Attracting investments for real estate development

Real estate and mortgage finance experts want government to nip insecurity, other challenges confronting the nation in the bud to attract investments to the nation’s real estate sector. DAYO AYEYEMI reports.

There is no doubt that the increasing insecurity issues, harsh economic policy, rising inflation, volatile foreign exchange and COVID-19 pandemic have limited investments Nigeria’s real estate sector and economy for some time now.

Unlike before when foreign investors with iconic projects dominated the skyline, the unfavourable economic climate coupled with rising cases of kidnapping has led to slow-pace activities or complete abandonment of ongoing office and commercial real estate developments in Nigeria’s big cities of Lagos and Abuja.

In Lagos, the state government has even threatened to confisticate all abandoned buildings as they pose security risk in the metropolis, adding that on no condition must anybody sleep in such buildings.

To change the narrative in order to promote economic activities and growth, professionals in the sector said the insecurity issues threatening the nation’s foundation must be tackled head-on to give room for meaningful development.

Besides, they want the state and the Federal Government to embark on massive infrastructure development across the country, while sustaining social housing policy.

They also urged government to address the issues of people’s low purchasing power, high cost of building materials, high cost of funds, high cost of land and bottlenecks associated with title and planning permit.

Some of the experts that spoke with Nigerian Tribune in telephone chats are the Chairman, HOB Estates Limited, Chief Olusegun Bamgbade; US-based mortgage finance expert, Mr Kunle Faleti and Managing Director, MOA Planners Limited, Mr Moses Ogunleye.

Bamgbade maintained that people’s low purchasing power was not the issue limiting investment in real estate sector but insecurity situation across the country.

According to him, unless something urgent is done to arrest the situation; the insecurity situation in the country would never allow any meaningful development in real estate sector.

“We have to deal with the security issues in the country before we talk about real estate development.”

Talking about how to turn around the situation for vibrant real estate’s investment, Ogunleye said that massive infrastructure should be fully developed at both the state and national levels.

He is of the opinion that if the key national infrastructure like railway is well developed, it would spur other developments particularly real estate.

“We will have more transit oriented development around the train stations. Then investment in real estate can be in various locations, distance to principal development centres notwithstanding. Apart from rail, others at the level of states-water supply, road and power supply should be properly funded and provided by government.  These are elements which investors have had to provide which reduce their profit,” Ogunleye said.

To attract investments to the sector, US-based Faleti said there must be a focused, deliberate and sustained social housing policy for all states.

“One size does not fit all, so it must not be implemented by federal,” he said.

According to him, rising home prices, stagnating wages, demographic pressures and a lack of public investment in housing in most states have been increasingly challenging housing affordability in Nigeria.

To the mortgage finance expert, social housing must be an important dimension of social welfare policy and affordable housing provision.

“There are significant differences across the states in the definition, size, scope, target population and therefore the type of social housing required will vary. For instance, social rental housing should make up more than 50 per cent of the total dwelling stock in the country. Social mixing should be a key objective of the social housing sector for all states,” he said.

He pointed out that COVID-19 pandemic has brought to the fore the enduring housing affordability and quality gaps facing many households, suggesting that investments in social housing construction and renovation should be a central part of a more sustainable, inclusive economic recovery, moving forward.

 

Mortgage Foreclosure Law

On whether the lack-lustre attitude of states towards the enactment of the Modern Mortgage Foreclosure Law (MMFL) in their respective domains could be another   reason for low investment in real estate, Faleti said the non-passage of the law has no immediate impact. He noted that the level of mortgage penetration in the country is still very low compared to other nations

“What is the essence of having a law with nothing to enforce?” he said.

He urged that efforts of government and other stakeholders should be directed towards market development, pointing out that many states in Nigeria cannot boast of vibrant housing market.

“How many states in Nigeria can boast of having a vibrant market,” Faleti queried, pointing out that foreclosure could only be enforced through judicial proceedings, adding that this is applied to mortgages only.

“The mortgagee’s right to apply to the court for foreclosure arises once the secured liability has become repayable. The court, in an action for foreclosure may order the sale of the property instead of foreclosure. Jurisdictions like Lagos, FCT, Rivers, Ogun, Edo and perhaps Kaduna have the inventory to establish mortgage foreclosure bills,” he said.

Faleti is of the opinion that the idea that states must first of all have a mortgage foreclosure law in place before attracting investment for real estate development is obsolete.

According to him, what government and stakeholders should focus on is how to develop people’s capacity to enhance their purchasing power.

“Yes, foreclosure law will improve and enhance investor confidence, but it is not the foundation.

What government and stakeholders should focus on is capacity-Nigerians are poorly paid.

Economic empowerment such as increased earnings and stable employment are much more important, in the first instance, than passage of mortgage foreclosure bill.

“What if you have the bill in place, but no mortgage originations due to poor economic conditions? It will be a failure,” Faleti questioned.

He also argued that there has not been a measurable competitive advantage over the states that have passed the law and those that are yet to do so.

According to him, when mortgage financing is available, the market for housing grows and a large share of the population can become homeowners.

He also stated that the time, cost and degree of certainty involved in registering a mortgage and title transfer and foreclosing on a property played a key part in whether lenders would be willing to assume the risk of a mortgage loan and the price lender would charge to a prospective borrower given a certain level of risk.

Faleti advised that more emphasis should be placed on mortgage registration and title transfer, pointing out that this would improve default enforcement (foreclosure).

Justifying his suggestion, Faleti stated: “Mortgage financing amounts to less than 1 per cent of Gross Domestic Productd (GDP) in Egypt. It comes to 10 per cent of GDP in Mexico, 39 per cent in South Africa. And it’s equal to more than 85 per cent of GDP in New Zealand. Why are these big differences? They stem in part from the difficulties buyers face in registering a mortgage and title transfer.”

However, he noted that when there is an efficient mortgage law in place, citizens would enjoy lower costs across the board, adding that costs associated with registration and titling would be significantly cheaper.

“Mortgage Lending Interest Rates will be relatively lower; processes will be faster and more transparent,” he said.

 

Last line

The Nigerian Mortgage Refinance Company (NMRC) came up with the model mortgage foreclosure law as a sign of commitment to the advancement of housing ownership and making sure that finance is always available to both investors and mortgagors in the sector.

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