‘Nigeria needs accurate off-taker affordability data from profilings to avoid previous mass housing pitfalls’
The housing sector with an estimated 25 million deficits is projected to offer big hope for Nigeria’s economy post COVID-19. Joshua Egbagbe, team leader, Project, NGNHOMES.NG, in this interview with JOHN OSADOLOR and TONY AILEMEN, says to get it right, issues of value chain profiling for off-taker affordability must take precedence to avoid previous pitfalls. Excerpts:
Can you bring us to speed on the prospect and challenges of the property value chain in Nigeria, as well as what your company is out to achieve with the Value Chain concept? hen you talk about value chain in the real estate business in Nigeria, it is a term that encompasses issues such as supply chain dynamics, demand dynamics , from processing and transforming raw materials to end product. It speaks to understanding how demand works and all of the issues surrounding bringing a service or product to the market place, and what you do after that to ensure that the product has continuity of value.
When it is narrowed down to real estate ,you discover that in real estate we have residential, commercial and ofcourse specialised real estate. But we will narrow it down to housing, my understanding of the market has to do with the demand/end user factor, how elastic or effective is the demand, how affordable are the products that are being presented.
Then of course, we cannot talk about housing issues without talking about the land, especially as it effects the legal issues, how you process the land title and the extant laws governing them. In the value chain, we talk about the person that is buying, how effective is the demand and what is the capacity of the market to absorb your services. So in Nigeria, I will narrow it down to mortgage backed housing, because with the mortgage you can pay over a period of many years. The average buyer in Nigeria would depend on mortgage.
So that will bring us to looking at the mortgage industry, and how it affects the value chain in housing. An investor coming into the housing sector in Nigeria will have to look at all these factors, in taking an informed decision.
For my first project in Bauchi state, as an investor, I did a general market survey, I went to a real estate agent company who did estimations for us, and told us the preferences of the people, the costs and demand. So we went ahead to build what the people would prefer and our prices were even below the market price. But at the end of the day, we built a huge estate of over 500 housing units and we ended with houses that we couldn’t even sell.
So an investor coming into the Nigeria housing sector, will have to look at these, not from and eagle eye-view but must come down and consider every single detail. You must not just do the general market survey but must carefully look at these factor, especially the off-taker factor, because the other factors are functions of bureaucracy and costs , such as land and the others, but if after going through these bureaucracies and you still do not have people to buy the houses, you are building for waste. So we discovered that there need to be a paradigm
Wshift for investors coming into the housing sector, put the off-taker first, then you build all other factors to tally with the off-taker.
Considering the designs of the houses is another value chain, you cannot just go and build houses in Bauchi for instance because you built in Lagos and the people liked it. Because in Bauchi, their cultural orientations are different. So for us, applying the Value chain concept generically is the best way to look at housing investment.
How have you factored this into what you are doing now?
For us as an organization, we took our bearing from the challenges that we experienced building without the value chain factors.
Between 2008 and 2011, we engaged the Bauchi government, proposing a PPP concept which we successfully executed, but because of the challenges of government in PPP arrangement, we ran into a situation of mismatch between the product available and the capacity of the market to absorb the products.
Despite the well priced profile, like below N6 million for a 3-bedroom and N5 million for 2- bedroom, for an estate of over 500 units we were able to get less than 50 people to buy and even those that bought with the mortgage, were still not able to satisfy the terms of the mortgage, because mortgage is another challenge in this country.
So my perspective was to step back and fall back on my post Doctoral training in public health medicine, where I worked mostly on the socioeconomic factors that influence public health behavior of a people. The use of data is critical, we then looked at the statistical correlations between people economic conditions and the services. So I did a study on the correlation between the off-takers(potential buyers) and the product(houses), and I discovered why the off-takers are unable to take up houses, despite the existence of such a huge market for a properly managed affordable housing.
My perspective right now is that the off-takers should be at the very centre of every affordable housing permutation, and not just that alone, every other factor such as mortgage conditions, land, government incentives, etc, must be brought into alignment with the off-takers at the centre.
I was fortunate, the German government (GIZ) sponsored my research and at the end of the day, I discovered that if we can have critical data that look into the lifecycle of housing from the off-taker, to land acquisition, to building materials (as we import most building materials), so everything really shows that we need to regig, I call it paradigm shift.
At the 2016 housing summit, sponsored by the Federal ministry of housing and GIZ and a few other private companies, I propounded what we need for paradigm shift, to stop looking at housing through the eyes of finance, through the eyes of land and government policies, but through the eyes of the off-takers.
So today, with the off-takers driven perspective, we are able to design housing solutions, we have done for the Ogun state government under the ogun state housing corporation, where the then GM was able to build an estate called Valleyville, for civil servants whose salaries were not even much.
In Bauchi, we have one or two projects already in line, in kaduna projects are far gone with plans. So as a national policy, I discovered that affordable housing is the way to go, it will transform the country, so let’s go for the off-takers and build around them.
So I decided to set up a consulting firm, like a corporate social responsibility to investigate how the off-taker challenges can be brought to the forefront , with designed solutions to meet the challenges. And with the solution template, we can look at issues of mortgage funding, building materials and all the different choices can come into play. So far so good, its is challenging, but our results are showing that Nigeria can really benefit from housing.
In specific terms, what will be the benefits for all the players, such as off-takers, property developers, industry, and national economy?
Well let me start with the off-taker, the buyers dont know that they can own their own houses, here, we speak of good quality affordable houses, but through our product at “NGNHOMES. NG” , we offer a free portal that allows off-takers to know what they can afford, and help them to plan towards achieving that.
Having known what you can afford with your present money, you look for who can offer the service, and present the documents to the mortgage bank for confirmation. Our data evaluation uses the standard underwriting criteria for the country.
On how it benefits developers, let’s assume we go to any of the states in the country and we do this for 10,000 of the civil servants, we get to know who can afford a house of N10 million, N5 million or whatever price, and because it is digital, there is no much labour, but the developer knows that if he goes to any state to build, he already has a market of people that can afford houses within a particular price range, it provide developers with data to plan real estate investment.
What we see in some estates now, is that there are estates in the country where there is a mismatch between the products and the capacity to get the mortgage. Now, with this product, the developer do not have to go build blindly because he has the data, and he can pre-sale to targeted audience.
The next person that enjoys this product is the mortgage banker, who do not have the resources and do not need to go round the country to evaluate prospective off-takers. With this product, mortgage bankers can know that there are people in a particular place that can afford a product, so he will go and give them offers, knowing a developer that can also builds for that category of persons.
Government is the next beneficiary, government can now know that if the civil servants can give them one-third of their salaries, they can get affordable houses. I was in a state recently, having a meeting the head of service, ministry of housing , mortgage bank other agencies. And the Director of housing said the state was poor and they cannot afford houses of N7 million, N5 million.
Then when he finished talking I brought out my statistics for the state, I have done pilot off-takers affordability and mortgage evaluation for that state, and when I brought out the result everybody was shocked.
For investors, the statistics tell him what he can build and so he can engage a reputable contractor to build for him.
So every stakeholder gets to benefit through the credible data it offers, this is a private sector driven data base that tells of individual capacity.
From the foregoing, it will appear that your targets are the civil servants?
No, but they constitute the bulk of the market. For now, they have more secured and stable salaries, but there also industries and corporate organisation that have stable salaries. The system depends on mortgage, so anything that makes mortgage more secured, benefits the off-takers. You don’t want to start a program and after a year the person loses his or her job and it is abandoned.
Every country need this system, because there will be no risk, you have already secured your risks before you start. In plateau state, where we did the research, we had both civil servants and bankers who got prequalified.
What level of support have you got so far, and to what extent have you been encouraged or discouraged by it?
Acceptability of anything new is always a challenge, a lot of new businesses are products of several trials. Accepting it is not as easy, and the staying power is also a rare virtue. But my greatest joy today is that it has been accepted by the entire housing industry in Nigeria. From the Mortgage banks, the family home fund, to individual mortgage banks, to developers etc, now all talk about off-takers affordability before they can give a loan.
But the icing on the cake for me, is that today the paradigm shift has been established, I see it as a National and patriotic service. It will benefit Nigerians and Africans at large. Even as I develop our commercial aspect, I see many things that we need to get started with because it is expanding. We can actually with this method create a digital mortgage fund, for civil servants to key in. So, acceptability is 100 percent.
Even recently, the CBN issued a release to set up COVID-19 related intervention fund and the criteria for developers to come for such money is the off-taker affordability work already done, that is a direct acceptance of this concept.
Of course, when we started, we were considered crazy, that how can we be talking about mortgages before building, the model FMB was using was to build a house first, then people buy. Some time ago, at the FMB Management retreat, I explained that we need to rejig the NHF and EDL, but they built first with EDL before looking for subscribers to pay. That is why we have a lot of empty houses, in fact there are huge unoccupied estates in this country and deficits because we were not using this method so there has been acceptability.