By Joseph Onyekwere
Industry experts have projected that the Nigerian real estate sector will grow alongside the country’s anticipated overall Gross Domestic Product (GDP), buoyed by the reform policies of President Bola Tinubu, as well as increased investor confidence.
The experts, who spoke on a panel session at the DETAIL Solicitors’ Real Estate Business Series in Lagos, said some major reforms were expected under Nigeria’s new administration, including tax credit initiatives, lower interest lending, unification of the foreign exchange (FX) rates and economic growth through higher oil production.
These reforms, as well as macroeconomic factors such as interest rate and inflation rate, will have significant impact on the real estate sector, they said.
Speakers at the event, with the theme, ‘Unlocking Opportunities: Real Estate Financing for Success’, included the Managing Director/Chief Executive Officer of Urban Shelter Limited, Saadiya Aminu; Head, Real Estate Finance at Stanbic IBTC, Tola Akinhanmi; CEO of Veritasi Homes Limited, Adetola Nola and MD/CEO of Cardinal Stone Trustees Limited, Ereifemi Akeredolu.
The session was moderated by Associate Partner at DETAIL, Olawunmi Alade.
According to them, Nigeria’s real estate sector grew at 5.31 per cent in the first quarter of 2023 (Q1 2023), making it the country’s fifth largest contributor to Gross Domestic Product (GDP) growth in the quarter.
The sector, they said, has the capacity for further growth, adding that there will likely be a boost in demand for the residential asset class, following approval by the National Pension Commission (PenCom) for the use of Retirement Savings Account (RSA) as equity contribution for mortgages.
But to drive this growth, they said regulatory reforms such as direct financial interventions are required to enhance players in the sector, similar to the support given to the agriculture and power sectors by the Central Bank of Nigeria (CBN).
“There is also the need to simplify and remove bureaucratic bottlenecks in processes for owning and transferring ownership of real estate in Nigeria and improving land management systems. This will require amendment of laws and regulations guiding real estate, such as the Land Use Act,” the panelists agreed.
On financing, the discussants observed a risk of mismatch between the duration for real estate projects and the duration of financing. They, therefore, canvassed a healthy mix of debt and equity financing options, as against relying on a single financing option for projects.
Amid the stifling cost of funding real estate projects, the experts said that bank loans are better used as bridge financing.
They noted that the activities of other developers in the sector could impact ease of accessing finance.
As a buffer, they counselled real estate companies seeking to raise funds from the capital market to ensure that they have a good investment grade rating and adhere to good corporate governance practices.
They further advised real estate participants seeking financing to always consider certain key factors, including positive leverage, capital structure and nature of project/asset type being financed.
The use of professional advisers, such as financial advisors and legal advisers would help place upstart real estate companies in a more viable structure for accessing finance, they said.
For customers looking to buy house in Nigeria, the experts urged them to imbibe the culture of demanding for quality test certificates and evidence of acquired approvals.
The discussants further advised real estate stakeholders at their early stages seeking to establish a market presence to build relationships, leverage network and share key information with like minds.
They also recommended a cross-sectoral collaboration with strong lobbying groups, such as the Nigeria Economic Summit Group (NESG), for improved public sector engagement on behalf of real estate industry stakeholders.
The experts said recent building collapses, loan defaults and other hurdles continue to confront players within the sector, adding that extensive due diligence is now required for real estate deals.
Source: The Guardian
