The housing sector is the bedrock of the economy of most developed nations, an important tool for stimulating growth. Housing construction indices are some of the most common measures used by analysts to gauge economic trends in OECD countries. In more advanced countries like the United States of America, Britain and Canada, the sector contributes between 30 percent and 70 percent of their Gross Domestic Product (GDP). Investment in housing accounts for 15 percent to 35 percent of aggregate investment worldwide and the sector employs approximately 10 percent of labour force worldwide.
The sector of the Nigerian economy that has a very bright future is real estate. Despite the economic downturn, the sector has been growing in leaps and bounds, with high rise buildings, shopping malls, hotels springing up everywhere from Lagos to Abuja, to Port Harcourt, to name just a few.
According to a 2014 forecast by the International Monetary Fund (IMF), strong developments in the construction, real estate, and technology sectors in developing countries such as Nigeria has supported the world economy through tough financial periods in recent years. It also predicts that these developing nations will account for about 70 percent of world growth over the next decade.
Nigeria is touted at the moment as one of the developing countries with great potentials in real estate, and one of the competitive players in the global real estate market that is fast becoming increasingly attractive to investors.
Recently, the National Bureau of Statistics put real estate contribution to Nigeria’s GDP at 7.5 per cent, a figure that left many stakeholders surprised at what they described as a very poor rating by the body.
To really appreciate the importance of real estate to the country’s GDP, they called on the federal government to integrate the construction and building sector into the formal sector in order to capture their contributions accurately.
However, though real estate is still a small contributor to the country’s GDP, its importance cannot be over-emphasised. Perhaps the best way to really understand the importance of the real estate sector to Nigeria’s economy is to compare it to other emerging and developed countries of the world. Another way to do this would be to compare its growth to the country’s economic growth.
Let’s start with the latter. The Nigerian economy grew by 2.35 percent year-on-year in the second quarter of 2015, down from 3.96 percent expansion reported in the previous quarter.
This has been attributed to the decline in oil production and prices, and recently, the Federal Government admitted that the country’s economy was “technically in recession” having gone on two quarters of negative growth.
That admission, though coated in technicality, corroborates the recent forecast by the International Monetary Fund (IMF) who predicts that Nigeria’s economy was likely to contract by a further 1.8 per cent this year. In other words, the country which had earlier overtaken South Africa as the fastest growing economy in Africa is now heading towards recession.
Ironically, while the country’s economy suffers from stunted growth, the real estate sector has been on the upswing, growing faster than the average GDP at a rate of about 8.7 per cent, according to the accounting and auditing firm, PricewaterhouseCoopers (PwC), as well as stakeholders like the Centre for Affordable Housing Finance, with a projection to grow by 10 per cent in the near future.
In its May 2015 report titled, ‘Real Estate: Building the Future of Africa,’ PwC further predicted that Nigeria’s real estate investment will rise by about 49 per cent, from $9.16 billion last year to $13.65 billion this year. It attributes this to a growing middle class driving demand for residential property development, and indirectly, retail, industrial and commercial real estate development.
However, experts believe that the sector could do better with the right incentive. According to them, despite its growth, the real estate sector still remains a small contributor in the country’s GDP, especially when compared to other emerging and developed countries like South Africa, Brazil, China, and the US.
This could be attributed to several problems plaguing the sector. One of them as highlighted by the PwC report is access to finance. “There are existing problems with access to finance; with a lack of long-term debt financing and an underdeveloped mortgage market, with mortgage loans representing less than 1 per cent of the nation’s GDP.” Another, the report says, is the cumbersome and time-consuming process for land acquisition and ownership documentation which makes land acquisition difficult, even though land is very cheap in Lagos, compared to other emerging cities across the world.
Lack of infrastructure still remains a major concern for the sector as the non-availability of basic services such as water and energy has forced developers to provide these amenities themselves, thereby raising their total development costs by up to 30 per cent, the report further lamented.
All these have led to a severe shortage in the sector, with the yearly supply nowhere near what is needed. The country, like the rest of Africa, remains severely undersupplied, especially when it comes to high-quality commercial space.
Retailer expansion also continues to be hindered by a lack of high-quality retail accommodation. Jones Lang LaSalle estimates that the stock of ‘Grade A’ shopping malls across.
The economy of developed countries like USA, UK, France, Germany, Japan and many more relies heavily on the real estate sector. This is why crashes in real estate markets often result to global economic meltdowns. It proves how important the sector is in the development of an economy.
Africa (excluding South Africa) is less than 1.5 million square metres – that’s barely equivalent to the stock of Hungary, a country of just 10 million people against one billion in Africa.
In Nigeria, a country of over 180 million people, the housing shortage can be seen in low, middle income residential and office spaces. And as the country’s population increases, we will see further strains on an already challenged industry. At the moment, Nigeria is believed to have a housing deficit of 17 million. According to experts, affordable housing and accommodation must be the major driver if the nation’s real estate sector is to deliver at the rate and scale needed to contribute significantly to the nation’s economy.
To plug the housing gap, the World Bank in its 2014 study stated that N59. 5 trillion would be needed at N3.5 million per unit. What this means is that despite the harsh economic conditions, the real estate sector still represents a huge opportunity for positively impacting the economy to promote growth and inclusion.
This is because housing is not only a basic necessity that affects the welfare of the citizenry, but also a critical sector of an economy. Therefore a viable and sustainable housing finance plan is essential.
To achieve this, experts insist, the industry requires the availability of affordable long-term funds to be provided by the capital market. According to them, funding from the capital market reduces the cost of mortgage loans, cost of funds and allows for longer repayment tenor.
In addition, there should also be a general review of the house types, as well as their sizes and quality, with more efficient designs. Also needed is high quality infrastructure such as the ones provided in the Eko Atlantic City.
Modeled after the skyscraper District of Manhattan Island in New York City, it is expected that the new city will be home 450,000 residents, with commuter volume expected to exceed 300,000 people daily. Self-sufficient and sustainable, it includes state-of-the-art urban design, its own power, clean water, advanced telecommunications, spacious roads and over 200,000 trees.
The uniqueness of the initiative for the region is that the residential units will be constructed as vertical high-rise apartment towers due to limited space for the traditional single family detached units. There are already over 500 units of apartments of various room sizes ranging from one bedroom to four bedroom apartments already under construction. The first residential tower is completely sold out and the first set of units will be delivered over the next couple of months.
With such ambitious projects, stakeholders remain optimistic that the real estate sector can contribute immensely in resolving the current economic problems faced by the country also be a major source of employment for the country’s fast growing population.
Nigeria’s Former Minister of Power, Works and Housing, Babatunde Raji Fashola agrees, describing the real estate industry as a strategic sub-sector in the construction industry that has remained an important contributor to the Gross Domestic Product with vast potentials for energizing and catalyzing growth of the overall national economy.
This is therefore a clarion call on the federal and state governments, the national and state assemblies to rise up with the political will that will encourage investment in the real estate sector of Africa’s most populous country – Nigeria.