Collateral laws and a comprehensive property ownership reform have the capacity to unlock the potential in dead capital in the Nigerian real estate market estimated at $900 billion, experts have said.
Dead capital is an economic term relating to property that are informally held, and not legally recognized. It is estimated that about 95 percent of property in Nigeria is in this class. Generally, uncertainty of ownership diminishes the value of assets, and the ability to lend or borrow against it.
In their recent report titled, ‘Bringing Dead Capital to Life: What Nigeria Should be doing’, PricewaterhouseCoopers (PWC, a consulting and advisory firm, estimates that Nigeria holds, at least, $300 billion or as much as $900 billion worth of dead capital in residential and agricultural real estate.
The estimate, according to them, was based on Nigeria’s population figure of 180 million and 36 million households of which 95 percent of household dwellings in the country have no title.
In his presentation at BusinessDay Knowledge Sharing (Lecture) Series in Lagos, Chudi Ubosi, an estate surveyor and valuer, affirmed that only 5 percent of real estate assets in Nigeria is in formal mortgage, meaning that 95 percent of the country’s real estate assets are dead assets or capital.
The PwC report explains that unlocking $600 billion, half of the estimate, will expand the size of the economy by more than double, from $445 billion (according to IMF) to $1, 045 billion, reasoning that this might be the breakthrough to bridge the country’s wide housing shortage of over 17 million units.
Andrew Nevin, Partner and Chief Economist at PwC, says only land and property ownership reforms can unlock these dead assets whose value is about 81 percent of the country’s GDP.
Nevin stresses that Nigeria needs comprehensive reforms in its land and property ownership systems, given that its rigid traditional land tenure system coupled with the current land titling system excludes many people from formal land ownership, hampering full scale economic activities, especially real estate, which happens on land.
As a factor of production along with labour, capital and organization, land is so important that the other factors would be redundant without it. It is the bedrock upon which the satisfaction of all human needs is built. Food, clothing and shelter are all human needs met from resources derived from land.
Damilola Ijalade, broker at PWAN Homes, is of the view that creating a mechanism that allows asset owners use their property as collateral to access credit is one big way to unlock dead capital.
This is because, in Nigeria, real estate is mostly accepted as collateral by financial institutions to secure loans, implying that owners of properties whose asset have no title cannot access credit. “Collateral laws shape access to funds to a large extent. Dead capital cannot be unlocked if existing collateral laws are not revised to adequately support credit creation,” Ijalade said.
Experts observe that, in advanced economies, the major source of capital for business owners is their home. “By representing assets with titles, western nations have comfortably turned their asset to wealth,” they note.
Instances are frequently cited of US where every asset, either privately or state-owned, are titled and recorded at time of creation and quantified to the extent that they can be used as collateral to raise funds, first in the primary market. The mortgage instrument created can be sold and resold in the secondary market, and then bundled together to create more money.
“The Land Use Act of 1978 which is predicated on ownership rights is yet to unify land ownership across all parts of the country. A large chunk of property owners, particularly in the rural areas, snub the law as they have no titles on their lands,” Ubosi pointed out.
The Act needs legislative intervention for its review and this needs to be done quickly as a major step towards unlocking the dead capital that would lead to improved prosperity in many households.
CHUKA UROKO
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