Managing Director and Chief Executive Officer of Kings Court Realtors, Emeka Okoronkwo, has explained why the real estate sector of Nigeria is progressing in spite of the nation’s economic downturn.
In an interview with VINCENT KALU, the foremost estate valuer advised the government on how to use the mortgage institutions to bridge the housing gap in the country.
Why is the real estate sector booming in the midst of Nigeria’s current economic downturn?
There’s an economist that established that money goes to where it is invited. Monies pursue opportunities. If you look at the Nigerian environment, our housing gap is still extremely huge, and the government cannot plug it. The only practical solution in plugging the gap is the private sector. Nigeria has a huge community in the Diaspora, and this time, the money; the foreign currencies they have are now making more sense in relation to the value of the naira. So, lands that they could not afford in the past, today because they are working in America, Malaysia, China etc, the currency that they have is so strengthened that they could buy the same land in multiples.
I was part of a team that invited the Chinese into the American market in the last depression 2008/2009. A lot of what you see in Brooklyn today is the outcome. They came in when the dollar was very weak, and the properties were in the market and they got involved and sealed the gap, and they took up the opportunity and revamped the place. Some of them had over 3000 per cent payback. This is exactly what is happening to Nigeria today. This is on the formal side. The informal side of it is that construction is practically a cash economy; you can buy everything from sand, stone, cement etc, apart from professional fees. There is also that measure of opening in the sense that people who deal in transactions that are outside of the banking sector see an opportunity in the real estate industry.
This doesn’t explain the entirety, but I do know that the Nigerian currency gap today has opened up an incredible opportunity for the people in the Diaspora; people who couldn’t afford to buy land before but because of the exchange rate, they could buy at any price. That is why we are quarrelling over the devaluation of the naira because the moment you devalue it, you devalue the whole of the assets in the country. The devaluation is not just affecting the naira; it is affecting people’s real assets. Now, they are investing in it because there are off takers that will take it because the gap in the market is huge. Real estate is one of the basic human needs because you need to live somewhere. So, everybody’s aspiration is to secure a home for himself, family, etc, which actually should encourage the more organised ways of gathering these inflows that come from the Diaspora. A lot of them come in direct contact with families, and not passing through the system. These Diaspora remittances are actually one of the strengths of Nigeria; it is also the same in India as they have credible experts around the world that remit a lot of dollars to the Indian economy. Our own is practical because every family wants to own a home, and this is an opportunity to actualise it because, I don’t know in my life time when again we are going to have this kind of exchange rate. So, it is an opportunity.
Why do housing gaps exist when we see boards advertising that there are properties everywhere for rent, lease or rent?
It is so because a lot of the monies that come to Nigerian developments are not borrowed funds. So the properties are there and mitigate against inflation. That is why it is called real estate because every time it is there. If you don’t rent it or sell it today, you will rent or sell it tomorrow or another day. So, their values are locked in and not like shares whose values are likely to collapse. Before there will be an incremental impact on the value of land something catastrophic like earthquake could have happened, and we don’t have such problems in Nigeria. The people that invest in these things have the staying power, and they believe that one day they will lease it or sell at good value or at the very worst their values would not be depreciated. So, it is a safe place to invest your money. That is why real estate is the vehicle that stores wealth from generation to generation.
If you didn’t borrow money from the bank you are not under pressure; if you see somebody who will pay your price you sell it, if you don’t, you keep it. It is not a good business for us because a lot of people think that we are the ones that hike the price. We don’t. We struggle every time to make sure that the subjective values of properties meet with the objective values of the people who want to buy. There is that tension, the person who wants to sell is looking at the high heavens, while the person who wants to buy is looking at the practicality, the benefits that he would derive from it. Our involvement is to make sure that these two people come close and agree on something. If you don’t agree on it, it is a zero sum game, we don’t make money; you don’t have a transaction.
Many of the high rises in Marina, Lagos are in ruins. What led to that?
I think that Nigeria’s biggest problem is the fact that we have incredible number of professionals that can solve the basic problems, but they are never involved or engaged and the society pays the price. First of all, there is a history to this. The time power situation and security became a problem in Lagos Island, it became very difficult for people that worked in these high rises, especially women, some of them were pregnant at a time to climb those steps when the generators would be off.
So, the places used to function very well when power situation was a lot better and security was a little bit under control that made the down town, which is Lagos Island the central business district the place to be. Those challenges reared their heads when security problems got exasperated and the cost of running the generators, maintenance of lifts became a problem. These challenged a lot of businesses. Besides that, a lot of those buildings were also built before the world transited to internet and broadbands. The initial problem was trying to wire the cables across those places, especially for businesses that depended on such facilities. That in itself was where the problem started. Managing these high rises effectively became extremely very expensive. That area became unpoliced and then very unsafe. If you are a lawyer, banker, etc, and you had an office there, you couldn’t go there on days like Saturdays, and you couldn’t work late.
They now found a safer new place in Victoria Island that they had under control. A lot of those high rises didn’t have one company running the whole place, so they were multi tenanted, even the ones that were owned by multinationals and banks, they also had some tenants. But when they came to Victoria Island and Ikoyi, they had places that they were 100 per cent in control of. So, they could manage the cost of maintenance, security was safer for them.
What then happened was that they forced the residents to suburbanize and overtime, Lagos State now gave a new status that can welcome them to have offices; and when that pressure went there, it helped to develop the Lekki as we know it today. A lot of the people who lived in Victoria Island were the initial people who invested in Lekki to become what it is today. These are throwbacks to what has happened.
Generations and city centres around the world have common similarities. What has happened in Lagos Island also happened in Chicago, downtown Boston and many other places, but the difference here is that those mayors invited professional like me to think about what to do to be able to bring life back to those places. There was a particular place in Chicago, and another city in Detroit that from 6.30PM, 7PM, you would see all these high rises without a single soul in the whole of the business district, so everybody goes away.
These mayors called our professional colleagues together to think of what to do. What they tried to do was to make those structures a dual service place. They started introducing nightclubs, restaurants and bars. Today, in downtown Boston, you will never get approval for any building that has one function, so you have 24 hours homes now. Like all these young people that are called the millennial, who want to just live in the city centres, go to restaurant, go to cinema and work from there. The emergence of this crop of people brought back life to the city centres.
It can happen in Lagos Island, but the only challenge is that we need to be able to structure security because a lot of those assets that are wasting there are incredible resource. If the government of Lagos State is willing and calls people who have suggestions to make to them, then it will reinvent the area. There are other old cities in Nigeria suffering like that. It is an opportunity and you need to convert the opportunity to benefit the society.
You mentioned deficit in housing, but the mortgage institutions are supposed to play a role in solving the housing problems, but not much is heard about them
The truth is that mortgage as a concept is complex. We as valuers and practitioners are midwives in the theatre of mortgage. It is the fulcrum and the basis of capitalism. Hernando de Soto, one of the most cerebral contributors to the housing mortgage industry in the world, argued that the reason capitalism has not worked in communist and developing countries like Africa and others is because these economies have not understood the mystery of capital.
The important thing about mortgage is that for you to be able to actualise a mortgage system, the legal framework must be in place and effective. The legal framework is an important as the monetary basis of it. The instances of mortgage must also be commoditized just like insurance in such a way that if you have so many people to come into the pool, the unit cost per individual becomes lower, but the person that being exposed, which is the person providing the fund is worried about how to get his money back. The mortgages that we run in Nigeria are too commercial and in the elite class that very few people get into it and many people that borrowed such money borrowed it for business and not for housing.
There has to be a deliberate government policy to widen the base, attract so many people, make the law such that people that are giving the funds, the mortgagees have a reliability that upon default they can recover their money, and that consistency must be there in spelt out terms and not in such a way that they start arguing everything to the Supreme Court. When you do that and you have so many people coming into the pool, then the cost of mortgage paying would reduce in itself and the number of years you can pay for the home can be extended. That is the way to go. I wonder why the Nigerian banks and some of the governors are not championing it.