Why Nigeria’s low homeownership rate is an urban issue

Thanks to the ever-booming Balogun Market in Lagos, where Nnamdi, a fabric seller who earns five times more than his peers in the village is on the list of those considered as the middle class in Nigeria.

With three shops to his name and five apprentices serving him in exchange for a monetary settlement, Nnamdi is described as someone that is doing better than his age group, especially as he was recently recognised with a chieftaincy title in his village, a big deal in the Eastern part of Nigeria, the home town of the businessman.

“All my mates in the village who I thought I was doing better than have their own houses in the village,” he said after returning from the festive season. “With all my savings, I still cannot afford to buy a house in Lagos. If I knew I would have considered building in the village.”

Nnamdi’s story is the same for hundreds of Nigerian professionals and entrepreneurs who, due to the high cost of properties in several cities across the country and lack of functioning mortgage system have not been able to move from a rented apartment to their own home.

The answer to whether it is easier to acquire a real estate property in the rural parts of Nigeria can be obtained from the 73.9 percent rural homeownership rate as against 35.7 percent in urban areas.

At 62 percent in 2019, Nigeria’s low homeownership rate is as a result of the few number of persons that own home in the urban area, as compiled from a recent survey report by the Nigerian National Bureau of Statistics (NBS) in collaboration with the World Bank.

“Findings show that 62 percent of households own their dwelling and 21.8 percent of households rent their homes. This shows there has been a slight decrease in homeownership and a slight increase in renters between Waves 2 and 4,” researchers at NBS said.

Checks by BusinessDay show that the high cost of acquiring lands in urban region of the country, which has a housing deficit of more than 20 million units, is one of the key reasons why homeownership rate is higher in rural communities.

“Most Nigerians outside Lagos and few urban centres live in their own homes, and this is not surprising. Land is extremely expensive in urban areas,” Omotola Abimbola, Sub-Saharan Africa focused macro strategist, said.

While housing anywhere in the world is a basic necessity, which in the order of human needs, ranks third after food and clothing, Nigeria, Africa’s most populous nation, has a shelter gap that has widened over the years.

Whereas, homeownership level is 84 percent in Indonesia, 75 percent in Kenya, it is 62 percent in Nigeria whose population is estimated at 200 million. Going by the United Nations projection, the country’s population will be as high as 400 million in 2050.

Even though Nigeria’s low homeownership rate holds opportunity for developers and investors, individual efforts at increasing the stock by way of developing more houses, have not helped to reduce the demand-supply gap or increase the ownership level estimated at more than 20 million units.

Access to affordable housing in Nigeria is crippled by among other factors the lack of non-functioning mortgage system, high cost of property development buoyed by the country’s 42 years old Land Use Act.

Difficulties in acquiring land for real estate development could mean – less inventory in the market or the available products will come at a higher cost as access to land is the foundation of any real estate project.

The latter is the case for Nigeria, a country that requires an estimated N170 trillion to N200 trillion to bridge its housing deficit of more than 20 million units.

“The major issues that continue to affect housing delivery in Nigeria, which also account for the wide demand-supply gap, include constraints related to the high cost of securing and registering secure land title,” said Nasir el Rufai, Kaduna State governor.

When BusienssDay asks Adekunle Abdul, managing director, Metro & Castles Homes, a real estate development company, what it will take for real estate developer to provide affordable housing for Nigeria’s low-income earners, he states that everything depends on the price of land because developers do not have control over the price of lands.

“The cost of building a house is the same, whether you are building in Victoria Island or Ikorodu, but it is the land value that drives the cost of properties high,” Abdul said.

The Land Use Act nationalizes all lands in Nigeria and places a government official between a legal contract of sale of land between two parties. It places all land in Nigeria in “trust” of the Government and specifies that future transfers or sale of land must be confirmed by a government official, in writing, irrespective of the value of the transaction.

“It shall not be lawful for any customary right of occupancy or any part thereof to be alienated by assignment, mortgage, transfer of possession, sublease or otherwise howsoever – without the consent of the Governor in cases where the property is to be sold by or under the order of any court under the provisions of the applicable Sheriffs and Civil Process Law,” the Land Use Act read.

Enacted in 1978 during Nigeria’s military regime, the Land Use Act which is almost as old as the country was signed to curb land speculation, the key driver for the astronomical rise in land values.

But due to lack of modification of the Act which was passed some more than four decades ago, the opaque law is now a setback for many real estate developers as it makes it difficult for the industry players to get access to affordable and stress-free lands.

Breakdown of the recent NBS report shows that, of the region that has dwellers living in their properties, North West topped the list with 88.1 percent, followed by 78.7 percent reported for Northeast and northcentral with 69.4 percent. South East, South-South and South-West occupied the bottom with a homeownership rate of 63.2 percent, 46.2 percent, and 25.5 percent, respectively.