Snapshot of Nigeria Real Estate
The year 2013 could be described as a crucial period in the history of the global property market with many regions of the world including Africa, Asia, Europe, and United Arab Emirates (UAE) among others, showing significant growth and recovery across various realms of the market. The rise of Africa’s middle class along with its consumerism is regarded as the most attractive part of investing in Africa according to a survey by the Economist Intelligence Unit (EIU). Countries of Sub-Saharan Africa including Nigeria, Ghana, Sierra Leone, Cote d’Ivoire and others saw considerable growth during 2013 owing to demographics, increased spending power and softening of the economy of the developed countries. However, according to experts, Africa’s real estate’s assets account for only EUR113.0 billion or N23.3 trillion which is about 1 per cent of the global value in spite of the African continent consisting of enormous population of 15 per cent of the world’s total population.
According to NBS, the growth recorded in Nigerian real estate sector was 10.4 percent in the third quarter of 2013 whereas growth in the second sector of 2013 was 10.9 per cent. On a year over year basis, the sector recorded a growth of 11 percentage points from 10.2 per cent in the third quarter of 2012.
Growth dwindled 53 percentage points when compared on a quarterly basis; however, the sector is capable of achieving exponential growth in future given existing high property rates and rapid rate of urbanisation. Nigeria’s urban population increased to 50 per cent of the population in 2012 from 10 per cent of the population in 1960. It is predicted that population of urban center, Lagos, will reach a staggering 20 million by the year 2020, making it one of the biggest cities in the world. According to 3investonline, the Nigerian real estate sector is worth over N160 trillion and is sure to take a giant leap in future.
Other factors like; favourable demographic indices, with Nigeria being the continent’s most populous country, and positive economic growth outlook indicate Nigeria’s great potential for development, inextricably suggesting the unexplored potential of the real estate industry in the country.
According to BGL Research, Nigeria needs around 16 million housing units to accommodate its population of approximately 168 million, with over 50 per cent of the Nigerian population being homeless or without adequate shelter. Nigeria has room to create approximately 1 million housing units, per year, for the next 20 years to cater to the housing needs of its people.
Crippled infrastructural facilities, lack of transparency in land policies, and non-availability of favourable financing, among others, have restricted the creation of housing units to around 30,000 units per annum. This has given rise to a housing gap as majority of Nigeria’s population concentrated in urban areas in contrast to rural areas. However, the growth in low to medium income housing is on the rise with many new developers addressing the need of the low to middle income groups. For instance, Common Sense Company’s offering of 100-unit Signature Estate with one-bedroom bungalows at prices starting from N3.0 million.
Office space, like residential space is in much demand in Nigeria where the property gets sold before construction is completed. Prime office rents in Lagos are amongst the highest in Africa. The prime office rent in Lagos at US$85 (N13,600) per sqm per annum is second only to US$150 (N24,000) per sqm per annum of Luanda, Angola, in the African continent. The chart below depicts top -10 cities in Africa in order of their prime offices’ rents. For better understanding of the Nigerian market, Abuja has also been included in the chart.
Source: Frank Knight, BRIU
It might come as a bit of a surprise, but in the year 2000, there were no malls in Nigeria. In the last decade, the number has gone up to 30. Though not a big number, the number indicates rising demand for shopping outlets and spaces. However, it might be interesting to note that Lagos has only three ‘A’ Grade shopping malls with its population of over 14 million in comparison to Johannesburg, South Africa, with a population of 4 million, having 72 malls.
The real estate industry is seeing bountiful of investment seeping in for the construction of new age retail and shopping centres across Nigeria, making it a haven for investments. Actis LLP, a London-based private-equity firm with around US$1.7 billion (N272 billion) investments in Africa has initiated many projects in Nigeria, including, the 307,000 square feet Ikeja City Mall in Lagos. The project which was opened in 2011 cost approximately US$100 million (N16 billion), and is presently occupied by renowned retailers like Shoprite Holdings and Samsung Electronics. Actis has invested another US$100 million (N16 billion) for developing a 19,40,000 square-feet Heritage Place in Lagos slated to open in 2015.
Challenging yet exciting future
BRIU would describe the sector as a gold mine with ill-equipped miners owing to the multitude of issues the sector is faced with. This includes unavailability of favourable financing from banks, high interest rates, transfer rates, double taxation etc. In the Jones Lang LaSalle report, Nigeria is placed in the category of “opaque”, ranking 96 out of a total of 97 (JLL-1.51 per cent) countries, just above Sudan, on the 2012-global real-estate transparency index. This indicates the shortcomings of investing in Nigerian real estate which is prone to corruption, unavailability of fundamental data and poor environmental sustainability programmes for the construction of large scale properties. The complex land tenure system in Nigeria has been stifling the growth of the real estate industry. The Land Use Act calls for the governor’s consent for mortgages and land transfers which is expensive as well as tedious. As eloquently summed up by the Wall Street Journal, Nigeria looks like a real investors’ dream in some ways; however, investing in Nigeria is not for the faint hearted.