$28bn middle-class purchasing power buoys real estate sector 16% annual growth

The Nigerian real estate sector has in the past five years witnessed an annual average growth rate of 16.10 per- cent buoyed by phenomenal growth of the middle-class, which represents 23 per- cent (about 4m) of the coun- try’s 170 million population, whose estimated purchasing power is valued at $28 billion.

The sector in the country has demonstrated an uncom- mon resilience, growing in size and value in spite of the chal- lenges in the global economy, which has seen many sectors struggling and shrinking. Analysts describe the sec- tor as huge and real with an effective demand estimated at $500 billion.

“It is the greatest store of value and the largest expres- sion of wealth,” says Richard Nyong, CEO, Lekki Gardens Limited, estimating that 30- 40 percent of many house- holds’ spend is on real estate.

Adekunle Oyinloye, man- aging director/CEO, The Infrastructure Bank (TIB), agrees, pointing out that the sector, which has been dis- covered to be 30-40 percent larger than previously imag- ined by the April 2014 GDP rebasing exercise, offers quite compelling investment op- portunities, the value of which he estimated at $385 billion.

Underscoring the oppor- tunities in the sector at a busi- ness forum in Lagos recently, Olumayowa Ogunwemimo, managing director, FSDH Asset Management Limited, noted that there were cur- rently an estimated 10.7 mil- lion housing units in Nigeria, which is a far cry from the need of the estimated 178.48 million population.

Ogunwemimo said fur- ther that there were op- portunities in the housing deficit estimated to be 17 million units, saying that to fill the gap, there was a need to build 720,000 housing units per year for the next 24 years, and this would require about $381 billion (N76.20trn) to accomplish.

According to her, while the government at different levels tried to fill the gap, particularly in the economy residential property space also known as mass housing, there were still opportunities for other investors.

“Financing of the real estate activities by providers of long-term capital can be through equity investments, Real Estate Investment Trusts (REITs) or Bonds,” she said, pointing out however, that fund managers in this sector always considered a number of things including competitive returns, low volatility, liquidity, trans- parency, and diversified portfolio of both the project and the developer.

Giving insights into the different funding instru- ments/sources available to real estate investors, Ogun- wemimo explained that REITs were a form of col- lective investment scheme regulated by the Securities and Exchange Commission (SEC), which pools funds from investors and uses same in the acquisition of income generating real es- tate, mortgage loans, or a combination of both.

“The portfolio of under- lying assets is placed under professional management to maximise returns to the investors,” she said further, saying there were three types of REITs – equity, mortgage and hybrid REITs. “

While equity REITs in- vest their assets in, and own real estate assets and their income is derived from rent received and capital appreci- ation on the assets,” she said, “mortgage REITs deal in investment and ownership of short- or long-term prop- erty mortgages; these REITs lend money for mortgages to owners of real estate, or pur- chase existing mortgages or mortgage-backed securities; their income is derived from the interest they earn on the mortgage loans.”

According to her, hybrid REITs combine the invest- ment strategies of equity REITs and mortgage REITs by investing in both proper- ties and mortgages, and their income comes from rentals, capital appreciation, inter- est, and loan placement fees.

CHUKA UROKO