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Land, capital slow real estate investors


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Nigeria

IMAGE: An Estate Project inside Banana Island the most expensive neighbourhood in Nigeria »

Nov.8.2013

 

In spite of Nigeria’s large population, size and fast-paced urbanisation, which ordinarily would have created huge market for real estate, land and capital are slowing investment in the sector.

Empirical evidence and sector analysis have shown that investor-interest and confidence are neither little nor lacking in Nigerian property market, but a number of hurdles on the way of investors have almost killed this interest, impacting negatively on the sector’s development.

Chu’di Ejekam, director, Real Estate in Actis, confirmed to BusinessDay that investors in this important sector of the nation’s economy are challenged by a number of hurdles, listing them as land, frivolous litigations, capital, cost of construction, among others.

As a private equity firm, Actis invests heavily in the various segments of real estate focusing more on retail malls and less on residential property. Last September, it closed the second $280 million fund it raised for investment in real estate in sub-Saharan Africa with stronger presence in Nigeria and Ghana.

“Land is a big hurdle to investment and development of real estate in this country and, for us, getting a well-priced land of the right size at the right place is a major challenge,” he said, explaining that land price, which is not supposed to be more than 10 percent of the construction cost, is so high, especially in Lagos, which oftentimes it makes projects unworkable.

According to him, where one finds the land of the right size in a good location, having a good title to the land is not the end of the challenge, pointing out that the nature of the legal system in Nigeria is such that somebody can just wake up and file a frivolous lawsuit against a land buyer, claiming ownership of the land.

He said in other jurisdictions, “it is expensive to file a lawsuit and if you lose the case, it can render you bankrupt. Here, that is not the case because you can just engage a judge who is your cousin and the case could drag for 12-18 years before it is resolved, which is not good for an investor”.

Ejekam added that capital poses a major obstacle, explaining that building a world-class retail mall like the Accra Mall in Ghana, The Palms or Ikeja City Mall in Lagos requires about $100- $150 million.

“To build a mall of this standard requires 50 percent equity and 50 percent debt. So, if you want to build a mall like Abuja Jabi Lake Mall which is estimated to cost $130 million, how many investors have $65 million equity to bring to the table and how many banks are ready and able to provide the $65 million debt?” he queried.

He noted, however, that there are many dollar billionaires in the country today, but the challenge is that many of them are yet to tap into the investment opportunities in real estate.

Apart from the problem of few quality anchor tenants and others who may have the capital to rent stores, do the finishing and equip them, Ejekam said that cost of construction is too high in Nigeria, pointing out that it costs 2.5 times more to build a mall in Nigeria than South Africa. All these costs, he explained, include port constraints with respect to importation of building materials.

He, however, sees hope for the real estate sector in the country, hinging his hope on the growing urban population which, he said, rises 4 percent per annum, and also on growing spending power.

“If you look at the country, you will see there is growth in population and spending power. There is a marked change in the composition of household most of whom are acquiring discretional income. Looking about to 2000, only 34 percent of these households had the so-called discretional income while the rest were basic need households. It is projected that by 2020, 54 percent of households will be in the discretional income group with capital they can invest beyond their basic needs,” he assured.

Article Credit: Business Day Newspaper

Updated 5 Years ago
 

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