Nigeria’s housing industry with a shortage of over 17 million units can be addressed, according to FSDH Research, through an investment vehicle, the Real Estate Fund (REF).
REF is an investment vehicle that pools resources together to invest in real estate, therefore allowing individual investors to partake in the benefits of the underlying properties.
“Real Estate Fund is an investment vehicle that can be used to address Nigeria’s housing shortage and encourage economic activity in the real estate sector,’ FSDH Research, a subsidiary of the FSDH Group explains.
In monetary terms, Nigeria may require between N170trillon – N200trillion to bridge the housing gap if each unit is estimated to cost N10million.
Meanwhile, Nigeria’s real estate developers are in search of viable alternative sources to fund real estate projects in a country where cost of funds has made bank credit inaccessible, unaffordable and unattractive to the sector.
Commercial banks are not an ideal or suitable medium for financing real estate projects because whereas commercial bank deposits are short-term in nature, real estate is for the long term which is usually vulnerable to the vagaries in the economy such as changes in interest rates, exchange rates, and the rate of inflation.
Andrei Ugarov, partner at PricewaterhouseCoopers (PwC) says players in the industry are making use of other financing options to fund real estate development projects, adding, however, “Nigeria is still a viable market even though capital is a challenge.”
Affirming Ugarov’s submission is the bank lending report by the figures compiled from National Bureau of Statistics (NBS) for the third quarter of 2018 which showed that the real estate sector was among the least attractive industries to the country’s commercial banks as it got one of the smallest portions of loan in the review quarter.
The figures by the state stats revealed that the property sector was only able to attract N710.2 billion in Q3 2018 as against the N744.56 billion and N784.2 billion it got in Q2 and Q1 in 2018 respectively.
Speaking on how the mortgage industry in Nigeria has contributed to bridging the huge demand-supply gap in the country, the Association of Housing Corporation of Nigeria (AHCN), an umbrella organization for all federal and state housing agencies, said underdevelopment of Nigeria mortgage sector in driving home ownership is worrisome as more than 90 percent of new homes utilise funds from personal savings for incremental construction.
FSDH Research believes REFs can be used as one of the measures to boost activity in the real estate sector. “As patronage for REFs in Nigeria increases, more funds would be available to buy and develop more real estate properties; consequently, the real estate sector would begin to experience increased activity,” it said.
That is not yet the case for Nigeria’s REFs as data on the Security and Exchange Commission (SEC), the industry regulator, shows that as at the week ended January 18, 2019, only three REFs listed on the NSE; Skye Shelter Fund, Union Homes Real Estate Investment Trust (REIT) and UPDC Real Estate Investment Trust.
The REFs Net Asset Value (NAV) of N43.74 billion only represents 6.7 percent of the entire market share at N642.12 billion
“The housing shortage keeps increasing, meanwhile, developments in the real estate sector of the Nigerian economy, which is where activities that will close the housing shortage will take place, have not been impressive,” FSDH research told BusinessDay in a mail response.
Meanwhile, figures by the state funded bureau showed that Nigeria’s real estate sector plunged further into recession in Q4 2018.
In real terms, the sector contracted by 3.85 percent in Q4 (year-on-year), which is 2.07 percent points better than the -5.92 percent recorded for the fourth quarter of 2017.
The sector’s contraction for the review quarter was after it showed signs of rebound for two consecutive quarters through to Q3 2018.
Endurance Okafor
