The nation’s housing sector is ruled by landlords. They compel prospective tenants to pay for the agency and legal documents they draw up. The President of Nigerian Institution of Estate Surveyors and Valuers, Mr. Emeka Eleh, believes tenants will have a better deal if the supply of homes increases. He presented what an ideal situation should be in this interview with Bennett Oghifo
Why must prospective tenants pay fees to agents and lawyers landlords contracted?
We must address the issue holistically. There is no need addressing the symptom without addressing the issue. The major issue is a supply issue. Supply in the sense that we know that every available data indicate that there is a deficit 16-20 million housing units, which means that demand by far outstrips supply. The aspect of the housing supply that is inadequate is the low and medium income; the aspect of this that is even more pronounced is the rental sector and this is very bad, because the number of openness in Nigeria remains very low and, therefore the bulk of the people trying to move forward within the middle and low income end up leasing.
We must address the issue holistically. There is no need addressing the symptom without addressing the issue. The major issue is a supply issue. Supply in the sense that we know that every available data indicate that there is a deficit 16-20 million housing units, which means that demand by far outstrips supply. The aspect of the housing supply that is inadequate is the low and medium income; the aspect of this that is even more pronounced is the rental sector and this is very bad, because the number of openness in Nigeria remains very low and, therefore the bulk of the people trying to move forward within the middle and low income end up leasing.
They are the ones that fall within this sector and that is where the supply falls below par, because the bulk of the deficit is not in Victoria Island or Ikoyi or Maitama or in any other highbrow area of Nigeria. It is in the area where the low income earners live and the reasons are many. One is that there are many issues we talk about in housing such as high growth rate, no mortgages, poor infrastructure, among others. Beyond this, is also the issue of our own laws that do not make investment in that area attractive to the investors. Why is everybody rushing to Lekki and Victoria Island to build? Why are they not building bungalows in Agege and Iyana Ipaja for people to let? It is because of the foreclosure/repossession laws. You could be in Court for as long as forever.
It may not sound populist but those laws that favour the tenant more that the investor, who has put down his money to build for an income ends up being counter-productive. The average investor will not go there to build and therefore that under-supply remains very profound. So, when you come to Lagos State tenancy law, it is a good law for the government but you have to address the supply end. In England and in other developed countries where it works, the government has a portfolio of real estate they can give out. Even in England where they have council flats they still have to go out to get accommodation from private investors and give out to their people, who cannot operate in the market. The truth is that you cannot control the market in the way the government is trying to do. Same way you cannot legislate naira exchange rate without allowing the market to find its level; same way you cannot legislate about a product you don’t have control over. So, the government must address the main issues that affect housing delivery and they must address the issue of our laws, which are not investor-friendly for that category of investment.
How do you react to the fact that some property in highbrow areas are without tenants for long periods?
Let us look at areas where it is more prevalent. The economy is very bad. The default rate is high everywhere, but it is higher in the low income area than the high income area. That is the challenge.
Give us your idea of the solution to the problem in the short and long term.
I believe the solution to our housing problem may not even be short term. We have to deal with the problem: access to suitable and title land on which people can build. There are statistics on how badly we are doing in that area. Records show that for ease of titling of land all over the world, Nigeria is number 180 out of 183 countries. Only about three per cent of land in Nigeria is registered, the bulk of the land is just there for farming and residential accommodation. Land can play parallel roles if there is title. The person who owns it could have borrowed money from ABC Mortgage Bank, a mortgage bank could have refinanced that land for somebody somewhere. That is what deepens the financial system. But beyond the issue of titles, there is also the issue of mortgages, because you can’t solve the nation’s housing problem without a proper mortgage system. We don’t have mortgage systems in this country as presently constituted and the government must address the issue of mortgages. It is only when you have proper mortgage that you can borrow for long term. With mortgages, developers’ work will be a lot easier because so long there is mortgage backup for the scheme they are developing people can buy and people can take up the housing units. It is common to see companies abroad building many housing units because of the viable mortgage system. These homes are taken up at inception because interest is indicated at the very beginning. We appeal to the government to resolve the issue of mortgages.
Let us look at areas where it is more prevalent. The economy is very bad. The default rate is high everywhere, but it is higher in the low income area than the high income area. That is the challenge.
Give us your idea of the solution to the problem in the short and long term.
I believe the solution to our housing problem may not even be short term. We have to deal with the problem: access to suitable and title land on which people can build. There are statistics on how badly we are doing in that area. Records show that for ease of titling of land all over the world, Nigeria is number 180 out of 183 countries. Only about three per cent of land in Nigeria is registered, the bulk of the land is just there for farming and residential accommodation. Land can play parallel roles if there is title. The person who owns it could have borrowed money from ABC Mortgage Bank, a mortgage bank could have refinanced that land for somebody somewhere. That is what deepens the financial system. But beyond the issue of titles, there is also the issue of mortgages, because you can’t solve the nation’s housing problem without a proper mortgage system. We don’t have mortgage systems in this country as presently constituted and the government must address the issue of mortgages. It is only when you have proper mortgage that you can borrow for long term. With mortgages, developers’ work will be a lot easier because so long there is mortgage backup for the scheme they are developing people can buy and people can take up the housing units. It is common to see companies abroad building many housing units because of the viable mortgage system. These homes are taken up at inception because interest is indicated at the very beginning. We appeal to the government to resolve the issue of mortgages.
My worry is with the startup date. Right now interest rate is above 20 per cent. Even if the mortgage scheme is able to takeoff over time with the supply of funds, but for me it has always been doubtful because we know the income level of Nigerians. How many Nigerians have an income of N2 million annually? The income level is very low. Assuming you earn N2 million annually and you want to borrow N5 million, at 20 per cent interest your interest is N1 million a year. Meanwhile your annual salary is N2 million. Is it possible? There is need for a quasi-government move to bring down the rate and it is important for the government to do so because we know that real estate is key to economic development. Right now, the entire real estate sector contributes only about 3 per cent of our GDP. In developed countries, that figure is about 50 to 55 per cent. In the developed world, housing development is a good measure of how the economy is performing. Very often in the US and UK, they publish the rate of sale of housings because they know that if people are investing in the area, then it means they have confidence in the system. There are many multiplier effect that arise from housing development. For instance, if you’re building a bungalow, over 70 people will be employed.
Imagine how many people will be employed if you are building another project like the 1004 flats in Victoria Island, Lagos. Imagine the boost it will give to the economy. Look at the other benefits of the whole property sector; what it will do to our employment level, economy, and the financial sector, which needs other economic measures. Whatever is invested in the sector even at a subsidised rate, will pay off over time and not necessarily about giving back to the government but other areas will be improved. There must be a form of intervention to bring down the rates. I’ll give an example. Government is there for the people and it is a continuum. Let them set up a bond of N500 billion or more just for housing and domicile it with the Federal Mortgage Bank of Nigeria (FMBN) and then give N10 million to every mortgage applicant and let this be domiciled through the retail banks and not just the primary mortgage institutions. It means all the banks in all parts of the country can give mortgage loans. It means that a housing developer can build a thousand units somewhere and go to a retail bank there and ask for mortgage for prospective buyers; states government can provide homes for their staff. The effect it will have in the economy will be enormous. The N500 billion will be revolving. Government can say the loan should be given to borrowers at 10 per cent and should be taken from FMBN at 8 per cent. That way, the banks take the risks because they will be the ones to take the money from FMBN and they will be the ones to identify those they are giving the loans. The risk to the government is minimal; the economic benefit will be enormous. The only loss to the government ‘is the difference between what they are giving to the bank and the market rate’.
Have you been able to communicate these views to government?
We have said it on several occasions and at different fora. We are not asking the government to subsidise housing forever. What we are saying is that housing must be in the preferred sector as part of the real sector because a boost in the housing sector is a big boost in the economy. It is same way the government has intervened in the aviation, and some other sector that it should intervene in the housing sector. It is not expected to build houses directly but to create a mortgage environment that will enable developers build and to make it easier for buyers to purchase these housing units.
What is to be done in the issue of property documentation?
We know the government is already addressing the land title issue. The Committee on Land Reform is working seriously to make it faster. Part of the challenge we have with the Land Use Act is that regulations were meant to be made from time to time for the running of the Act but since its inception no regulation has been made. So, the Technical Committee on Land Reform is working on the mortgage issue. We believe the government must work in some way to fast-track the growth of the mortgage sector. A third issue the government must address in housing supply is infrastructure. Infrastructural development also creates a boom in the economy. Federal government’s projects are usually massive. For real estate, infrastructure is very important. In the suburbs, about 40 per cent of the money charged for buildings end up as infrastructure cost.
Have you been able to communicate these views to government?
We have said it on several occasions and at different fora. We are not asking the government to subsidise housing forever. What we are saying is that housing must be in the preferred sector as part of the real sector because a boost in the housing sector is a big boost in the economy. It is same way the government has intervened in the aviation, and some other sector that it should intervene in the housing sector. It is not expected to build houses directly but to create a mortgage environment that will enable developers build and to make it easier for buyers to purchase these housing units.
What is to be done in the issue of property documentation?
We know the government is already addressing the land title issue. The Committee on Land Reform is working seriously to make it faster. Part of the challenge we have with the Land Use Act is that regulations were meant to be made from time to time for the running of the Act but since its inception no regulation has been made. So, the Technical Committee on Land Reform is working on the mortgage issue. We believe the government must work in some way to fast-track the growth of the mortgage sector. A third issue the government must address in housing supply is infrastructure. Infrastructural development also creates a boom in the economy. Federal government’s projects are usually massive. For real estate, infrastructure is very important. In the suburbs, about 40 per cent of the money charged for buildings end up as infrastructure cost.
A developer will have to construct a road to the site, extend electricity, water, and at the end of all these the cost of the project will increase. Lack of infrastructure creates overcrowding of cities. It is the reason people are crowding the city centre in Lagos like Surulere, Ikeja, Yaba where there is a semblance of infrastructure. Imagine what will happen when they finish the dualisation of the Lagos-Badagry and Lagos-Ibadan roads. People will be able to live in far-flong areas like Ibadan and come to work in Lagos because they can travel to Lagos in less than one and half hours. At present, even those of us who live in Lagos leave home at 5.00am and barely make it to work at 8.ooam. If people are able to live in far-flung areas that are easily accessible then why should they pay so much money to live in FESTAC, Surulere, Yaba, Ikeja, among others. These are the challenges that we face in addition to the issue of absence of the right laws.
What is this request for a local content bill in the housing sector?
We have a serious issue in the construction industry, regarding manpower. Before now, the challenge was about high caliber manpower but that is substantially alright for now because it is being plugged but now we have problem with having low-level manpower such carpenters, tillers, masons, plumbers, all artisans. When there is a project to be executed in the country, we get artisans from Cotonou or Ghana. It is problem because our young people, who will ordinarily should go through the training are not bothered. Some are motorcycle riders, traders, among others. The challenge is how to meet the local manpower for the kind of development that we are proposing. Our 6-3-3-4 education system has cut off our former system that placed emphasis on technical education. Everybody now wants to be a white-collar worker or a trader. There is need for a construction industry bill that will insist on local content to solve this problem. It will state the number of Nigerians to be engaged in a construction site but I must say that the manpower is not as readily available as it used to be and, that is a problem.
What is this request for a local content bill in the housing sector?
We have a serious issue in the construction industry, regarding manpower. Before now, the challenge was about high caliber manpower but that is substantially alright for now because it is being plugged but now we have problem with having low-level manpower such carpenters, tillers, masons, plumbers, all artisans. When there is a project to be executed in the country, we get artisans from Cotonou or Ghana. It is problem because our young people, who will ordinarily should go through the training are not bothered. Some are motorcycle riders, traders, among others. The challenge is how to meet the local manpower for the kind of development that we are proposing. Our 6-3-3-4 education system has cut off our former system that placed emphasis on technical education. Everybody now wants to be a white-collar worker or a trader. There is need for a construction industry bill that will insist on local content to solve this problem. It will state the number of Nigerians to be engaged in a construction site but I must say that the manpower is not as readily available as it used to be and, that is a problem.
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