How to unlock $900bn dead capital in Nigeria real estate —Experts

Experts, including the Minister of Works and Housing, Mr Babatunde Fashola are calling on states to invest in land registration and documentation processes to unlock Nigeria’s $900 billion dead capital in real estate. DAYO AYEYEMI reports:

It is no longer news that Nigeria holds as much as $900 billion worth of dead capital in residential real estate and agricultural land alone.

The news is about the necessary steps to be taken to change the narrative.

This dead capital is hinged on the fact that over 90 per cent of land in the country is yet to be registered. By implication, less than 10 per cent of land in the country is titled.

This restricted ownership and unregistered land, experts in the housing sector said, has created dead capital as people could not easily leverage their assets to create wealth.

To turn this dead capital to life capital, the Minister of Work and Housing, Mr Babatunde Fashola, during the meeting of the National Council of Lands, Housing and Urban Development held in Lagos, called on all states of the federation who seek prosperity and inclusion for the people, to invest in land registration and documentation processes.

He urged them to commit to expeditious processing, Geographical Information System (GIS) mapping and titling of their land.

Emphasising this, Fashola said it was impossible to address the gathering of policymakers without touching on title documentations of land, describing an untitled land, while quoting the words of Hernando De Soto, as “dead capital.”

Dead capital refers to unregistered real property, and is considered lost value because the landholder is unable to transfer or leverage the property to borrow or access capital.

Untitled land or dead capital, the minister explained, was the cause of exclusion, due to the fact the land is not formatted into a recognisable way that would enable a financial institution to identify the owner.

“Therefore, untitled land cannot attract credit like a mortgage or development finance because it is not in transferable form to constitute security or collateral,” the minister said.

Re-echoing the need for states to invest in land registration and documentation processes, he said “Lagos State will tell you how much Internally Generated Revenue (IGR) comes from land transactions, but you must find out how much has been invested in GIS mapping, scanning of millions of pages of land’s  title documents and automation of the issuance of certificates of occupancy.”

He pointed out that at this year’s meeting, all stakeholders  have decided to focus on how to create more jobs, foster social inclusion and accelerate economic development, saying  this was obvious  in the theme of the meeting, “Housing Development as a Catalyst for Job Creation, Social Inclusion and Economic Development.”

“This decision is informed by many reasons including the unquestionable need to expand opportunities for Nigerian citizens by collective action of government and private sector actions,” he said.

 

Experts’ views

President, Nigerian Institution of Estate Surveyors and Valuers (NIESV) Mr, Emmanuel Wike, said recently at a forum, that unregistered land in the country had made it impossible to create wealth, noting that real estate is one of the vital sectors that can revamp the economy.

“We have been advocating abrogation of the Land Use Act (LUA) because we have been told that over 90 per cent of land in Nigeria is not registered. That is an untapped potential because what it means is that you cannot use any land that is not registered for financial transactions, you can only use land that is registered,” he stated.

While noting that there were a lot of untapped potentials in the real estate sector, Wike called on the government to invest in the sector to unleash untapped potentials.

According to the PWC report, the country would need to invest in establishing proper and seamless land administration and implement policies that will improve land accessibility.

The PWC report, which was co-authored by Partner & Chief Economist,

Dr Andrew S. Nevin; Senior Manager, Oluseyi Agbedana; and  Senior Associate, Omomia Omosomi, identified  the Nigeria’s  land tenure system as a major challenge.

The experts pointed out that the efforts by the government on formalisation of property rights through certificate of occupancy in cities like Lagos have not met the intended goal, stressing that “land ownership has been quite a stressful process as a result of this complex land tenure system.”

Calling for structural reforms, the PWC experts said that difficulty in registering a property and obtaining a construction license has created obstacles to legality.

On challenge of staying legal, the report noted that in urban land markets, where it was expected that pricing systems, demand and supply, information systems as well as social interactions should increase the level of accessibility to land, they pointed out that the increasing population and multifarious land needs of urban households have put pressure on demand, leaving the pricing system to dictate solely the allocation and distribution of land in the market.

The report read “At current low-income levels, the urban household is prone to market segregation. The state›s intervention at creating and sustaining equilibrium and equitable access to land through the Land Use Act has created a myriad of problems.

While suggesting the deployment of blockchain for land registry to unlock dead capital, the experts stated that implementing land reforms would increase participation in the real estate market and increase capital inflows into the sector.

“With a single registry for property and collateral contracts through blockchain, it will bring down the cost of lending, increase trust and liquidity in the market and will spur a new breed of activity in the capital markets for real estate products such as real estate investment trusts and mortgage backed securities,” they said.

They stated that collateralised loans are the most common lending contract in the formal financial sector and that in low- and middle-income countries such as Nigeria, 70–80 per cent of loans require some form of collateral.

“Loans secured by collateral have far better terms. Having fixed assets as collateral reduces the cost of lending and provides better terms than movable assets collateral. This is because fixed assets are more valuable than movable assets and reduces the risk of bankruptcy,” they said

 

Outcome

According to the experts from PWC, conversion of dead capital to live capital through structural reforms would help convert most of the capital in the informal economy which is currently valued at 65 per cent of Gross Domestic Products (GDP) into the formal economy.

By creating trust in the system, they said that increased participation would bring about the capital conversion in the economic class through fiscal receipts into the formal economy, adding that it would also increase capital for infrastructure in the sector and increase economic activity.

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