Ebitu Ukiwe is the chief executive officer (CEO), Locus Real Estate, who plays in the upper luxury segment of the property market as a developer and also a broker. Ukiwe is a strong believer in the Nigerian economy but insists that economic stability can only happen when monetary policy is as good as fiscal responsibility. In this interview with CHUKA UROKO, Associate Editor, he takes a hard look at Nigeria’s adverse macro-economic factors and how they affect the various sectors of the economy including real estate. He also speaks about the mortgage industry in Nigeria and talks about his company. Excerpts:
This year has been exceptionally tough for all business including real estate. There have been cases of rising inflation, FX crisis, high interest rate. What is your experience in the face of all these?
The hyperinflation has been a problem and it’s been everywhere. We can’t talk about the causes, because that’s going to be a long discussion. But it must be said that it affects the growth of our sector. It means less money for investors because high interest rates and hyperinflation take money out of people’s pockets.
I think this is a challenging period. What we used to have was commodity inflation, but now we have asset price inflation in which real estate is one of them. Everything is inflating, including labour and income for the people. This will create more of a crisis as far as housing is concerned.
Actually, we have seen the worst of it. But the major problem has been in the energy sector. Diesel for running homes and construction sites has become very expensive. Then to compound it, you have high interest rate.
I’m not necessarily sure where the solutions will come from. I have challenges with the monetary policy of the government. Not because the monetary policy in itself is a bad thing, but because it’s not in agreement with our fiscal responsibility, that is, how we spend money. There isn’t a direct link between certain macroeconomic factors and actual growth.
Rising inflation has affected building material prices too to a point where it is crippling the construction sector. Some developers are abandoning project sites. What would you suggest as solution?
At this point, I think most things are in government’s control. Let me be a bit more positive. What the government can do and what we as the business community can do is to drag costs down as much as possible. Now, in building materials, especially cement and reinforcement, cement is within our control. Government can control that; they can regulate the industry with trade volume and control.
But building materials prices are hard to control because you have to control the value of the Naira. We import a lot of things and if we don’t control the value of the Naira, we cannot control the building materials prices. We try to produce some of these things locally, and by God’s grace we are doing more than it seems. But again, it would not be sustainable if the producers don’t get subsidised power.
The industry needs proper financialisation by which I mean, first of all, the landed asset, that is, real estate assets, should be bankable and registerable in much easier way than what we have.
There needs to be some correlation between every state land registry and the Central Bank, so that through a separate authority of the Central Bank we can have a similar case like the US and the China.
Now, how do you navigate the numerous odds in the economy that work against developers like you?
My philosophy in the development space has not been to wait long. It is good to wait when you can sense that there is a bubble or a short-term reduction in the market. Most people at the beginning of this year, did the right thing by waiting a little bit. But my overriding thoughts in real estate in particular is that time is worse than your worst enemy. You can decide to wait out a storm, but you don’t know how big the storm is. I’ll give you a practical example of our project.
We had to raise certain amount of funds for a big project but we didn’t have big money. We had implemented the piling works and that was 2021—2022. Can you imagine if we had waited till 2023? By 2023, there was already a significant inflation. To be honest, I suspect that is the best philosophy for all of us in Nigeria, especially because that is how collectively we can build communities quicker.
We have worked for one or two real estate companies and when you are on projects, the sooner the project is delivered, the sooner the revenue can return because real estate is capital intensive in the beginning, then the money will flow over time.
And, you know, with time, valuations will change. I think a lot of people that built properties in 2018 to 2019 built at cheaper cost. By the time they were ready to sell it in 2020 to 2021, the valuations had changed and the same thing happened in 2023 to 2024
In Nigeria, some people believe that we don’t have mortgage at all because, where it is available, it’s neither inaccessible nor affordable. How and where are we getting it wrong in this sub-sector?
The first thing I think the government should do is to financialize the real estate market with as much real estate assets as they can do. You will find that there is always a good value for any land, even when it’s not in use for anything. This is the same approach that all governments abroad have used to stabilise a portion of their industry and their financial markets with real estate backing. When they do that, they can attack the option of providing mortgages because you have to raise the funds.
What I’m talking about Nigeria markets is not based on empirical data because I don’t have any at hand. But mortgage market demand, that is the market value of mortgage, in this country is in trillions of naira. If the government is trying to meet the demand through banks, how do they back the trillions? They need to back it and real estate should be the underlying assets on which the financial institutions will issue a bond which investors will buy and the proceeds will fund the mortgage.
Policy wise, especially monetary policy, the reason mortgages are unaffordable in Nigeria is that nobody in the country, not even the average man that you intend to give mortgage, is earning enough to keep up with the interest rates on mortgages. Mortgage becomes unaffordable or unbankable because the interest rate is too high.
Will you subscribe to the recapitalisation of the mortgage institutions so that they can have more funds at their disposal to do business, that is, lend to borrowers?
I think that will be part of the requirements. It will not be the only requirement. But recapitalisation must, again, have no assessment of what the distribution of the mortgage demand and the asset value demand is, because a small mortgage company might be just as important in a small town as a big one and you can’t force it to recapitalise. We all know what recapitalisation means for the institutions. When they do that, they end up merging some of them which leads to what could lead to oligopoly. That will mean sharing the market and control the price and decide to operate the way they like
I hope those sorts of recapitalisation will take those demographics into consideration and then know that I am recapitalising these parties so that it would help the market more than it would damage it.
If they have got there, I’m going to follow the recapitalisation, but the monetary policy will have to follow really quick because if they capitalise and they are still struggling, it will be a bigger problem. But this will not be limited to mortgage loans alone because, if you want to drop mortgage loans to ideally single digits. You see, the thing with the loan is that it still requires you to bring equity contribution. But this is not a commercial loan but a subsidised loan.
I understand that for our markets but I’ve also not been able to get anyone but I will just talk more with some friends of mine to explain why Nigeria needs an interest rate of 24 percent. I always cite the example that in Brazil, in 2006, 2007, the country used to have the same interest rate with Nigeria at 17 percent. A new administration in the country went on campaign, saying that within four to six years they would get to single digits. They were lucky as well because that time commodity prices were good and they were producing Ethanol and they did it and got to about, I think, 9 percent.
By the time they did it, I think the Brazilian currency had strengthened from what was, I think, at that time 13Real to a dollar, to 2Real to a dollar. Nigeria doesn’t need to keep these interest rates artificially high. It doesn’t help. Interest rates do not help to fight any inflation. I can assure of you of that. Even internationally, it’s not always a straightforward relationship. There are other things that affect inflation.
What Central Banks do is to do the one they can from the acquisition that can control monetary policy, but governments know that there’s a lot of fiscal irresponsibility that aids inflation. So, fiscal irresponsibility leads to inflation as well.
We also do not have a highly financialised economy for when interest rates will apply. If the average man depending on the bank for mortgage, for car loan or advanced pay-day loans, if he has credit cards, all the financial instruments that meant if risk changes, your behaviour changes, then in developed markets, you can toy with interest rate.
Let’s take a look at your company. Locus Real Estate is not really out there in the public domain unlike some other players in this sector. What are you really doing?
We were a small company when we started. But we’ve tried to associate ourselves with big projects and we have, of course, tried to remain a genuine professional real estate company. Currently, we’ve been doing more property brokerage than anything else.
Our business will take some new leaps hopefully soon when we’re looking to settle and operate real estate refurbishment, transactions and so on. But for the most part, we want to remain a selling company. We want to trade, buy and sell real estate.
You know, success is 99 percent persistence, so we think from where we started to where we are, there has been some decent growth. So, we remain optimistic for the future, but all things are in our ability to continue to paddle despite the storm. I tell some of my staff sometimes to just keep continuing the calls, continuing the work and the messages. Our work is not special in the sense that you’re doing something that others can’t necessarily do. But we try to establish some level of professionalism.
Share with us your experience as a broker different from being a property developer. Is there any meeting point for the two?
You and I know that our industry has a lot of poor standards. In real estate, brokerage specifically, it is an agency work and it has a lot of poor standards. We don’t like to follow poor standard because it can give you poor results.
We could talk for long because even now, in certain transactions, people will list certain properties and it turns out it is wrong information. You waste all of your time on that transaction and you’ll find out that any request for due diligence sometimes is taken as an affront to trust.
Most of them who don’t do it, end up finding out that what they have is nonsense. You promote something, you don’t know the details; it is only when someone asks and it gets to transactions that they think of it and most of them don’t even care. They consider themselves mostly like messengers.
As a company, it is a good response actually to your question. When we started, we recognised a lot of these challenges. We instilled certain policies and, as a company, we’re going to recognise a third party we’re working with the same way we want them to recognise them.
But, of course, everything will have some reasonability. So, we established two things that will create a third-party agency fee, sometimes it’s a simple 50-50 split, sometimes it’s a little less depending.
Then we created a referral fee because we realised that a lot of people in the market are referrals and we need to recognize them. So, we established a fee. We decided it is okay with these policies to enter this market and we can do business to where it makes sense to us and we have done so successfully. But not without annoying some others because some people will ask you which referral fee are you talking about.
You have a project at Gravitas Investments’ Gracefield Island. Why did you choose that Island city for your development and what kind of development are you doing there?
I have always been interested in green fields and green projects. Lagos has needed it for a long time before some of the infrastructure upgrades, we’ve seen happening. We needed a greenfield project and so we asked ourselves where can you build and feel safe? We needed a new, safe and new level infrastructure environment that will give us the best quality.
So, after looking at both Orange Island and Greenfield Island, which rank with Eko Atlantic to some degree, we felt that it would be important to do a project in one of them. Eko Atlantic was, of course, too big for a small level. Orange Island was good for us. We have a design for a project in that Island. It’s still a pipeline and will come up in time to come. We also spoke to Gracefield Island and Periwinkle Estates which are within the same axis.
But when we pitched our project, Gracefield Island liked it. From hindsight, it would have been better to wait a little for certain infrastructure to be put in place. But nonetheless, we wanted to have a first arrival advantage to not only establish the design, but to create a standard that will be replicated.
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