As Nigerian economy slows with severe impact on all sectors, including real estate, doing business in the country has become a huge task. JIDE OGUNLEYE, the CEO of Denaro Properties Limited, shares his thoughts with CHUKA UROKO, Property Editor, on what it means to be an entrepreneur in Nigeria. He also speaks on how, as a company, they are navigating the difficult business environment occasioned by bad economy, and the products and services the company offers. Excerpts:
One can safely say that Denaro Properties belongs to the generation of real estate firms that are young but bold with strong footprints. Tell us about this company and what you do.
Denaro Properties Limited is a solution provider in the housing sector. We do real estate development and housing construction in particular. We also do development and management of properties. We opened for business in 2009, but started full operation in 2011. So, this year is our 10th anniversary.
We started with site and service schemes in Lagos and in other states. In terms of housing construction, we have done quite a number of projects. We have just commissioned a block of terraces in Nomad Grandville Court in Ilupeju, Lagos which is a joint venture project between us and Nomad Investment and Properties Limited. In joint ventures, some entities own the land while we come in to build. We also provided funding from conception to finishing. In Allen, Ikeja, we did a fully detached duplex which we have sold out and handed over to those who bought it. In Agege, we have a project that comprises a three-bedroom apartment. In Magodo, Isheri, we have Victoria Court which is a semi-detached development.
For our site and service schemes, in Ogun state, we started with Mayflower Gardens in Ofada, Silver Sand in Agbara and Fairfield in Simawa. In Lagos, we have Victoria Park, Grand Park and Downtown Park in Ibeju Lekki.
In Silversand Agbara, we have Grand Apartments where we have built two-bedroom bungalows for rent-to-own scheme. People are allowed to deposit N1 million, move in and start to pay by installments for four years. The interest on this scheme is so affordable and competitive that it can stand against what the mortgage banks offer. Our goal in this scheme is more to provide solution than targeting profit.
So, on the mainland, we have done pockets of developments that are meant to fill empty spaces for people who cannot afford to build in such locations where land alone may cost up to N90 million per plot.
We are focused on the Lagos mainland as we believe we are rebranding the face of the Lagos mainland. We go out looking for houses or land that are not well developed and we move in and build something that can attract people and are yet affordable. What we do essentially is gentrification. Through this model, we are changing the face of Lagos Mainland, bringing in new ideas, new concepts, and new structures.
Looking back 10 years, what impact have you been able to make on families and the economy?
In terms of providing housing solutions, our client base is over 1000. We have done quite a number of schemes and a lot of people have benefited from what we have done. When you talk about impact, it does not consist in selling houses alone as almost 100 artisans work on a single building project. These people are also impacted. We also do property management for clients. We have expatriate clients who have taken Nigeria as their home. We offer after sales service in which case we sell and also manage the property for clients. We do our best to ensure that residents don’t complain of anything that is necessary for their comfort.
Now, of your estimated 1000 clientele base, what percentage of them is in the low income bracket?
When we started, it was all about mass housing. It was later that we graduated to taking care of people who are in the middle and high income class. In terms of categorization, those in low income constitute about 70 percent of our clients. The mid-income group makes up 20 percent while high income earners are 10 percent. The low income earners are in the majority and you cannot ignore them, else you miss out.
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You have been involved in joint venture projects. Who are your partners—corporate bodies, individuals or governments?
We have done mostly with corporate bodies and individuals. The concept of the joint venture we have been involved in has to do with land owners. We believe that if you have land that is not being used, it is dead capital, especially if it is not yielding anything for you. The same way, if you buy a property, rent it out and tenants are not paying, the property could also be regarded as dead capital. This is why we advise land owners to look critically at their property and see what they can do with it profitably.
So, what we do is to approach landowners with our capital, technical know-how and marketing strategy and agree with them on how to share the properties that will come out of the land. We can agree on a 60:40 or 70:30 percent sharing ratio depending on the value of the land and the kind of property built. We can even market their own share for them and that becomes a win-win situation. The challenge here however is that a lot of land owners are still struggling to understand the concept.
In the last four to five years, how many such joint venture projects have you done?
We have done about five in different locations and with different land owners under different MoUs. In Ilupeju where we have the Nomad Grandville Court, the landowner is Nomad Investment and Properties limited. In a joint venture, what ties the developer to the project is an MoU where all the requirements, agreements and clauses pertaining to the project are spelt out. Everything is spelt out including the duration of the project.
This is different from an arrangement where two developers pool capital to do a project. In that case, a special purpose vehicle (SPV) is formed. A joint account may be created for the purpose of the project.
Where are your main areas of focus and who constitute your target market?
We strive to build affordable properties in prime locations because our target is people who can afford them and would like to live near to their work places in the city centre. On the mainland, we focus on areas close to Alausa in Ikeja. On the Island we look at places close to Ikoyi and Victoria Island which are the centres of business activities. Areas like Sangotedo and Awoyaya are also good locations for our kind of projects.
Let us talk about the economy in which you operate. Income has dropped and consumer purchasing power is shrinking. All these affect demand for housing. And despite all the odds, you still have to remain in business. How do you then navigate the challenges?
Nigeria is a very tough environment for doing business. It has been tough since our inception, but it has become tougher in the last three years of the current administration. I had said it elsewhere and I am saying it again here that any man that is able to sustain a business for five years in Nigeria is a miracle worker.
This is because he provides everything by himself, including light, water, security and sometimes his own road. He also provides his own funding to do business. This differs from what obtains in other climes. Look at US, for instance. Presently, there is crisis in the country and our colleagues there are finding it difficult to do transaction. The reason is that the value of properties has been inflated within one year. During Covid-19 crisis, the American government pumped money into corporate organizations and individuals for them to do business and thrive.
Most of them, instead of going into other businesses, preferred to invest in properties. This is why the prices of properties in that country is sky-rocketing by the day. Properties that were selling for $200,000 three years ago, are now listed for $300,000 per unit. It is difficult for realtors to close deals now. Here in Nigeria, there was no wide spread relief package for developers during Covid-19.
So, to do business and succeed in Nigeria, one needs a resilient and never-giving-up spirit. Everywhere you turn to, you must see something that is discouraging you or limiting your capacity. The government that is supposed to assist and empower you does not do anything.
What then are you doing to remain afloat in the absence of government support?
Real estate is a capital intensive venture. To do it you need funding. We lean on off-takers and installment payments to thrive. Accessing funding in this country is difficult. Sometimes, as an investor, you look at the interest on capital and find out that it is not really worth it. When you apply for N400 million loan, the interest rate on it is maybe between 15 and 20 percent per annum. When you use that to do development, how much profit are you going to make from the property that the interest rate will not eat up.
Let’s look at the mortgage system in Nigeria. How much relief is coming from mortgage providers who should be assisting the demand side of the housing market?
Mortgage is a huge challenge in Nigeria and until we fix it, the housing sector cannot be said to have started. Until people start to save from their monthly salary for 10-20 years and government backs that up, housing will remain elusive for a lot of people, especially workers.
The mortgage providers themselves are not properly funded to provide mortgage. The requirement for people to access mortgage is stringent. Even commercial banks do not easily do mortgage finance.
Singapore is known to have a good housing and homeownership model. Tell us about this model and what lessons Nigeria can learn from it?
One of the challenges we have in Nigeria is that there is lack of vision. Even when we come out with one, we cannot follow through with it. In Singapore, the vision of the founding fathers is that, in retirement, every citizen must have a home and the worth of such homes is not less than $200,000 to $300,000. So, as a working citizen, there is already a central provident fund created for you.
Your employer contributes to that fund. You as an employee also contribute and the government sets up Housing Development Board, a body that builds the houses, usually flats, for every citizen. This means that if someone started working three years ago, after four to five years, a scheme is started and a down payment is made from the central provident fund into the scheme. By his retirement after 20-25 years, he must have saved up to $300,000 through the payment of his monthly mortgage. Interests start from 1 to 2 percent per annum.
Homelessness is not a problem in Singapore. This is because, by the government deliberate arrangement, the life of every citizen is already planned. The disabled members of the society are given public housing. All these are happening in a country that got its independence in 1965, meaning that, in terms of age, it is even younger than Nigeria by five years.
What are the other challenges in the housing sector that, according to you, discourage investors and limit their capacity?
Access to affordable land and security of title is a big issue in this country. As developers, we have gone into projects only to discover that the place that used to have title no longer have such title because the owner did not renew it when it expired. In that case, the land has gone under government acquisition.
It’s difficult to process title. When you want to process your title, the cost of the process is also high. Lagos State government has tried to work on the time it takes to process a title but the cost remains a big issue for every investor. Government cannot complain of not getting enough money from land titling as it can solve this by simply addressing the challenges that prevent land buyers from seeking titles. They should make it affordable. The process should be made simple and seamless such that people can get their titles online in the comfort of their homes or offices.
The judicial system in the country is also a challenge. It should be the prayer of every developer never to go to court to seek redress because of the time it will take. That is why they must do their due diligence properly before buying a property or setting out to do a project.
Security is another big issue for developers. When you are planning to do a development, you have to be sure that the place is not where your workers will be kidnapped.
The rising price of building material is a major problem for us today. After Covid-19, talking about July 2020 to now, prices have gone up significantly. We developed a price index to enable us to check the rise in the price of building materials in our company and we found out that prices have gone up by 50 to 70 percent within one year. This means that for any project we want to do now, we will have to mark-up the prices by at least 50 percent. However, we won’t say we will not do business again because of rising costs. We can’t give up, we keep finding solutions.
Given all the challenges in the economy you have pointed out, what gives you confidence and hope of success in what you are doing now; how do you find buyers for your products?
Despite all the challenges we have enumerated, we are still building as the market is there. All the site and service estates we started years ago are getting facelift. We are getting into more JVs and buying properties where we can. We are teaming up with investors and building.
This is because, whether we like it or not, the future is still very bright for this country. I have expatriates, mostly Indians, as tenants in places like Ilupeju where we manage properties for landlords. I have watched these guys. Some of them have been in Nigeria for 10-15 years and they are not running away. That tells me that there is something in this country which they are seeing but we as citizens are not seeing and these, for me, are untapped opportunities in our economy.
I am therefore convinced that all Nigeria needs to explode is getting it right at the top. I hope that the day it clicks, the country and its citizens will sing a new song. The country will outshine South Africa which is the continent’s shining star at the moment. We have the population which is supposed to be a blessing to us. Population, anywhere in the world, is an asset where it is used wisely or its potential is properly harnessed. Population is working for countries like China, Brazil, USA, India, etc.
The government should be thinking of taking care of the uneducated youth who today are the major cause of insecurity in the country. However, Nigerians are still surviving and doing developments in spite of the challenges. So, you can imagine what would happen if the country is stabilized.
