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Obstacles of the Real Estate Market in Nigeria
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Of all the segments of Real Estate, growth has been most visible and activities most upbeat in the retail sector across major city centres of Nigeria. Analysts estimate that the sector, in the past 12-24 months, has seen about 30 percent rise in international interest.

Nigeria being a trading economy, demographics, strong spending power, growing sophistication and changing shopping culture among the growing middle class are frequently cited as drivers of this growth which, unfortunately, is being threatened by entry barriers into this market.

Close watchers of this sector say that Nigeria has a thriving market, offering opportunities that are not seen anywhere else in sub-Saharan Africa, making it attractive to international retailers.

“Some of these international retailers, mostly South Africans, are here, but a lot more are not yet here because of lack of appetite to work in Nigeria’s operating environment which is not enabling,” a Real Estate Expert with an institutional investment firm told BusinessDay on condition of anonymity.

According to the expert, South African retailers are here because they are close enough to understand the opportunities here and again, they are more venturesome unlike their counterparts from London or America.

The expert agrees with Chudi Ejekam, director, real estate at Actis, who says land is a major obstacle to the growth of this sector. Ejekam had told BusinessDay that getting land at the right size and price was a major issue, adding that even where available, documentation and charges made projects unworkable.

“Experience at the port is enough barrier to kill a business. You need to see how ports work elsewhere. What we have here are not ports. Ports are where you get out your goods within 24-48 hours; people have paid millions of dollars for their goods and they need them to trade,” the expert noted.

He argued that if you do business in an environment where you spend 3-4 months to get your goods out of the port, you would go bankrupt, adding: “These investors come here, walk around, go to the ports and see that they can’t cope and so they go back.”

Erejuwa Gbadebo, a Real Estate Consultant, agrees, pointing out that these foreign retailers are used to working in environments where the infrastructure is working such that you just read your meter every month and pay your bill, not needing to pay for diesel, water treatment and other extra costs that make their business model unsustainable.

Gbadebo, former CEO of Broll Property Services Nigeria, advised that those of them like South Africans who have the courage to come by themselves should be commended and the operating environment made enabling for them.

Recently, the growth of this sector suffered a major setback with the exit of Woolworths, a South African retailer with three outlets, including one in Ikeja City Mall. The retailer left Nigeria for its over 59 outlets in other African countries where it is relatively successful.

REAL ESTATE PROJECTIONS FOR 2014.
Arguably, 2013 could be regarded as a good year for Nigeria’s Real Estate Industry. The successes were not those worth a tea party, but the stories definitely are worth telling. While some analysts observed that the industry nose-dived to some extent in 2013, none disagreed that the market remains one of the safest havens for investments in 2014.
One of the most gratifying developments especially for operators in the advisory and advocacy spaces is that the discourse of Real Estate, as one of Nigeria’s economic power-houses keeps souring out of year-long oblivion. This has placed the sector at the centre of economic debates in recent times, and resultantly increased business interests for service companies. The development has further attracted international interests, giving government and global financial institutions reasons to energize the sector in the twilight of dwindling oil revenue.
For example, between 2012 and 2013, infrastructure and housing remain constant on Nigeria’s annual budget and keep attracting significant government and private sector interests; with the Minister of Finance, Dr. Ngozi Okonjo-Iweala, religiously making case for the Mortgage Refinance Corporation, MRC, as one of the windows of creating more jobs and encourage investments in the housing sector. This sector, the Minister opined is to argument the nation’s economy as more African countries are discovering crude oil.
However, in the face of market indifference and growing commercial Real Estate Market, 2013 was not a roller-coaster year for luxury apartments and hospitality. Speaking on CNBC Africa, Mr. Olu-Abayomi Sanya, Managing Director of GoldBanc Management Associates, argued that the major issue with the fall in prices of luxury apartments is partly over-price and partly liquidity. “Most of the takers (of luxury apartments) are moving away to where it is cheaper… again, there is no liquidity in the market for these transactions, therefore there are lots of flats in the market to take”, he said.
What Operators Should Brace up for and Why
1. The Residential Real Estate Myth: Any Tom will agree that a sector that wields N160tr in investment potential should be taken seriously. Besides, housing remains one of the basic needs of man and Nigeria’s population is estimated to have increased from 10% in 1960 to 50% 2012. By the foregoing, this sector is on economic watch-list for 2014.
The Myth: In a market where the minimum wage is N18, 000 and a significant percentage of its population lives on less than N154 per day, it is only a myth that the market predicted by analysts will be met by demand. Also, the high-end market is received a serious hit in 2013 with four bedroom apartment cascading from an all-time $100,000 to $75,000.
2014 in View: If the MRC and the Federal Mortgage Bank roll out differently this year, the construction sector will take a leap with development and marketing companies bracing up to meet a middle, middle-low housing market. Other things being equal, our best guess is that developers, architects, manufacturers and service companies will get busy this year.
2. The Commercial/Retail Space: With the meteoric growth of Nigerian middle class, urban regeneration moves and the shopping culture that comes with it – showing an estimated $115 billion annual consumption spend; it is almost automatic to predict that this sector is a space to watch this year.
The Myth: It is instructive to note that locations investible for commercial Real Estate are selected and few. While locations such as Lagos, Abuja, Port Harcourt, Enugu, and Ibadan remain on the investment map, investors will still develop cold-feet in putting money in northern cities such as Kano and Zaria due to insurgent challenges.
2014 in View: Due to the calibre of tenants and investors in this space, our prediction is that the Facility Management sector will reap greatly. Also, marketing and media services will see a boast with global brands contesting not just for the best space, but the highest number of customers.
3. Construction: One needs no analysts to know that Nigeria suffers from a huge infrastructure deficit. From roads to rails, power to aviation sector, water and energy. In 2013 alone, this sector gulped a whopping N497 billion of the nation’s annual budget, plus significant investments from the private sector. If these figures are anything to go by, construction and manufacturing should start blinking in the green, creating more jobs and encouraging more investments in other sectors.
The Myth: Most of the visible achievements on infrastructure are still on paper. The figures are mouth-watering, while the roads remain unmotorable and the only news about rail available in public space is the Abuja-Kano route. Power remains epileptic and the citizens still remain the provider of drinkable water for themselves.
2014 in View: However, with most of the major roads in Nigeria requesting attention, the aviation industry reform, and the privatization efforts in the power sector; we advise Facility Managers to begin to brace for asset management strategies that can sustain the life span of these projects. Also, the manufacturing sector will have a filled year with these projects demanding huge material investments.
4. Industrial Real Estate: Analysts have suggested that this sector will be at its lowest ebb this year, especially has the production sector remains unchanging because of unstable power supply. In view of this, Real Estate assets in industrial areas such as Atan and Agbara have taken a leap for life in residential. The proposed 10-lane Badagry expressway and the Lagos Light rail project are two USPs Real Estate developers spin to their customers.
The Myth: That electricity, which is the fulcrum of industry, remains a mirage thereby discouraging production companies from coming into the country; and the few ones available are finding their way to neighbouring countries.
2014 In View: President Jonathan recently announced that power will be stable in the country mid-2014. The privatization of PHCN is also a testimony to this. From the foregoing, we see a development in property titles where some areas are marked as industrial. Realtors, legal practioners, and government agencies will as a result, be busy this year should production industry find its way back to the centre stage.
On the whole, if all things work according to projections and analyses, Nigeria’ Real Estate will interestingly operate as a system in 2014. This will become imperative as the entire spectrum of the industry will require interaction to sustain it. Also, the financial sector at both primary and secondary markets will receive a boost. And finally, the nation’s Gross Domestic Product, GDP will have a huge feel.

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