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The Fall of Oil, The Rise of Real Estate in Nigeria

At the onset of falling oil prices in the international market, the Nigerian government appeared to be proactive in the search for ways to hedge against the collapse of the economy when it announced that it had discovered growth areas in the economy to guard against the unforeseen.

Ngozi Okonjo-Iweala, former Minister of Finance and the Coordinating Minister for the Economy, who made the announcement, listed Agriculture and Housing among others as major growth areas the government would be focusing on in the face of the realities in the global oil market.

Unequivocally, the Nigerian real estate sector is a major growth area attested to by the level of interest shown by both local and international investors who, in the past few years, have invested billions of dollars in the various segments of the sector.

Amidst the current challenges posed to the economy by dwindling revenue from oil, we consider real estate the next best and strongest shoulder for the economy to lean on, more so when the country’s new GDP size reveals that the sector is much larger than previously imagined with opportunity value running into hundreds of billions of dollars.

The rebasing of the GDP early last year has revealed that the sector is about 40 percent larger than what it was thought to be and, from the rebasing too, this sector is discovered to be the fastest growing and the sixth largest in the economy.

For us, what this means is increased potential and opportunities in this sector and it is exciting to note that a World Bank report which estimates that, at N3.5 million per three-bedroom house, the value of the opportunities in the sector is about US$385 billion.

It is therefore, painful that with all these numbers, which foreign investors find compelling, the Federal Government, pressed as it is, doesn’t seem to see or know what it should do to translate these opportunities into raw cash for itself and the citizens.

We share the view that while the multiplier effects of investment in some other sectors of the economy come in arithmetic progression, same investment in housing and construction happen in geometric progression because of their capacity to create jobs in multiples of 10s and 100s.

Time is now for the government to start creating the  environment that would enable private sector investment in this sector and it would amount to emphasizing the obvious stating that the greatest challenge to real estate growth and development in Nigeria is infrastructure.

The near absence of infrastructure such as good and motorable roads, electricity and water coupled with high cost of funds has made Nigeria one of the most expensive and most difficult business environments globally, relegating the country to the background in terms of ease of doing business.

Real estate investors, especially those who develop houses for sale are practically their own government—providing their own roads, water, electricity, recreational facilities etc, leading to high house prices only few buyers can afford.

The implication of this is that there are few players in this sector which has capacity to accommodate multiple players that would have increased the level of investment and, by so doing, increase the level of the sector’s contribution to the GDP from its present 7 percent to a wide spread of 25-30 percent.

It is our candid opinion that if the environment becomes more enabling to a point where more investors are attracted to the sector, especially at the lower end market, homeownership level would increase and household productivity and income would rise, leading to increased government revenue from tenement rates, land charges and property tax generally.

Apart from infrastructure, we strongly advocate incentives that would attract investment in this sector such as tax holiday for developers who opt for low cost housing; reduction in land charges, reduction in import duties, and review of the Land Use Act with a view to expunging Governor’s Consent which is a big obstacle to ease of property registration in this country.

Source: Business Day Online

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