In a very significant way, homeownership level in Nigeria contrasts with the reported growth in the country’s real estate sector. While the level remains low, the sector growth trajectory is encouraging.
By the last checks, Nigeria has only 25 percent homeownership level for its population of 200 million, which is far behind its peers including South Africa, whose level is 67.7 percent for a population of 56 million.
In small Benin Republic, whose population is 11.8 million, almost half of Lagos State, the home-ownership level is 61 percent; Libya, with a population of 6.8 million as of 2019, has 41 percent; while Brazil, USA, Kenya and Singapore have 63 percent, 70 percent, 73 percent and 90 percent, respectively.
Periodic reports by the National Bureau of Statistics (NBS) almost always show growth trajectory that tends to suggest that there’s improvement in the housing component of the sector.
Recently, the NBS released a report showing a significant contribution of the construction and real estate sectors to the GDP in the first three quarters of 2022. The report shows that construction services earned N12.9 trillion, while real estate contributed N7 trillion, totalling N20 trillion to GDP.
The report shows further that real estate services grew in nominal terms by 9.13 percent, higher by 0.50 percent points than the growth rate reported for the same period in 2021, and lower by 3.68 percent points compared to the preceding quarter.
The sector returned to positive growth with 2.81 percent year-on-year in the last quarter of 2020. This growth, which enabled it to crawl out of recession, followed six consecutive quarters of negative growth after the last positive growth of 0.93 percent was recorded in Q1 2019.
From then till date, the sector has been recording marginal growth figures, yet the housing component continues to struggle with widening deficit of about 22 million units while rental market activity increases almost on daily basis, with an estimated 80 percent of the population participating.
Similarly, construction which includes buildings has also seen growth. According to the NBS report, the sector contributed 9.5 percent to nominal GDP in the third quarter of 2022. This was higher than the 9.26 percent it contributed a year earlier and higher than the 7.95 percent it contributed in the second quarter of 2022.
The report adds that the sector grew by 18.92 per cent year-on-year in the third quarter of 2022 while on a quarter-on-quarter basis, it grew by 16.38 per cent. Its contribution to nominal GDP in Q3, 2022 stood at 4.96 per cent, relative to 5.27 per cent recorded in the third quarter of 2021 and higher than the 4.95 per cent reported in the second quarter of 2022.
Despite all these, homeownership level remains low, and experts have fingered a number of factors responsible for this disparity or mismatch.
“Inflation which is the reason for the high building material prices and labour costs is at the root of the problem we have at hand,” Johnson Chukwuma, a construction engineer, told BusinessDay, explaining that GDP figures are not necessarily based on increased output, but rather on increased costs.
Chukwuma noted that the Russia-Ukraine war has created an economic crisis around the world, leading to the worst inflation in more than 40 years in some western countries. He added that since about 70 percent of the construction materials used in Nigeria, especially for finishing are imported, the prices are also impacted by the global inflation.
Though Ayo Ibaru, chief operating officer at Northcourt Real Estate, noted that the growth figures captured in the NBS report are mainly about services and not developments, he added, however, that they have a chicken-and-egg relationship and so affect product supply negatively.
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Rising demand, emerging middle class, rapid urbanisation and the level of infrastructure have kept land prices high. This is made worse by the country’s land tenure and property ownership system, which, according to Andrew Nervin, chief economist at PwC, is the most rigid in Africa. This affects supply too.
At a real estate forum hosted by the Royal Institution of Chartered Surveyors Nigeria Group in Lagos, Nasir el-Rufai, Kaduna State governor, affirmed that the major issues affecting housing delivery in Nigeria, which account for the wide demand-supply gap, include constraints related to high cost of securing and registering land title.
The governor reasoned that the real estate sector could play a much bigger role in the Nigerian economy, adding that, if carefully done, investments in the housing sector could drive economic vitality and create jobs.
Apart from these aforementioned factors, experts also hinge Nigeria’s low homeownership level on its under-developed Real Estate Investment Trusts (REITs) business, which is still low in terms of level of investment, market capitalisation and return on investment.
According to the experts, though REITs started in 2007 in Nigeria, about six years before it started in South Africa in 2013, and about five years after it started in Singapore in 2002, there is a huge difference between the number of REITs in those countries and what obtains in Nigeria.
Whereas Singapore has 37 REITs and South Africa has 29, Nigeria has only three. The US, where it started in 1960, has 224 REITs, while the UK has 37.
In terms of market capitalisation, the experts reveal that UK’s $73 billion, Singapore’s $34 billion, and South Africa’s $19 billion, contrast with Nigeria’s REIT is valued at $0.2 billion. In terms of return on investment, it is 7 percent in Nigeria as against 16 percent in Singapore, 15 percent in South Africa and 9 percent in Kenya.
“There are, evidently, issues regarding the quality of assets available and concerns around the tax implications, among others,” Ibaru explained to BusinessDay, suggesting that to reach performance levels of national economic significance, adjustments need to be made.
