Lagos (INVESTADVOCATE)-In this interview with PETER OBIORA, Online editor at InvestAdvocate, Barrister Kingsley Snomi, Property Consultant in Lagos Nigeria discussed the post financial/capital market meltdown and its impact on the real estate sector of the Nigerian economy and other matters arising. Excerpts:

Post financial/capital market meltdown, impact on the real estate sector of the Nigerian economy

Naturally after the meltdown in the financial/capital market, most people lost confidence in these areas and there can never be a vacuum in a society. So, the tendency was for a lot of people to look into the money and the property market. The money market is usually for short term and a lot of investors naturally preferred the property market. Money market is short term like I said earlier and people don’t keep their money in the bank for a long term. They keep short term capital in the money market; so that they can rely on it for liquidity purposes. When you want to do real investment, either you put them in the capital or property market. So, at this point in time, so many people have lost confidence in the capital market; it’s only now that they are beginning to rebuild the confidence in that market.

During the meltdown in the capital market, people moved towards the property market. There was suppose to be boom in the property market; but unfortunately, because the banks also had their problems, they were unable to fund the property market as they ought to.

Though the property market kept moving forward, the anticipated boom was not available, but the industry has recorded a gradual appreciation and that is still where we are today.

What is the percentage of the appreciation?

When you say appreciation, it depends on what you mean, if you mean in terms of volume, it has been increasing spontaneously, but if you talk about value, some areas were static for sometime, for instance the Lekki zone. There was a time prices of properties in that area dropped a little, but now its beginning to appreciate. In terms of value, the saturated areas were appreciating, but the new areas had more value change. However, at present its beginning to reverse because there seems to be a lot of money coming into the system maybe from the politicians. The demand is getting high again and the lull is gradually fading away. So, if you talk about percentage of appreciation, it depends on the period been referred to, but I will say in the Lagos area, it should be at least about 30 percent increase in the review period.

How has the insecurity in the northern part of the country affected the real estate industry?

In Abuja which is not core north, in those days, once you put a  property for sale, in a period of three to four weeks you have sold it, but now you can have it there for one year or more. One of the reasons is that there is a culture thing to acquire properties. People from that part of the country are not really interested in acquiring or investing in properties, very few do. But people especially those from the eastern part of the country invest in properties irrespective of where they find themselves. Some of us from the west, want to own properties where we come from, but the average easterner invest in properties anywhere he finds the opportunity.

When the crisis in the north started, most people are not sure and until now they are still skeptical if Nigeria will divide or not. I would say the property market in the north is at a very low rate. Yes the insecurity in the area has affected investment in properties in the north.

Central Bank of Nigeria’s policies and its effect on the property market

The truth is that the policies of the CBN have had a negative effect on the property market in Nigeria. Banks now are so risk conscious at the moment. Banks are to take risk; but because of the CBN’s policies, they are so skeptical about giving out loans. Most of them, if you approach them to fund a project, they are not as willing to give out facilities as they were doing before this time. Now when they carryout a risk analysis on any intended facility they wish to disburse, it gives them little or no room to use their discretion anymore. This makes it difficult for people to access the facilities and the purpose of banking is to give out facilities,, their major income is suppose to come from interest on loans; but our banks just select one or two sector of the Nigerian economy like the Oil and Gas and pump in all their funds there; because they feel they can manage the risks in these sectors easier due to all the guarantees from the foreign banks and other places. The effect of the CBN’s policies is negative on the property market in Nigeria; though they are now trying to boost the mortgage institutions, but the impact is so insignificant at the moment, we should just wait and see what will happen in future.

On the advent of stockbrokers into the property market

Most of them are into it not by choice, because they are also a lot of properties in the market that were used as securities for shares; so a lot of the brokers have such properties in their hands, the banks also have a lot and the Asset Management Corporation of Nigeria (AMCON), these are bad loans. So all of these properties are in the market, most of the ones being advertised are properties that people have forfeited or in the process of forfeiting. Apart from this, most of the players in the capital market need other areas to diversify into. Some of them still have some clients with funds, but they are not comfortable putting them into the capital market, so the stockbrokers here are looking for other avenues to help their clients and they ventured into the property market. It’s like a backup and they feel more comfortable engaging in it. The profit associated in the capital market is on the low side as at this time, so they have to venture into the property market to make more profit.

Status update on the Dubai property market and the interest of Nigerians in that market

A lot of Nigerians who lost about 73% in the Dubai property market before the market meltdown did not recover their investments; but a new set of property investors have started going back to Dubai. The problem with Nigerians is that for some reasons, we are always comfortable investing elsewhere than at home. Its part of why our economy is not growing as fast as it should. Do not forget that most of the people engaged in this practice are politicians due to the way they make their money; they feel that it’s safer to invest outside the shores of Nigeria. Also, as a result of the resources available to major property companies in Dubai, they advert allover the world, having a major presence in Nigeria. Those who are not knowledgeable about the property market in Dubai are all rushing back again to that country to invest in the property market, luckily enough, their market is also beginning to pick up.

Why is it that the average Nigerian cannot acquire a home easily?

There are so many factors, one is our land acquisition process, it’s the major part of the problem, and our constitution says that every land belongs to the government. The idea behind that originally is that everybody should have access to land; instead of some families. But now, the government has made it more difficult, the idea then is that you can apply to the government for land usage and they will give it to you. Now it’s not possible, once the government develop a new area, the price is always too high for the average Nigerian.

Another one is that Nigeria is one of the few countries where you will buy a property and pay in full. In most places, you make a down payment and complete the rest overtime.

Again, the cost of building materials are so high; even if you are able to secure a land, Nigeria imports almost everything and if I have my facts right, until recently, only one person has the monopoly of cement. The cost of iron rods are so high, our still rolling mills are moribund. Things as simple as doors are being imported into Nigeria despite the timbers we have. It’s even cheaper to import doors than produce; because cost of production in Nigeria is so high. We look at the issue of the power supply and transportation problem we have in Nigeria, at the end of it, cost of production is higher than somebody that imports from China. Most builders bring in almost everything they need from China because it’s cheaper for them than to buy the locally produced ones.

With all these factors, it will be difficult for the average Nigerian to own a home. Also, the government is not investing so much in that direction; though they came up with a new national housing policy that certain number of houses will be built in each state of the federation, let’s see how that goes.

Most of the times, when state governments want to build houses, instead of making them affordable; they build high cost homes that only the rich can afford.

A new initiative

We are looking at acquiring agricultural lands because with the efforts the government is putting into agriculture, the sector is a thing of the future, it will drive this nation to its next level and with the kind of awareness they are creating, so many young people wants to go into farming; but due to urban migration, not many of them wants to go back to their villages to farm; even if they do, there is no guarantee that they will get lands anymore. So, our company is looking at this initiative, discussing with some international partners and trying to raise capital to acquire large expanse in different areas which it will now sublet to young potential farmers. That is what we are seeking to achieve in 2014 and 2015.

We are already talking with landowning families in places like the Sango Ota, Badagry and so on. Once we acquire these lands, we begin to advertise same for potential young farmers to get them and go into farming. We are also talking with the Nigerian Farmers Association who will guide them on how to startup.

This is a new idea because when we set up the farming communities, people will need to live in houses around these areas and we will come in and build for them.

Like I said earlier, we would be starting in the second quarter of 2014 and the international partners we are seeking are from Poland and Netherlands.

However, we are still doing what we were doing before, we are currently building terrace houses in Ajah area of Lagos and people can acquire them through outright sales and each goes for N45 million. We are also in the process of joint venture with a group of people who own lands in the Ikeja Government Reservation Area (GRA), another one is in Apapa. They will provide the lands, we will build and subsequently, we share profits after sales.  They are all highbrow areas, but we are embarking on this project to make profit, raise more capital and be able to provide homes for the average and low income Nigerians.

Future of the property industry in Nigeria

The truth is that it’s inevitable that government will not do more than they are currently doing in the sector, I can assure you that they will do more. Luckily, we are beginning to have more informed Nigerians who are making more demands on government unlike before. They use things like the social media to put pressure on the government to do the right thing.

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