expand access to affordable mortgage financing and help more Nigerians achieve homeownership.
You're absolutely correct in pointing out that addressing housing challenges in Nigeria, or any country for that matter, doesn't require rocket science. However, the crux of the matter lies in whether there exists the political will and sincerity to tackle this issue head-on.
It's worth questioning whether the government is genuinely committed to resolving the housing crisis. While various sectors have received government support, such as pilgrimage, farming, and Nollywood, the same level of prioritization and investment may not be evident in the housing sector.
This raises important questions about the government's intentions and priorities. Without a concerted effort and genuine commitment from policymakers, the housing deficit in Nigeria is unlikely to see significant improvement.
It seems that perhaps there hasn't been enough pressure exerted from our end as stakeholders in the housing sector.
REDAN has consistently advocated and applied pressure on the government regarding housing issues, and we will continue to do so. However, it's clear that the responsibility for pressing the government doesn't solely fall on REDAN. It's time to broaden our approach and engage consumers in this advocacy effort.
By raising awareness among consumers and mobilizing them to demand action from the government, we can amplify our collective voice and send a clear message: "Government, please don't forget us." With a united front, we stand a better chance of driving meaningful change and addressing the housing challenges facing our nation.
It's disconcerting to hear that certain housing and mortgage-related bills have been lingering in the National Assembly for almost five to six years without significant progress. Regarding your inquiry about our group's involvement, I must admit that we haven't been actively following up on these bills as closely as we should.
However, I acknowledge the importance of these legislative measures in advancing housing development and the real estate sector in Nigeria. Moving forward, we will take immediate steps to ensure that we closely monitor the progress of these bills and advocate for the necessary urgency in their deliberation and passage.
We recognize the critical role that these bills play in addressing the housing challenges facing our nation, and we are committed to actively engaging with policymakers to ensure that they receive the attention and prioritization they deserve.
It's true that the Nigerian real estate sector still heavily relies on traditional brick and mortar construction methods. While some members of our association have embraced modern building technologies, such as panel buildings, the majority still adhere to conventional practices.
One of the primary challenges hindering widespread adoption of modern building methods is cost. Implementing technology-driven construction techniques can be more expensive, especially for developers undertaking small-scale projects. The economies of scale associated with large-scale production are essential in driving down costs, making modern methods more financially viable.
Limited access to construction funding in Nigeria further exacerbates this issue, as developers often opt for smaller-scale projects due to capital constraints. As a result, opportunities to leverage the benefits of alternative construction methodologies on a larger scale are often missed.
Addressing this challenge requires concerted efforts from both government and industry stakeholders to improve access to financing, promote technological innovation, and create an enabling environment for the adoption of modern building methods in the Nigerian real estate sector.
Fraud and corruption in the real estate sector are serious concerns, and REDAN recognizes the impact these practices can have on investors, especially those in the diaspora. While it's important to acknowledge that fraud is a global issue, we are committed to taking proactive measures to address it within our membership.
As an association, we encourage individuals to conduct thorough due diligence before engaging with developers or agents. This includes verifying credentials, seeking recommendations, and ensuring transparency throughout the transaction process.
REDAN plays a vital role in monitoring the operations of its members and taking action against any fraudulent behavior. Developers found to engage in fraudulent practices are held accountable, and we strive to maintain the integrity of our membership by promoting ethical standards and best practices.
While we cannot completely eradicate fraud, we believe that through collective efforts and increased awareness, we can minimize its occurrence. We urge individuals interested in investing in Nigerian real estate to reach out to REDAN for guidance and recommendations on reputable developers who are committed to delivering on their promises.
Before investing in real estate in Nigeria, Nigerians abroad should prioritize several key steps to protect their interests and ensure a successful investment:
By following these steps and seeking advice from professionals, Nigerians abroad can minimize the risks associated with investing in real estate in Nigeria and increase the likelihood of a successful and profitable investment.
The deficiency in a robust mortgage sector presents a significant challenge for aspiring homeowners and investors in Nigeria's housing market. With limited options available, individuals seeking mortgage financing often face obstacles. REDAN emphasizes the urgent need for government intervention to address this issue.
Currently, the Federal Mortgage Bank stands as the sole institution offering single-digit interest rates on mortgage facilities in Nigeria. However, REDAN underscores the necessity for government action to revitalize the Federal Mortgage Bank through recapitalization. Without such intervention, the prospect of achieving affordable housing remains uncertain.
How do other mortgage institutions source money?
They obtain their funds from the market, and it's unrealistic to expect them to lend at single-digit interest rates when they're borrowing at higher rates themselves. Therefore, the government must inject capital into the Federal Mortgage Bank and other related institutions. Additionally, urgent action is needed to address the National Housing Fund (NHF) Act, as it holds significant importance in this regard.
What do you think is hindering foreign investment in the sector?
Foreign investment is undoubtedly valuable to any economy, but we must not overlook the significance of local investors and domestic investments. Creating an enabling environment and implementing favorable policies are essential for attracting both foreign and local investors alike.
It's crucial to prioritize efforts to attract and support local investors before solely focusing on foreign investment. Take, for instance, the case of Landmark, a local investor who has injected approximately $200 million into a project. This demonstrates the potential and capability of local investors to contribute significantly to the economy.
By nurturing and encouraging local investors, we can showcase the potential returns and success stories, which will naturally attract foreign investors. The success of our stock market, driven largely by local investors, serves as a testament to this principle. When foreign investors observe the prosperity and growth achieved by local investors, they will be eager to participate in our thriving economy.
To facilitate this process, it's imperative to implement favorable policies and streamline administrative procedures. Timely processing of building approvals and Governor's Consent, as well as access to supportive financial services, are essential factors in fostering an environment conducive to investment and economic growth. Ultimately, by prioritizing and supporting local investors, we can lay the foundation for attracting foreign investment and driving sustained economic development.
Source: zawya
