Ayotunde, a Lagos-based merchant dealing in cars, owns three plots of land in Ikorodu. The 43-year-old trader approaches his bank for a N10 million loan to expand his business but his request is rejected. The bank will not help him because the landed-asset tendered as collateral lacks verifiable ownership proof.
Like Ayotunde, many Nigerians are oblivious of the economic value embedded in having their property duly titled. This has consequently created a large stock of dormant assets with zero economic relevance.
Harnessing the vast dead capital in the Nigerian real estate sector can provide the country with the required capital resources needed to bolster growth and create wealth for its 200 million inhabitants.
This is even more important as the International Monetary Fund (IMF) in its latest report on Nigeria warned that income per head will decline in the near term as economic growth continues to be outpaced by a faster population rise. Unlocking the potential in dead assets might help reverse the trend.
“We estimate that Nigeria holds at least $300 billion or as much as $900 billion worth of dead capital in residential and agricultural real estate alone,” said analysts at consulting and advisory firm, PricewaterhouseCoopers (PwC), in their report titled ‘Bringing Dead Capital to Life: What Nigeria should be doing’.
The estimate was based on a population figure of 180 million, and 36 million households of which 95 percent have no title on their assets.
Putting this in context, unlocking $900 billion will expand the size of the economy from $445 billion (according to IMF) to $1,345 billion, and might be the breakthrough to bridge the country’s wide housing shortage of over 17 million units.
Dead capital is an economic term relating to properties that are informally held, and so not legally recognised. The uncertainty of ownership diminishes the value of the asset and the ability to lend or borrow against it.
Because these possessions are not well recorded, they cannot be readily converted to capital, cannot be traded outside narrow local circles where people know and trust each other, and cannot be used as collateral for loan or as share against investment.
Majority of houses in Nigeria have no title or contestable title and cannot be used as collateral to finance economic activities, leaving billions of capital idle as there is no way to utilise such capital.
Creating a mechanism that allows asset owners to use their property as collateral to access credit is one big way to unlock dead capital.
In Nigeria, real estate is mostly accepted as collateral by financial institutions to secure loans, implying that owners of properties whose asset have no title cannot access credit.
“Collateral laws shape access to funds to a large extent. Dead capital cannot be unlocked if existing collateral laws are not revised to adequately support credit creation,” said Damilola Ijalade, broker at PWAN Homes.
In advanced climes, the major source of capital for business owners is their home. By representing assets with titles, western nations have comfortably turned their assets to wealth.
For instance, every asset in the US, either privately or state-owned, is titled and recorded at time of creation and quantified to the extent that it can be used as collateral to raise funds, first in the primary market, and then mortgage instrument created can be sold and resold in the secondary market, bundled together to create more money.
The current Land Use Act of 1978, which is predicated on ownership rights is yet to unify land ownership across all parts of the country. A large chunk of property owners, particularly in the rural areas, snub the law, as they have no titles on their lands.
Moreover, the Act requires the consent of the governor before a land with customary or statutory right of occupancy can be mortgaged, subleased or transferred, thus hindering people’s ability to harness their property to generate wealth.
