With a housing deficit of up to 17 million units by some estimates, problems confronting Nigeria’s real estate sector seem to defy solutions. In this interview with BusinessDay journalist Segun Adams, Jide Odusolu, CEO of Octo5 Holdings and erstwhile Special Adviser to former Ogun State Governor, sheds light on the challenges of real estate in Nigeria and the way out for the country, drawing from his rich public and private sector background.
What is the biggest challenge that Nigeria is facing with providing adequate and affordable housing units for its population?
In order of importance I will say expertise/capacity constraints; limited access to medium-term funding and the huge infrastructure deficit which makes properties more expensive.
Some real estate practitioners have blamed low investment in the sector on the land use act. What would you say about that?
The Land Use Act (LUA), while a bottleneck is NOT the problem. The disconnect between State Governments understanding of how to truly raise IGR and the over-reliance on the use of high tariffs is the true challenge. What that has done is to create a virtual alternate title transfer where people bypass transaction titling costs. Since most properties are purchased for personal use, most buyers are willing to take that risk. That said, Land Use registration costs, planning approval costs and such statutory expenses on their own are at best 5% to 10% of development cost. Conversely, infrastructure, on the other hand, takes a minimum of 25%, while the high cost of finishes adds averagely another 30% at the minimum.
Let me hasten to add, that the titling system in many western climes is dependent on a public record of deeds which enables you to track property history. Nigeria cannot be an exception, BUT the provisions that make it mandatory for Governor to give consent which has become a tariff toll must be modified and simplified. States can and should still generate revenue BUT we must move away from the present unwieldy and dysfunctional approving processes.
The real estate sector according to NBS data continues to underperform, what can be done to unlock value in the sector?
The Nigerian Real Estate Sector is under-reported; poorly understood and overtaxed. Real Estate ought to be a top-three sector for the economy especially noting our huge deficit.
In Ogun State, during the homeowners charter program instituted by the Amosun administration, over 35,000 properties without title and/or documentation were successfully codified and issued Certificates of Occupancy. Essentially that meant, people could unlock the dead capital locked in the Properties.
According to PwC, Nigeria holds in excess of US$300 Billion in an unrealizable undocumented property.
Try and imagine the economic impact, if by creating an enabling environment, we can generate 10% of that in new real and realisable assets?
Now, how can this be done speedily? One, we need to improve access to medium-term capital for structured developers; this will go a long way to unlock value in the sector. Two, we must recognize the high cost of infrastructure and provide fiscal concessions for developers who invest in utilities which in itself boosts urbanization; Three, we must publicize the real tax advantages of owning mortgages!!!
When we do these three, we broaden the economic base of the country dramatically.
There have been reports that high vacancy rate is driving down the price of properties especially in prime areas in Lagos. How would this affect developers?
Again this speaks to the expertise deficit. You will be shocked that the high vacancy rate applies strictly to the “premium” sector which is battling a glut. The middle market which yearns for affordable luxury homes is woefully underserved, let’s not even mention the mass affordable segment. Most savvy developers recognize that the deep end is in the middle market but they run to the premium end because they lack long term funds to invest for deferred yield.
For example, our two prime communities of Heritage Place and Ocean Bay took an average of FIVE years to break even. But when they did, it was a massive profit for our investors and beat the ROI of many more expensive premium developments.
What can be done to support the demand for real estate?
Like I said earlier, we must improve access to medium-term capital for property developers and reward them with tax concessions for having to carry the high cost of infrastructure. We must also provide fiscal incentives for developers who invest in power and water utilities, these are municipal services and when developers provide them, the rate of urbanization increases positively and we have fewer slums.
Let me note that there has been a lot of effort to grow the demand side, but it is an exercise in futility until we aid the supply side and support serious developers to build scale.
We project the minimum demand for houses priced below NGN30m to be at least one million units (1,000,000) Meanwhile total annual production of houses in Nigeria is less than 10,000! Why? Because few developers have the resources for the long game and those that do have zero incentive to replicate on scale because of the hostile fiscal regimes.
Mortgage as a finance option seems to drag in Nigeria. What is the problem and what are the ways out?
In the past, the absence of long term liquidity was the problem; Nowadays, it is the lack of a structured titling system and high cost of titling that forces many people to resort to self-help to build and such houses do not qualify for mortgages; The Nigerian Mortgage Refinance Corporation (NMRC) and Family Homes Funds (FHFL) both federally backed agencies have been doing a lot to widen the pool of available funds for mass affordable and affordable luxury homes. But again, developers who have such schemes are often deluged with subscribers and have less incentive to fight government bureaucracy.
President Buhari last year refused to assent to the National Housing Fund establishment bill. What could have been done better in terms of preparing the bill?
I personally believe that the NHF act as contrived, was ill-thought, poorly researched and an attempt to use State Powers to solve a challenge that is best left to the private sector. I personally believe that what we need is for the government to focus on creating an enabling environment RATHER than attempt to grab more funds from citizens to waste on a failed model such as the NHF. So I support the President and laud him for not signing that bill.
How much of an impact would the recent infrastructure investments in Nigeria have on the real estate sector?
If replicated for developers especially in semi-urban neighbourhoods, the impact would be huge and immediate. As presently structured, it seems to favour just the mega-companies.
What is your view on the participation of women in homeownership?
Nigeria is a dynamic country and our women some of the most industrious and hardworking in the world. I grew up with a mother that used to take me on-site inspections; my wife has been involved and continues to be involved in the sector in various facets. There are many influential women active as pioneers in this sector. As such, from the investing / development side, women remain major influencers.
However, on the homeownership end, we have until recently had to deal with so many bad cultural biases against women that impeded their ability to access financing and own investment property.
Times have however changed and one of the major beneficiaries are our hardworking women folk. I daresay, over the next few years, I expect a larger proportion of property investors would be women buying homes for investments and as stores of wealth.
What policies or government initiative are critical to supporting the real estate industry?
I personally believe that Vocational Skills is an ignored but vital weapon to address our growing rate of youth unemployment. Next to agriculture, that is the only way to take millions out of poverty and unemployment speedily. Sadly no one is incentivized to do it and we keep exporting jobs to our ECOWAS brothers and sisters.
Which areas of real estate are currently underexplored and where do you see opportunities?
Research shows that over Ten million Nigerians can afford Two Hundred and Fifty Thousand (250,000.00) Naira monthly as disposable household income. Over Two million can actually afford above Five Hundred Thousand (500,000.00) Naira as disposable household income.
This means that at least 10 million Nigerians can buy homes priced at a maximum of 25M with flexible payment plans!
Unfortunately, these funds are frittered on consumption because there are limited options for buying homes on credit.
Furthermore, most of these ten million Nigerians live in congested underserviced urban centres. So if we are truly building 21st-century cities, we also require many mini-malls and recreational hubs!!!
To be candid, the market is hugely under-researched and poorly serviced.
You were recently a special adviser to the former governor of Ogun state and MD of the OPIC. What was that experience like for you?
I call it my six-year post-graduate program. As a fairly successful private developer, nothing prepared me for the huge dichotomy between public and private practices.
However, I am eternally grateful to my boss –Senator Ibikunle Amosun and my former colleagues at OPIC. Together we left indelible marks as far as development in Ogun State and Nigeria at large is concerned.
Under your leadership, OPIC, though a state company, was recognized as being on the frontier of development of Nigeria’s real estate sector. Can you share how you were able to achieve that, alongside some of the challenges you were faced with?
That’s an entire epistle, seriously though, after the initial massive culture shock, I recognized that there were a lot of good people in the public sector. The challenge was our perennial National bad habit of subordinating merit in making appointments. As such many of them required motivation and encouragement to be willing to take risks in a system designed to be anonymous and simply maintain the status quo.
The successes recorded during my tenure was firstly due to having an Uncommon leader and champion in the Governor, he gave unequivocal backing to all our initiatives and often thrived on pushing us to be bullish. The political cover provided enabled the team and me to break many barriers and make progress without fear or favour.
Second, as I said was the innate quality of my colleagues, most of whom were highly trained professionals with years of practice knowledge but very low motivation to take chances. When they were confronted with a committed leader, most signed up and supported the various initiatives introduced to transform OPIC.
Conversely, a huge challenge was the negative impact on personal family life and my personally having to willfully forgo so many personal business opportunities for the greater good.
But as you attested, the great joy was that we successfully transformed OPIC, created many award-winning landmark projects AND ensured that OPIC within six (6) years was a top-three internal generating agency in Ogun State and easily one of the top five active large scale developers in Nigeria.
What informed your decision to return to the private sector and how easily adaptable to private sector practice is the experience you bring from your time with Ogun state government?
My foray into public service was not planned and neither did I envisage that I would be there for that long. As I said, it was exacting a huge personal cost and so the first chance I had to return to base – I grabbed it. That said, the major eye-opener to me was the huge potential market that extends beyond Lekki-Victoria Island and Ikoyi for property development
Until OPIC, I would have laughed, if you told me that one create several multi-billion naira projects in Abeokuta, Agbara, Isheri, Makun – Sagamu, ALL WITHOUT Government subvention or borrowing?
My public service made me confirm that Nigeria is truly an ocean of opportunity that favours only the brave.
Tell us about how Octo5 Holdings ltd is supporting growth in the real estate sector
OCTO5 has been reborn to bring freedom to the working professional. Our goal is to empower working professionals through property ownership both as homes and investments.
We are also working to create a structured vocational training and certification system that will help create at least 10,000 jobs annually based on our public sector experience.
Lastly, we are introducing new models for demand aggregation and working with NMRC, FHFL, Banks and other developers to ensure that we can enable many professionals to own homes; especially women. For us, women are a huge part of the future of homeownership.
What can you say has been some of the landmark accomplishments for Octo5 Holdings till date?
Between 2000 and 2010, it would be pioneering the development of that whole area around Novare Mall now known as Monastery Road, Sangotedo. Nothing existed there when we initiated Heritage Place in 2000/2003. The same applies to Ocean Bay, Lafiaji, between 2003 / 2007, when we created it, THE ONLY VIABLE neighbouring communities were VGC and Chevron itself. As a matter of fact, our collective sanity was queried for many years during the development phases of both communities.
Having survived, as a full-grown tested company, our new challenge is the unique opportunity to lead the charge to create affordable luxury homes in a truly viable manner. We intend to be that company that gives investors and families the freedom to own homes. We intend to do this using our STOW App, the Vocational Skills Initiatives and the various partnerships being fostered to support the industry.
With several awards and honours to your name, what drives or motivates you?
I am motivated by challenges. Being able to boldly say nothing is impossible and then walking that talk!