On one of the most exclusive streets in Nigeria's capital sits a crumbling mansion with an unwelcoming message painted at its entrance: "BEWARE! THIS HOUSE IS NOT FOR SALE".
The warning refers to a popular
property scam. In the most elaborate version, robbers break into your house
while you are away, change the locks, and then produce multiple copies of fake
title deeds. Posing as estate agents, they show buyers around your house and
sell as many copies of the deeds as possible. When you get back, your house
belongs to six people. This sort of deception epitomizes the tricky nature of
Nigeria's real estate business, but despite the risks,
there are huge returns to be had in a market where around 16 million homes are
needed just to meet current demand. Navigating through opaque land laws,
corruption, a lack of development expertise and financing, a dearth of
mortgages and high building costs will take courage and influential local
partners. "There are sizeable challenges to overcome but in many ways
Nigeria represents the perfect storm for real estate investment; huge
population, rapid urbanization and a growing middle-class," said Michael
Chu'di Ejekam, Director of Nigerian Real Estate at Actis, a London-based
private equity firm. Actis has $5.2 billion under management, including two
sub-Saharan Africa real estate equity funds totaling $434 million, which it
says are attracting U.S. and European investors.
Nigeria's population of nearly 170
million is bigger than Russia's and its economy is growing at 6 percent, a combination
which is producing a new wave of property buyers from bankers and airline staff
to mobile phone and fast food shop owners. "I see demand from the
middle-class higher than ever before," said Deolu Dara, Associate Vice
President at Nigeria-based Avante Property Asset Management, which manages
several multi-million dollar residential projects in Lagos. A successful real
estate investment in Nigeria can earn returns as high as 30-35 percent, while
rental income yields in cities such as Lagos and Abuja can easily reach 10
percent, developers and estate agents say.
MIDDLE CLASS
Property in
Lagos, a heaving metropolis of around 20 million people, can be among the most
expensive in the world with two-bedroom flats costing more than $1 million in
upmarket areas. However, the top-end range is dominated by well-established
players and developers should target middle-income workers in major cities,
such Lagos, Abuja and the oil-hub Port Harcourt. The most popular units fall in
a price bracket of 20-35 million naira ($123,000-$214,100), developers and
estate agents say. Nigeria's middle class make up around 23 percent of the
population and earn around 80,000- 100,000 naira ($490-$610) per month,
according to report by investment bank Renaissance Capital. In smaller cities
and rural areas, a lack of information about land and regulation is
off-putting, while a violent Islamist insurgency has made the north of Nigeria
unattractive, despite huge unmet demand in cities such as Kano and Kaduna. The
majority of Nigerians live in poverty in shanty towns or in basic concrete
block and iron-roofed houses they have built themselves, but building mass
housing for the poor is not a popular investment. "If you know the market,
the people, focus on middle class and cherry pick your deals, you can clean
out," added Dara, who said Africa's biggest oil and gas industry is also
driving demand. One foreign oil major bought 300 flats recently.
Nigeria's construction and real estate sectors are growing at
more than 10 and 12 percent respectively, a boom for foreign and Nigerian
construction firms, including UPDC, Cappa D'Alberto and Julius Berger. Yet,
there is still not enough quality affordable housing because business is
frustrated by widespread corruption, poor state infrastructure and a lack of
expertise and financing.
Constructing a block of flats costs
three times as much in Nigeria than in South Africa, builders say, and many
developments are abandoned when projects run out of money or become slums
because they are poorly built. London-based estate agent Jones Lang LaSalle
ranks Nigeria 96th out of 97 on its transparency index, just in front of Sudan
but behind six other African countries. Having support from powerful
politicians or business magnates will help to avoid terminal financial
pitfalls.
LOCAL PARTNERS
"It's a
business that requires local partners and local knowledge or you'll run into
problems," Dara at Avante says. Avante's chairman is Wale Tinubu, the head
of oil and gas firm Oando and a close relative of former Lagos state governor
Bola Tinubu, who still wields influence there. London-based Actis has given
directorships to Nigerian energy firm Seven Energy and local conglomerate UAC. Once
the supply challenges have been overcome, there remains a problem with that
huge latent demand. No mortgages. Unless you are willing to pay a 25 percent
interest rate. The mortgage debt-to-GDP ratio in Nigeria is under 0.5 percent,
compared with 72 percent in the U.S. and over 30 percent in Malaysia and South
Africa, government figures show. "In places like America you seem to be
able to buy property without stress but it just isn't like that here,"
said Ike Ejekam, 31, who is about to buy a newly-built two-bedroom apartment
for 20 million naira in a gated community in the popular Lekki district on the
Lagos peninsula. Ejekam represents the new breed of buyers who expect
well-built housing with all the modern conveniences. He works at a branch of a
local bank and is using his life savings and funds borrowed from family members
to buy his property outright. "I don't like to think about mortgages
because it scares me when I see how difficult it is for my friends to get a
loan." Nigerian banks don't like giving out mortgages
because reliable information about buyers and land is scarce, while there is no
secondary market to offset the risks.
MORTGAGE
DENIED
The government
says it is trying to fix this by securing a $300 million loan from the World
Bank to establish a mortgage refinancing company, which should free up some
bank lending. A Federal Mortgage Bank was also launched this year, which
government hopes will help build 500,000 new homes. The bank plans to float a
200 billion naira mortgage bond, the proceeds from which can be handed over to
home buyers with the state guaranteeing against default for five years. The
government is also discussing passing legislation to create a secondary
mortgage market and to improve land laws. "With this sense of urgency we
could have a significant improvement in the mortgage market by 2015,"
United Bank for Africa CEO Phillips Oduoza told Reuters.
This optimism is also being felt by
developers as dozens of well-financed projects are underway, including the Eko
Atlantic City - a multi-billion dollar project built from 9 square kilometers
of land being reclaimed from the sea in Lagos. The billionaire Chagoury
brothers, who are of Lebanese descent, are leading the mega-project, which will
feature parks, swimming pools and skyscrapers with floor-to-ceiling glass. Banks, including France's BNP
Paribas, Belgium's KBC and several Nigerian lenders are on board.
In Abuja, UPDC has started its
228-unit 'Metro City', which consists of well-designed blocks with balconies
built in palm-fringed private compounds. Privately owned Churchgate Group is
building its ambitious $1 billion World Trade Centre, a series of skyscrapers
housing offices, flats and upscale shops.
"Nigeria
is a huge real estate opportunity," said Ejekam at Actis. "The story
is getting out, slowly."
($1 = 162.9
Nigerian naira)
(Writing by Joe Brock; Editing by Giles Elgood)
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