The challenge of land, rent, capital
With a population that is unrivalled in Africa and citizen’s spending power adjudged number three in the world, Nigeria is, indeed, a huge real estate market and an investment destination in residential, hospitality, retail and office space.
The statistics is inviting: Huge housing demand-supply gap estimated by United Nations Habitat to be in the region of 16-17 million units; fast-paced urbanization with urban population growing at 4 percent per annum; only 10 percent home ownership level; a growing economy with annual GDP growth of 6.5-7 percent per annum; hotel occupancy rate of about 60-70 percent.
All of the above have very strong appeal for investment, yet investors are slow in moving cash to this market. Empirical evidence and sector analysis have however, shown that investor-interest and confidence are neither little nor lacking in this economy, but a number of huddles on the way of these investors have almost killed their interest, impacting negatively on the sector’s development.
Analysts confirm that real estate investors are challenged by a number of huddles including outrageous land charges, high rent charges, inaccessible and unaffordable capital among others.
With the revolution in retail market, investors like Actis, Capital Alliance and many other individual and institutional investors who desire to invest in retail centres cannot find well priced land of the right size and at the right place. In addition to this, land price, which is not supposed to be more than 10 percent of the construction cost, is so high. Especially in Lagos, that oftentimes it makes projects unworkable.
High rent is yet another huddle to investment and the development of the real estate sector and we are pained that a major South African retailer like Woolworths could close its three stores in Nigeria, including the one in Ikeja City Mall, on account of high rent. The nation loses because of this action: the state government has lost some level of tax revenue while consumers’ choices have been narrowed considerably.
As in any other sector of the economy, capital poses a major obstacle because to build a world class retail mall like The Palms or Ikeja City Mall in Lagos, for instance, requires huge capital outlay of about $100- $150 million.
Experts say that to build a mall of this standard requires 50 percent equity and 50 percent debt such that building a mall like Abuja Jabi Lake Mall which is estimated to cost $130 million, requires an investor to bring as much as $65 million equity to bring to the table while not many banks are ready and able to provide the $65 million debt. This issue calls for concern because ours is country where there are many dollar billionaires that could easily tap into the investment opportunities in real estate.
It is in this light that we call for education of all stakeholders in real estate so that people understand why they have to put their money in this sector considered the best investment asset class in the country today.
Investors are looking for where to get the right size and well priced land to set up their business, and we think that those who have the wherewithal could go into investment in land bank to supply to those who need land for other purposes.
We also call on the government to look into the issue of land with a view to making it not just accessible but also affordable by reviewing charges and approval processes which kill the interest of potential investors. We believe that high rent in both residential and commercial properties are as a result of high cost of land and all these are disincentives to investment.