Why home ownership level remains low despite developers efforts to increase stock

Despite efforts by both public and private sector developers to increase housing stock in Nigeria, home ownership level in the country remains low at 25 percent. This differs significantly from what obtains in Kenya, South Africa and Indonesia where levels are as high as 75 percent, 56 percent and 84 percent respectively.

The low home ownership level in Nigeria correlates with the country’s wide housing demand – supply gap estimated at 20 million units. Explanation for these are in a combination of factors including lack of credit facilities from banks and government’s policies which either delays or frustrates developments through long, cumbersome and costly land titling and documentation processes.

For these and other factors, growth in the housing sector has been sub-optimal as reflected in a recent report by Ubosi Eleh + Co, an estate surveying and valuation firm. “An analysis of data in the third quarter of 2019 shows that the Nigeria’s housing industry grew only once since 2016,” the report says.

Continuing, the report notes that the industry’s slow growth has to do with the little or lack of funds available to the industry for delivering homes. It cites data from the Central Bank of Nigeria (CBN) which suggests that loans granted to the real estate sector recorded seven consecutive declines dating back to the third quarter of 2017.

“The real estate performance remained sub-optimal during this period and recorded positive gross domestic product (GDP) growth just once in the past 15 quarters,” the report points out.

Other highlights of the report which explain why housing stock in Nigeria remains small and homeownership low are that bank loans to real estate fell in the second quarter of 2019, and that total credit to the industry declined 4.20 percent quarter-on-quarter and 22.90 percent year-on-year to N1.80 trillion in the second quarter of 2019.

Similarly, bank credit dropped from N710 billion recorded in the third quarter of 2018 to N588 billion out of N16.25 trillion credit facilities given out in the same period of 2019, according to a National Bureau of Statistics (NBS) report.

The report stresses that these recessionary trends impact negatively on firms in the housing industry as well, as shown by UACN Property Development Company (UPDC) which reported a decline of 42 per cent in revenue and a pre-tax loss of N9.20 billion in full year 2018.

The good news, however, is that despite these odds and limitations, some private developers are still doing developments and putting products on the market. New homes have emerged across the country, specifically in Lagos, Port Harcourt and Abuja, where the bulk of the homes have been built.

Leading the pack of these resilient developers is Lekki Gardens, a leading real estate company pioneering the development of affordable luxury homes across Lagos, Abuja and Port Harcourt.

The company has contributed over 8,000 units since 2012 thereby helping to reduce housing deficit in Nigeria. The country needs a lot more industry players to take a cue from Lekki Gardens’ model which has shown capacity to support the government’s delivery goals.

The company has serviced consumers across different sections of the housing markets and has delivered different property-types, including terrace duplexes, fully and semi-detached, maisonettes and flats of different sizes (1–5 bedrooms).

Like the few real estate companies still weathering the storm in the industry, Lekki Gardens employs many local personnel of global repute to drive its projects. According to its officials, the company’s intervention has led to the employment of over 10,000 people, directly and indirectly.

But side by side with these success stories are concerns bordering on product uptake, arising from the low income capacity of most prospective home buyers. This has been made worse by mortgage interest rates which are so high that government intervention is needed.

Industry professionals say that housing loans are ways for people to become homeowners, but that is still catching up in Nigeria. In Nigerian, mortgages are not viable options for home buyers as interest rates are in double digits. It is argued that if a home buyer pays 15 percent interest on a 35-year mortgage, he will end up paying about five times the original value of the property.

The professionals note that, in reality, current low cost housing projects are delivered at prices that are clearly out of the reach of people earning basic salaries, adding that one way to get around this is for the government to promote low cost technologies for mass housing solutions through Public Private Partnership (PPP) initiatives..

As a way forward for the industry, the professionals recommend a review of policies and regulations in the industry, stressing that the quality of land administration in the country needs significant improvement.

The Land Use Act No. 6 of 1978 (LUA) continues to hinder the land markets and acquisition in Nigeria. The major objective of making land easily available has not been fully achieved by the Act. Tenure of security and titling system is largely formal, requiring the consent of the governor of a state on all transactions since the LUA has vested all lands in the governor.

Whilst government is increasing efforts to reduce the housing deficit and effectively focusing on problematic areas like the deficiency of housing loan system, lack of social housing, titling problems and documentation, there is dire need for other entities to complement their efforts.