The real estate sector ended 2021 strong in terms of growth. Expectation is that this growth trajectory will continue in 2022. In this interview, FRANK OKOSUN, CEO, Knight Frank Nigeria, spotlights factors and other sectors of the economy that will drive growth in real estate this year. He also points to locations and submarket where investors could get good returns. He speaks with CHUKA UROKO, Property Editor. Excerpts:
With the hindsight of real estate sector’s positive growth in 2021, what do you think is the direction of the sector in 2022 given our unstable economy and economics?
With what is happening in the economy, a lot is to be expected. This is an election year and politicians are going to bring out all they have. They would gather funds for use in their campaigns. By the last quarter of this year, it is going to be spending spree. This is the first quarter of the year and we are already seeing activities everywhere.
Many of the politicians who bought real estate assets, for speculative purposes, will be bringing those assets back into the market for sale to raise funds. So, we expect a lot of activities in sales transactions and construction. This is a year of activities and it has started already. Transactions are already going back and forth. As a company, we have signed off sales transactions running into billions of Naira. We have seen demand, especially from people who want to move homes and local investors looking for good yield. Overall, we expect a continuation of last year’s positive growth.
Besides political activities, what other factors will drive activities, particularly assets demand, in the real estate sector in 2022?
There are many developments coming on board. Federal and state governments are planning to do affordable housing. Lagos State government is doing the Blue Line and Red Line rail projects and these bring a lot of activities into the real estate sector.
The economy is also opening up and that is throwing up investment opportunities and areas where professional competencies are needed. BUA cement just inaugurated a three million metric tons cement plant in Sokoto. He will be opening up another in Benin. All these would generate activities in the economy and, one way or another, they will impact real estate. This tells you that the manufacturing sector will also be a major driver of activities in real estate this year. The communication sector is yet another major driver more so with the deployment of the 5G network.
Which segment of the real estate sector—residential, commercial, industrial, retail, etc—can investors find opportunities for investment this new year?
Besides residential, where there is a good return on investment, there are other areas where opportunities exist for investors like industrial and healthcare facilities. Most transactions today are done online and the sellers need warehouses to keep their wares. Healthcare is coming up strong. A lot of provisions are needed in terms of facilities for people in the health sector. A big foreign company is coming into the country to invest in the health sector and they will be focusing on Lagos, Port Harcourt, Abuja, Kano and a few other locations. We are busy collecting data for them.
Two other foreign companies are also coming to invest in the real estate sector and we hope these investments will boost the economy and create jobs for Nigerians. The companies would be bringing in billions of dollars because of the kind of investment they want to make. They are coming to do industrial real estate. You recall that NLNG says they too want to build many healthcare centres in about 10 states of the federation. That is another big opportunity in the sector.
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Out there, there are individual investors looking for properties that could be likened to penny stocks in which they can invest. Which locations offer opportunities for such investment with good return?
We need to go back to where we come from. The only areas we can get the kind of property you are talking about are the rural or semi-urban communities where there are site and serviced schemes coming up. In these areas, land prices, for instance, are rising and one can buy such property and wait for value appreciation. This cannot happen in urban areas because of migration and urbanization.
What young workers and business executives do these days is to get small money, go home, buy land and keep. When they get more money, they go home again and develop the land. That is why, these days, you see many villages developing. Now, in the rural areas, land prices are increasing from N100,000 to between N200,000 and N500,000. Some even go for over a million naira.
Recently, the federal government, for whatever reason, suspended fuel subsidy removal. But says N3 trillion is needed to continue the subsidy. What ripple effect could this have on real estate?
The government is going to be a lot more brutal with taxation in order to raise this money. There will be taxes on consumable products and this is going to affect everybody. Many Nigerians are saying that the subsidy should be removed so that they can see the impact.
Not removing the subsidy means devaluing our money further. Already, the country is neck-deep in borrowing and, with this proposal, they are going to borrow more and borrowing means putting Nigerians into hardship indirectly. Whatever the government is doing now is a cosmetic approach until the subsidy is removed. So, not removing the subsidy is not doing anybody or any sector any good.
As an active rental market, Nigeria has big rent issues which are why the government is canvassing the monthly rent scheme against the current yearly rent. What is your take on this?
If the government had provided affordable homes in all the states of the federation, you can now talk of rent control. But the houses in the market don’t belong to the government. It is private sector operators who have gone to the banks, taken loans and built those houses. Government cannot regulate rent on such houses. The government needs to, first of all, provide alternative homes for people who don’t have them. What I think the government should do is to set up machinery that will ensure each state builds a given number of houses yearly for five years. That way, we will be solving the rental problem gradually.
Now, let’s look at Knight Frank as the foremost real estate services provider. You have been around for decades in Nigeria. What really makes this firm thick amid a challenging business environment?
As a firm, we are process-driven and we are also compliant with government’s regulations. We don’t make too much noise, yet there are actions in this place. This is a workhouse and that is why I am always on the street doing one thing or another for the growth of the business.
I came in as CEO with five strategic objectives on how to take the company to the next level. The first strategy was brand visibility to ensure that we become number one in the real estate services market. The second one is profitability and sustainability. I started this by taking my budget 25 percent higher than the previous year. I also reduced my operating cost by 25 percent. This explains why in 2020 and 2021, our profit went up despite Covid-19 impact on businesses.
My fourth strategy was a talent hunt. In various sections of the company, we have positioned young people and that is part of our succession plan. We organize training for them at Lagos business school and other places like Kenya and the Yale in Connecticut. This programme is a transformation journey. We use it to expand our global vision. Another strategy that we are working with is compliance. We ensure that we comply with all government’s ministries, departments and agencies regulations.
Knight Frank is today a giant, but it had its time of little beginning. What advice would you then give to young professionals on how to set up their own practice and grow as you did?
Two years ago, I told young surveyors that it is not easy to start up a practice of their own after getting their seal. There must be collaborations. Two or three firms must come together and partner to become strong. I call this partnership. Any big law or accounting firm you see today is a partnership involving five to six firms that have merged to become a big and strong one.
For these younger ones to understand the profession very well, there must be experience; they must understand how the profession works. They must learn from people who have been in the field. They need to understand what research and advisory roles are. They need to come together as a team to learn from one another and grow from there. So, my advice to them is to learn what the profession says. They need to join hands and set up a good practice comprising five to six companies.
