Nigeria’s mortgage system unattractive, awareness low – Realtor

Chief Executive Officer of Zeerealty, Boluwaduro Okunade, tells JOSEPHINE OGUNDEJI the challenges plaguing the real estate sector, among other issues

With less than three per cent of Nigerian land titled, how would you say the law has performed so far in awakening this dead capital?

It varies from place to place, the Land Use Act has helped in its ability to regularise because land in Lagos was a mess before. In places like Lagos and Edo states, we have seen a very maximal impact of the law. The core challenge plaguing the real estate sector is the bottlenecks in processing legal title documents for properties because it is really difficult getting a certificate of occupancy even after following the normal processes. It is just a thing of faith, the document could come out when the owner is dead and be given to their next of kin. The process is supposed to be smooth. However, the people managing the processes are the cause of the bottlenecks, hence it is not a process problem but a people problem.

It would be good if there is a way to optimise these processes such that the involvement of these people is minimised, for example, to get a governor’s consent, you have to pass the documents through some people before finally getting the consent of the governor. In addition, if the person processing the governor’s consent does not know someone, the document could be there for a long time. We are in a country that is still plagued with corruption, hence you need to succumb to these to fasten the process of getting the documents approved.

What is the way forward?

It is best to remove enough human influence as possible then we would not have bottlenecks. On the way forward, the structure being adopted at the Federal Capital Territory poses the best. The FCT has the area councils, and the land is also vested in the area councils, which makes it easier. If we can adopt the local government style of vesting land in the chairman, it may reduce the bottlenecks. However, if that cannot be done they can just make the process technology based so an official is not hoarding the movement of people’s documents because the official acts like a god in the land, and this can result in heavy financial cost in the process.

What other challenges should be addressed in the built industry?

The real estate space is highly unregulated, anybody can just come up and form an association. We can emulate the driver’s licence system to regulate the sector. Before you can get a driver’s licence, you need to have a driving school certificate, so it is best to start with some level of compulsory training before one can start a real estate company. Some developers do not know the strength of a building, and this has led to several buildings collapsing. For example, in the United States of America, one cannot sell properties without a realtor’s licence. Nigeria is trying in terms of building regulation, but in terms of real estate regulation, it is poor. The real estate sector is highly unregulated in Nigeria. This is why people call for a declaration of assets. Having more regulations will birth a better structure in the real estate space.

Does the government have any role to play to boost the real estate sector?

I do not think it is a government thing. The issue of affordable housing is just a ripple effect of economic factors. The major thing is to regulate the process of getting title documents and lessen human interaction, so we do not have people clogging the process and slowing things down.

How have construction firms been dealing with off-plan issues?

The first thing is some firms price in US dollars outright. What I have noticed that they do is that once there is a hike, they sit down to strategically find out all the things that may need foreign exchange. Another way they can obviate the hike is that they make a down payment for the materials. So, what they do is that they take maybe 30 per cent of their land, then offer off-plan sales, and then they begin to construct. As they begin to construct, the remaining 70 per cent of their land increases in value. So by the time the inflation has gone up, they sell their land at a higher price. Once that is sold, they can recoup and balance out the capital. On the cost of labour, these firms ensure that the wages of the workers are commensurate with the economic factor because if prices of properties increase, it is unfair to not increase that of the skilled labour.

What do you make of the allegation that corrupt government officials launder money through real estate?

The truth is that we can only tell them to tell us where they got the money from, but we cannot read their minds or think of their lies. However, what we do is that before any purchase, we make sure an indemnity form is signed, so that we do not become liable in the long run. In addition, once we see some red flags, we ask for more clarification.

What prospects do you see for the sector in Nigeria under the administration of President Bola Tinubu?

I just see him as an actionable personable person. Whether or not the steps being taken are positive or negative, we cannot see the effect now. For the future of real estate, we notice a higher trend of younger generations flowing in, which is good.

What’s your take on buildings collapsing in the country?

Getting basic knowledge is very essential, at least knowing what essential documents are, like a property title, and deed of assignment, among others. A YouTube search would do all of these; one video can save you millions in loss. In addition, unless you have the expertise, know-how, and the right people in place, do not buy bare land, as much as possible buy properties in an estate. Bare land probably has no layout, but if you buy in an estate, the developer would take off the perimeter fencing, and the gatehouse, there would probably be an association, and the truth is that the chances are less that land grabbers would grab a whole estate that has been built. Also, when it comes to the processing of title documents, most estate developers are big, so the ability to push the processing of a title document is way easier than one singular person just processing alone.

Also, if you are looking at real estate as an investment, you are not looking at proximity but the place that can bring in the highest returns on investment.

What is your take on the local production of building materials?

When you are doing real estate, a lot of people forget that the real estate developers are in a business; we are here to make a profit. There are many variations. However, what people expect us to do is to bring innovations, spend our money on them, and put them on the market, hoping that advancement would be bought. This is why we are in business. We do not leave ample demand and go to a place where there is no demand.

The Central Bank of Nigeria’s persistent hike in interest rates is having a ripple effect on the mortgage market. As a consequence, financing costs are rising across all segments of the real estate sector, posing challenges for both lenders and borrowers alike. What is your take on the impact of mortgages in the sector?

Finance is a major challenge in the sector, and one of the ways we get this funding is through the mortgage sector. Due to the ripple effect on the economy which transcends other sectors, particularly the mortgage system, we do not like going to the mortgage banks, we now bring out things like off-plan, fractional investment, among others. So, instead of going to mortgage banks, one can get this fund from like 100 people, build the house, promise them a 12 per cent interest on their money, and then give their money back once the house is built. We need to think of alternative ways of financing, some real estate firms, due to this, then diversify like selling building materials, and others, so they do not have to go through the hassle of looking for funding. The mortgage system in Nigeria is not optimal yet and almost zero per cent, and the awareness rate is also very low.

The sector does not have enough listings on the Nigerian exchange market. Why is the real estate sector not leveraging the opportunities in the Nigerian capital market?

When it comes to the stock market, there is a level of consistency, unlike the real estate sector, because we can do 10 projects at a time which might not aid consistency. Also, the stress in attaining that level of listing is an issue, and the lack of ease of liquidity in the real estate sector is a core challenge. The solution is to bring a stock model to our properties. So rather than going to the stock market, we can instead have the stock market model, and there are many of these models, like the fractional investment model.

The surge in rental costs has prompted city dwellers to downsize or downgrade to more affordable apartments to stave off harsh economic situations, especially the cost of living. What can be done to ameliorate the rental burden?

This is a cycle, hence it is a fault of the economy, not that of developers or landlords. So, it is a general economic problem and until that problem is solved, we would still have this generic problem.

Nigeria’s real estate industry is burdened with the bureaucratic process of land registration, which last as long as six months to two years, taking an average of 12 procedures, and costing about 20.8 per cent of the value of the property. How do you think this situation can be eradicated in the industry?

The government can invest in the powers of the local government so we have fewer processes, but there is no guarantee because it is not a process problem but a people problem.

In Nigeria, it takes months or years to convert a real estate investment to cash. What can be done in this regard?

On a generic scale, when with investors we profile them thoroughly; in essence, we get to know what they want. Also, there is no huge central place for demand and supply. If we can have an organised market for demand and supply, that length of time in land banking would be compressed drastically, and the government can do this and it can help to tackle the ever-rising cost of properties.

With the incessant rise in fraudulent real estate companies coming up, and then ending up dealing with allocation issues, what is the way forward and how can we decipher scams?

There is no hard and fast rule to know if a real estate company is a scam or not, but there are some basic metrics, like finding out their physical location, the physical search by going to the location of the land in the absence of the realtors, then conversing with the community people. In addition, interfacing with the company’s leaders gives one feedback on their vision, also to avoid being an experiment, ensure these companies have executed one or two products. Also, check if the real estate company is registered. There is something called realtor groups that can help in terms of security.

On the allocation issue, what people fail to do is read their contract of sale. The realtors do it in a tiny print so that people would not be motivated to read it. So, what happens is somebody has made 30 per cent down payment, and there is an existing payment plan, there is a clause in the contract of sale that if you fail in the payment agreement, the company has the power to move such person to another property.

Real estate investors are subjected to multiple taxations, the taxes and levies paid by them include development levy, income tax, building plan approval levy, property tax, and land use tax, and there are also cases where real estate investors are expected to pay renovation tax whenever they want to renovate their properties. How can these tax levies be handled to ensure ease for realtors?

This is the major thing that adds to the increase in price, hence this is part of the regulation on the part of the government that has to happen. Hence, if we have a heightened regulation, there would be a centralised system where a singular payment can be made, which they would then distribute to the other agency bills, and demolition fees, among others.