Naira redesign: Why real estate isn’t an option for stashed cash
One of the reasons given by the Central Bank of Nigeria for its decision to redesign higher-value naira notes is that over 80 percent of the N3.2 trillion in circulation is stashed at home, outside the banking system.
New naira notes, according to the apex bank, will be in circulation from December 15 this year and will be used side by side with the old notes. But by January 31, 2023, the old notes will cease to be legal tender.
This means that all the old currency notes that are outside the banking system and are not in circulation should be returned to the banking system before January 31, 2023 or become useless to the owners.
Meanwhile, the bank has set out guidelines on how to deposit the old current notes in the banks. One of such guidelines is that not more than N5 million will be deposited in a new account in one month and not more than N50 million will be deposited in an old account.
Given that Nigerians have just a little above 30 days to make these transactions, those who have money in excess of the stipulated amounts kept in their houses, especially politically exposed persons and those who may have taken money for ransom, will have difficulty in disposing of their cash.
It is expected that some of this excess cash may find its way into investment instruments, particularly real estate, which is traditionally regarded as a conduit pipe for illicit or laundered money.
But experts think otherwise. They reason that real estate is not going to provide the haven for such money. “It will still be traced; what CBN is doing is to find the people hurting the economy by hoarding money,” MKO Balogun, CEO of Global PFI, told BusinessDay.
Gbenga Ismail, vice chairman of Nigerian Institution of Estate Surveyors and Valuers, Lagos State Chapter, said: “Even though real estate will definitely be one of the options for those who hoard such money, the difficulty will be that any money received still has to be processed and banked.”
On his part, Gbenga Olaniyan, CEO of Estate Links Limited, said because of the amount of naira involved and the difficulty in lodging, it is very difficult to accept cash for large ticket deals, wondering how as a vendor or agent one would lodge such money.
“Although we have not seen it, perhaps some of it is being used for small deals such as land in Epe or other places under the N5 million threshold,” he said. “Professional brokers do not want to fall foul of the money laundering law and ruin the reputation built over the years.”
The luxury segment of the real estate market, where big-ticket deals are done, is a major suspect for people with excess cash to move into. But players in that segment of the market think differently. “That segment is unthinkable for such transactions,” one of them said.
Udo Okonjo, luxury real estate expert and CEO of Fine and Country West Africa, told BusinessDay in a phone interview that in the luxury real estate market, the impact of the CBN’s proposed naira redesign has mainly been seen in the loss of confidence in the currency and flight to reprice assets in dollars or benchmarked to dollars.
She said: “Even though the popular opinion appears to be that those who stashed naira at home will make their way to real estate, and this may influence prices, there’s no support for this thesis in our segment of the market which is dominated largely by corporate investors and high net worth clients with a discernible track record of wealth.”
Continuing, Okonjo said: “The most critical factors currently driving luxury real estate market prices are the dramatic devaluation of the naira (which has seen a further slide as a result of the CBN currency redesign), the galloping inflation, rising interest rates and bearish money market as well as political uncertainty.”
She explained that as a result of these factors, most astute investors were revaluing their assets and benchmarking to the dollars, while others are reassessing their decisions for large projects pending when things settle down.
“This has an implication of further slowing down the overall real estate market, especially for short term investors. Long term and more astute investors, however, are looking out for opportunistic transactions, especially those with historic prices in the prime areas,” she said.
The new Anti-Money Laundering Act, which focuses mainly on real estate, will discourage illicit money or unexplained wealth from coming into the sector.
“The Act is aimed to ensure that illicit funds are not allowed to get into the financial systems or into the economy. It does not encourage criminals to continue to perpetuate their crimes wherever they may be,” Kayode Adeluola, a senior advocate of Nigeria, said.
Adeluola said at a recent real estate event in Lagos that one of the easiest ways by which illicit funds get into the system is through real estate, explaining that a lot of people who commit crime such as banditry, kidnapping, and drugs peddling usually do not have an idea of how to spend their illicit income and so the easiest way is to buy real estate.
“They do that because real estate doesn’t have a name that shows on it unless you put it; so they can use pseudo names. They can use companies that are incorporated for that purpose,” he said.
“So what I am saying is that practitioners of real estate must always ensure that they don’t allow themselves to be used for that purpose. They must know the customers they are dealing with and try as much as possible to know the source of their income.”