What N117bn infrastructure budget means to Lagos property market, economy
Out of its N1.169 trillion 2020 budget, Lagos State government will be spending N117.248 billion on roads and infrastructure. This is the second-highest allocation in the budget after Education, which received N136.100 billion.
The pride of place given to this sector in the budget tagged ‘Budget of Awakening’ underscores the importance the state has attached to critical infrastructure which, at the moment, is in dire situation in the state in particular and in Nigeria as a whole.
A Nigerian Infrastructure Master Plan (NIMP) estimate shows that the country has an infrastructure deficit valued at $3 trillion, requiring about N100 billion annual investment for the next 30 years to bridge.
An analysis of the Lagos 2020 budget which comprises N711 billion for capital expenditure and N457.5 billion for recurrent expenditure, giving a 61:39 capital to recurrent expenditure ratio, shows that infrastructure represents about 10 percent of the total budget and 16 percent of total capital expenditure.
This, experts say, is good development, not only for the state’s property market, but also for its economy as they see growth, improved homeownership level and increased revenue for the state.
“If budget discipline is anything to go by and the present administration chooses to be disciplined in implementing the 2020 budget, the upside will be an upward review of property prices which will, in turn, generate more income for the government by way of internally generated revenue (IGR),” said Olisa Ebigwei, CEO, Soe Properties, a Lagos-based real estate investment company.
Damola Akinsulire, managing director, Alpha Mead Development Company, agrees, adding that the state’s decision to spend N117 billion on infrastructure means a deliberate plan to decongest certain locations and open up new town development opportunities.
“This means improving the transit premium of these locations and making them attractive for real estate investment. So, in the short term, I see an increase in demand for land assets in key locations witnessing major infrastructure development,” he said.
When in 2009 the state government decided to reconstruct and expand the Lagos-Badagry Expressway into 10 lanes with a light rail, the aim was to encourage movement to, and development in that axis.
Many residents took that opportunity to buy property along the expressway for both residential and commercial purposes. This means that lack of infrastructure is the singular reason for the congestion in the city centres of the state where there are good roads and other facilities.
“More residents owning their own homes means so much for the state. Apart from increasing the state’s IGR and growing its economy through property tax and tenement rates, it will also reduce the state’s 3million housing deficit and tame the volatility in its rental market which is quite active,” explained Johnson Chukwuma, a civil engineer.
Job creation is another major expectation from this allocation. Increased real estate activities that will follow infrastructure provision means more jobs for both artisans and professionals in this sector. Records have shown that in real estate, every square metre of construction activity creates jobs for three persons. That means more income tax for the state and an increase in its IGR.
The world bank estimates that every 1 percent of GDP that is invested in infrastructure comes along with an additional 1 percent increase in the GDP level and property prices tend to rise along with GDP growth, meaning that the state stands to gain a lot more from this budget allocation.
Akinsulire explained to BusinessDay that infrastructure represents about 50 percent of construction costs for property developers, meaning that if the government takes off the burden of providing infrastructure, it will not only lead to improved land values, but also compel developers to review their house prices downwards towards affordability.
“I see opportunities for more public-private partnership (PPP) investments because more investors will be encouraged to move to the hinterland to develop houses; I also see a lot more PPP arrangements playing key roles in managing the infrastructure deficit,” he said.
Paul Onwuanibe, CEO, Landmark, developers of Landmark Village, is of the view that if the government focuses on developing infrastructure such as energy and power, giving rise to electricity, petroleum and gas pipelines, they will add value to the property market.
He added that the provision of pipe-borne water, irrigation facilities; enhanced security; roads which will enable tourism to bring forex inflow to the state; railway system, and traffic control leading to improvement in service in areas where entertainment is a big industry, will all add value to the property market, and by extension, to the state’s economy.