Experts and professionals in the Real Estate sector have commended the proposal for a budgetary allocation to boost infrastructure and housing next year, but issues around implementation of the budget, ineffective Public-Private Partnership (PPP), and lack of continuity of policies are pitfalls they warn Nigeria against.
With N259.2bn earmarked as capital expenditure for the Federal Ministry of Work and Housing, the highest allocation among ministries, the 2020 N10.33 trn budget is expected to make a positive impact on the real estate industry despite plans to spend a large chunk of the ministry’s fund on road projects.
“Enhanced infrastructure improves connectivity and has a direct impact on real estate performance,” Bola Adigun, Director of Deals Advisory, PwC Nigeria, said at The Summit 3.0, an annual Real Estate Business and Professional summit organised by the Nigerian Institution of Estate Surveyors and Valuers (NIESV) Lagos branch.
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A breakdown of the allocation to Works and Housing sector include N17.5bn for the Federal Government National Housing, N30bn for Social Housing Scheme (Family Homes fund) and N210bn for construction and Rehabilitation of Roads.
Significant sums have also been set aside for railway projects including Lagos-Kano, Port Harcourt-Maiduguri, Calabar-Lagos, Ajaokuta-Itakpe-Aladja (Warri), Kano-Kastina-Jibiya-Maradi
While some of the experts at the two-day Real Estate summit, tagged “Exploring The Present Realities For The Future”, said the budget was a step in the right direction, others fear a history of lack of funding and poor implementation of the budget would repeat.
“The 2020 budget for housing and is dead on arrival,” said Adedotun Bamigbola, Chairman NIESV Lagos. “The minister of works and housing has called for a N10trn bond infrastructure bond which if we don’t take action by next year, we would be needing around a N15trn bond in the following year.”
Sammy Adigun, Director, EchoStones Nigeria said the proposed 2020 budget is unexciting because of the history of budget implementation in Nigeria.
In his estimation, implementation of the proposed budget would be 60 percent at best, “because personnel cost, debt service and overheads would gulp most of the money,” Adigun said.
Nigeria’s rising expenditure in the face of an ambitious revenue target could see the government tap into the debt market at a higher cost given its current debt profile, thus elevating yields in the fixed income space.
This means the dearth of patient capital in Real Estate might linger as large institutional investors will still pile into the attractive fixed income space, experts also warned.
There was a call for the government to iron out issues around Public-Private Partnership including the issue around lack of fund for projects, policy inconsistency due to change in government, poor knowledge of PPP in the public sector and lack of patience of the government to allow private participants go through the learning curve.
One of the participants at the conference lamented that funds for a contract between the participant’s firm and the government had not been disbursed despite the project being undervalued in the 2019 budget.
Delays in funding such a project increase the cost as rising inflation and asset depreciation, among other things, affect valuation which inevitably results in a loss for the private sector participant and discourages future collaboration.
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Nonetheless, Nigeria’s 17 million unit housing supply deficit and the gaping infrastructure deficiency cannot be solved by the government alone, the experts noted.
Benefits of the New National Housing Fund Act 2019 (NHF) identified at the summit include an increase in the fund available for mortgage loans as a result of an increase in inflow to the housing fund and would increase mortgage financing positively.
The Act would also increase the cost of housing as a result of 2.5 percent tax on cement which would impact rent and also demand for housing. However, access by the public to the NHF is a concern that must be addressed, the conference participants agreed.
The Real Estate sector which was the sixth-largest contributor to the economy in 2018 is expected to grow by a compounded annual growth rate of 13.65 percent between 2019 and 2020, according to PwC analysis.
