When Ebong Bassey committed N650,000, saved from his meagre income as a civil servant, to buying a plot of land from an estate located along the Lagos-Badagry Expressway in Lagos, he did so in anticipation that the on-going expansion and reconstruction of the expressway would be completed in good time and roads infrastructure problems would have been solved.
Bassey went ahead to start developing the land with the building of a three-bedroom bungalow, keeping pace with the reconstruction of the expressway and hoping to live in his own house soonest. The Lagos State government which was building the expressway, from a snail pace of work, has stopped altogether and the contractor has gone on holiday.
That is how Bassey’s dream of owning a home has been dashed because the expressway has become a nightmare with an impenetrable gridlock. He is not encouraged to continue his development and he cannot get back his hard-earned money. He is in a real dilemma. And he is not alone in this.
Nigeria has a huge real estate sector whose value is estimated at N4.7 trillion. But the country cannot unlock this value due to infrastructure constraints. The country’s yearly demand for housing is estimated at 1 million units. Only 100,000 are supplied. The rest, which offer huge investment opportunity, cannot be supplied for reasons of infrastructure.
Northcourt Real Estate in its recent report confirms that the absence of infrastructure, which constitutes 15 percent-20 percent of Nigeria’s real estate sector, has contributed to the high cost of development. Ayo Ibaru, the company’s director, real estate advisory, says “bridging this chasm is crucial to unlocking sustainable growth the economy so desperately needs”.
Land and housing and, indeed, other forms of real estate are like chicken and egg. To reduce the cost of development, investors always look for areas where there are infrastructural facilities such as roads, electricity and water. This explains why land prices are generally high in city centres.
In spite of the lull in the market, the Northcourt report reveals that land prices increased in Lagos, with Victoria Island and Ikoyi growing by 11.3 percent and 14 percent year-on-year, respectively, while with the growing population and activities around the Lagos Island area, prices of land in places like Agungi in Lekki grew by 18.9 percent.
On the flipside, Chudi Ubosi, principal partner at Ubosi Eleh + Co, notes that due to absence of infrastructure, land value at the outskirts of the city tends to be static or appreciates slowly, making investment in such areas unattractive with little return on investment.
Poor infrastructure base is also affecting other segments of real estate.
“High land costs, weak infrastructure and the absence of modern facilities continue to hamper the growth of Nigeria’s industrial sector. These justify the current rentals, which range between $3 and $4 per square metre per month with an average yield of 7.5 percent,” Ibaru confirms.
Retail is another segment of real estate whose development is also constrained by infrastructure. Government’s investment in infrastructure is not matching the need which is estimated at $3 trillion.
The 2019 proposed budget has set aside N2.28 trillion for capital expenditure, which is lower than the N2.87 trillion earmarked in the 2018 budget, meaning that the gap will continue to widen.
Nigeria’s consumer class has grown by nearly 140 percent over the last decade. The country has 10 cities among the top 50 urban consumer markets in Africa and 52 million consumers who can afford products within the above average to premium range. Nine million of these consumers are in Lagos.
But the needs of these consumers cannot be met because investors cannot develop outside the city centre due to lack of infrastructure.
“We are constrained by land availability in the big cities, especially in Lagos. Lagos can accommodate 20 malls but the problem is in finding the land. We cannot get the right land size at the right price to build the kind of mall we have in Owerri and even where you find one, the price will be too high,” said Eddie McDonald, COO, Resilient Africa, developers of Owerri Mall.
MKO Balogun, CEO, Global PFI, agrees, adding that besides macro-economic issues, the new investment decisions which favour community neighbourhood malls are based on land in the right place at the right price. This right place, he explained, means where there is infrastructure.
Source: Chuka Uroko