Q: Thank you very much for granting this interview but first and foremost, let’s start with introductions. Can you tell us a little about yourself, Realty Point, what you do and how long Realty Point has been in business?
A: My name is Debo Adejana. I’m the MD/CEO of Realty Point Ltd. We started Real Estate Business in 2005 and we’ve been at it since then. Majorly, the bulk of our business is within the affordable sector; the mass housing sector really. However, we are taking it from the bottom if you put it that way.
Right now we are stronger or heavier with land stock meaning that we have a lot of landed properties around that we are selling out as site and service scheme for the bottom of the pyramid people as it were; low income earners but middle low income earners mostly. The next step to that is to take it on and start seeing how construction will start happening on those sites which is where we are right now.
Q: You’ve played in the market for close to eight years going on nine years now. How would you describe the housing market? What are the critical constraints particularly affecting housing deliveries and housing market in Lagos State based on your experience as a set-up player?
A: I think majorly it is access to land. When I say access to land, I mean the landed properties are there but are always shrouded in some kind of controversy, mysteries and what have you. That makes it pretty difficult for an entrepreneur who wants to serve the affordable sector because you are left with dealing with landed properties that have assumed some kind of value because some level of value creation has happened in terms of documentation. And when you are taking land at that rate, it may be difficult for you to now put it into use as affordable housing or mass housing like we know it here especially again looking at the depth of financing which is another challenge.
So if I have to spend so much money to buy a small piece of land, the only option available to me as a mass housing person to make money from it is to probably go up. If I can’t get the funding that will enable me go up reasonably to make margins, then it becomes difficult to execute so I would either avoid doing mass housing and just do what people can order and buy and make some margin or I entirely find other purposes or uses for the landed properties that I have.
I can therefore say that access to affordable land devoid of these challenges is one of the major constraints. They are there but it’s quite cumbersome because you cannot verify things or say this is the right person and getting the property is about the highest bidder and even if you are being wronged, there is nowhere to seek help or justice.
Another major issue is funding; the appropriate funding. There is money flowing everywhere but the right type of money is not available. Something that can really work for affordable housing can be akin to what the Federal Mortgage Bank has which cannot go round – have some people contribute so they can qualify for a loan that gives them less than two digit interest rate and have the developer as well get loan at a reasonable rate to do the developing. He does the development, gets a buyer who takes him out and continues with the building.
Because the buyer is employed and has reasonable period to pay and because the interest margin is minimal, he can spread it and of course you are looking at a house that won’t be too expensive as it were. Usually you get people who are interested in funding you as a developer but I tell them if you can’t fund the buyer, you are only giving me money so that eventually, because you might be interested in the business, you will take the business away because I will become indebted to you and won’t be able to pay.
If the things I’m building cannot be taken off me, what’s the essence of building it? Of course, our bankers will say go and get off-takers but I ask, how do you get off-takers? If NHF says people should go and get off-takers, you will get easily because the rates are affordable but if the off-taker is there but is not empowered or you are giving him the wrong kind of empowerment (what I mean is you are giving him a mortgage that he cannot afford), he won’t show up. Like I said, funding is a major issue but I want to believe that they will find a way with this Pension Scheme.
We’ve not been able to raise so much of insurance money in this country but we’ve at least tried to raise a reasonable amount of pension fund. These are monies that are put into these kinds of uses anywhere in the world. We should find a way. It’s not enough to just be putting these monies in paper transactions and stock markets, it’s not enough! We should find a way by which it can work and find its way into the real sector and nothing can be more real than Real Estate so I think that will help.
The last but not the least is as concerning documentation; title, land users etc. and the amendments that need to be done so that it can become very tidy. The fact that it’s in the Constitution makes it difficult to amend but if that can be dealt with, it will help because there are funny things happening in the name of the Governor is holding land in custody for the people and can acquire for public interest and these things are not in the interest of the sector and are of course affecting deliverables.
Q: You mentioned that you played at the bottom of the pyramid; that is the lower income segment
A: (Cuts in) Not the low, low, low, low. You know you have the no income…
Q: No income?!
A: (Chuckles) Yes! You have the no income, the low income, middle income so I can say that the bottom part of the middle income to the brim of the low income.
Q: So what informs that strategy? What informs your strategy to target that segment of the market? Why have you decided to do business there?
A: For us, that’s where the market will always be. Bubble burst market will always be there. It is bubbling, it will be bubbling. It is bursting, it will be bursting. People will be coming from everywhere to burst there so it will be really difficult, maybe a war situation or real crisis, for market to thin out within that boundary.
For us, that’s where the market is but the challenges too are enormous in serving those kind of people especially with the kind of funding structure we have available. They have to bring money from their pocket and they don’t have so much because it’s not as if what we are selling is any cheaper, that’s the truth, we are just trying to make it as affordable because there is no support to make it cheaper.
Q: That means you are putting your products out at the same prices but you are making it affordable?
A: Let’s say for example, someone still called me this morning. He’s going to buy something that will eventually cost him about 1.7 million but by our structure, what he needs to deal with first is 650, 000 so he will be able to raise that amount and funny enough, that’s secondary market. In the primary market, he can spread it in one to two years.
Real Estate provision is like divided into four chains – the land, documentation, infrastructure then the service and maintenance part of it and all of that needs to be paid for. We just say deal with the land, then documentation followed by infrastructure then maintenance. If you go to the Lekki area, you can buy a land for 50 million naira and that’s inclusive of everything and the buyer can drop it easily but here you will still buy the land at 1.7 million which is no joke but you know he can’t come up with that amount so you tell him to pay a part now then pay the rest later, spreading the payments.
Q: What informs the choice of locations you go to do your development and how does that affect the marketability and affordability of your projects in the long run?
A: What we generally look at is where development is going to not where it is already. We try to follow sometimes as much as possible the Growth Pole Theory in Real Estate so you find us in axis like Lagos Badagry Express because of the ten-lane road or axis where there are probably a lot of institutions or industries or a combination of some of these things. We try to follow the growth pole where there are things that can attract and bring people there except if we have enough money (when we start having such money) to now create the pole itself and make people come there.
Q: Would you say going into those growth pole areas has been marketable? What are your usual sales challenges like? What has been the response of end-users to your projects and to your developments?
A: Save for the bastardisation of that type of real estate products, I think it’s been well received. Lately however, you need to differentiate yourself because it’s an all commerce affair now so you find all kinds of people who don’t even have the intention of doing anything reasonable anywhere coming up to say they have something and of course, the market will compare them with you. Before they realize that these people can’t deliver, it will be too late and when they fail, it rubs off on your own image but apart from that, I think that the strategy has been good.
However, even though we follow where development is going to, the difficulty of having a reasonable time limit or frame by which development will actually get there is another challenge and that is a subject of governance and a lot of the way we do things around here. Documentation becomes difficult and you can’t say this is when I will get my C of O even though you’ve done everything in the books because the Governor might not sign for whatever reasons.
Perhaps you’ve estimated that a project is going to take a particular frame of time and yes, there are challenges but the project is taking a year or two years after the time you projected. You should be thankful the project is not abandoned and there’s still continuity.
For us, a typical problem with our theory is Lagos – Ibadan Express. There was a time that the song everybody was singing was the Lagos – Ogun… I’ve forgotten what it was being called… maybe a new town. There was going to be like an amalgamation of Lagos – Ogun such that Lagos is just flowing into Ogun. The Lagos – Ibadan Expressway was to be done, it was awarded, two Presidents commissioned the road but yet as we speak, nothing meaningful is there and we are talking of a space of four years.
If you had banked your transaction on that and four years running, there is no clear direction and that is still your selling point, there is a problem. It kind of slows down things for us because we really can’t work with facts and figures in this part of the world.
Q: How would you describe the level of affordability in terms of the socio-economic groups that you target for your projects?
A: (Sighs) Do you mean what I would call affordable?
Q: Yes! What is affordable right now? What would you say is an affordable low income development right now?
A: I will tell you the truth, there is no affordable right now. Apart from The NHF Scheme, affordable does not exist. What I mean by that is a lot of people who would want to do something along the axis we are talking about cannot do it if they really want to live in these areas we have developed because it then becomes a problem for them in other areas, even cost wise.
This is because whatever cost they are saving in owning their own property will be spent in transporting themselves, taking care of themselves medically because of the wear and tear and taking care of the tow their commuting will bring so they tell themselves they are better off staying in a rented apartment and retaining their sanity than owing a house by all means and then having a problem.
Funny enough, they are the type of people that might have been able to even take on the kind of loan that exist now to own properties in some of those places asides from NHF. They are the ones that might even be able to take up the kinds of loans that the banks offer now but they cannot because you can’t spend all that money to go and give yourself additional headache because the infrastructures are not there. If infrastructures were available, you can commute from Abeokuta to Lagos to work and go back there so it becomes an issue of where do I want to stay and the answers to those questions will start varying because there are some complementing factors that have been put in place.
If commuting is not a problem and I can leave my house one hour or one and half hours from Abeokuta and get to wherever I’m going to in Lagos to work, I might even like the trip every day going and coming so I might find something to do while in the train or bus or ferry and I know that once I’m home, I’m home and it’s home and if this is what I can afford, then let me go for it. Unfortunately, this is not the case.
Even though some people do it, they have other reasons they do it. It can’t be generally acceptable to do that every day because of the danger you open yourself to so that affects what we call affordable. I really can’t see affordable. The magnitude of its existence right now is so insignificant that it can pass for nothing.
Q: So at what price would you say an affordable dwelling should cost?
A: An affordable fenced dwelling should be within the region of anything from about 3.5 million upwards depending on the size of your family. If you are talking of a family that wants to stay in 2 bedroom, maybe anything from about 3.5 upwards but people stay in studios and you can get that for much less.
Q: What are the property types that you would usually advice or that you would usually develop? At what price points do those properties come at?
A: Something we are working on right now is a two bedroom upgradable to a three bedroom and it comes in at about to build, not the cost of land and all because if you add in the cost of land it will be about 4.5 million.
Q: And that’s where exactly?
A: That’s in any of our projects; Mowe, Ofada, Igbesa (Agbara area).
Q: We have discussed on the issue of off-take and some other developers that are not really into the market because of credibility. Would you say that there is still like off-takers market in Lagos based on a lot of scepticism that even off-takers have right now in projects that have not been delivered on time. Would you say that is still available in the Lagos market?
A: it’s forever available and will forever be available. There will be challenges but as much as you can prove to them that you have all your i’s dotted and all your t’s crossed, you will get them as long as you have the right products for them. They are available but the challenge is getting the right product for them.
Q: How many units or housing have you put in the market in the last three years?
A: Like I said earlier, we are just about reconstruction now. Site and service is more or less what we do.
Q: So what are your usual sources of finance?
A: Self finance.
Q: (Surprised) Totally equity?
A: (Chuckles) Totally! It’s been absolutely, totally equity otherwise you won’t have met me here.
Q: What are your challenges? Have you ever had a situation where you approached the financial institutions for some level of assistance and what were the challenges since now you’re doing more of solely servicing?
A: Well, at the initial stage I understand that they can’t fund us because we can’t be the type of risk they will be willing to take. When you want to buy land from traditional land owners, even though customarily their title is recognized but it’s not bankable so they may not be able to fund that transaction or purchase of such land.
You will have to get the land and do all the documentation necessary before you approach the bank. Some times when we are even at the advanced stage of our project, the things being offered, the market cannot take it. Check most of the properties that are affordable and being built around, most of them are usually NHF driven otherwise it can’t be affordable.
I have developer friends who have spent their own working capital to build in an attempt to develop their estate then sell. The challenge has been to get people to buy. The mentality of people is if I have 5 million naira to put down on a property in Mowe, why can’t I put that money down as my contribution to a mortgage to get a property in Ojodu Berger or Ogba or some other suburbs that are still closer than going far even though I will be asking for more credit because I just think it’s better.
You only find people that have reasons to stay in those areas having to buy those properties if they must buy it and not build themselves so the issue we have with the banks is the kind of rates, tenure rates and whatever they offer not being sellable.
Q: You spoke a lot about mortgages and the challenges of financing the end-users. What would you say are your own suggestions? How would you describe the entire sector of Mortgage Banking in Nigeria right now?
A: I think I read something recently about secondary mortgage and they’ve secured or released about $300 million. That will be a good one. I said something about the pension fund; that will be a good one also if they can find a way even if it is at secondary mortgage. If we can also get some insurance money into Real Estate in the way that it can fund purchasers, mortgage and construction, those will be good ways of making things more affordable. The rate has to come down. We can’t do the commercial rate we are doing and expect that any affordable housing will come out of that structure. It can’t happen.
Q: Outside financing land issues, there are still some components that are involved in housing production like for example the building materials and also labour. What would you say about the building materials market? What are prices like and how does it impact on the final product and how does that impact on affordability?
A: The challenge with this country generally is that our things are one of the most expensive in the world.
Q: In terms of building materials?
A: Our cement is one of the most expensive in the world.
A: Yes! Our cement is one of the most expensive in the world; I am not too sure about the iron steel. A lot of things come to the head in this country such that the cost of getting things done is usually very high. However, the main other challenge with building material is getting genuine materials and specifications that you require. A number of products in the market are adulterated and sub-standard. Professionalism and labour is another challenge because the good hands we have are very few; very, very few.
This is a country where more than ninety per cent of our structures if not more than that are not well finished. If a painter paints for you, it’s a shoddy job. When bricklayer cements or a tiler lays for you, anything anybody does for you in this country is very shallow.
I was in Cotonou some time ago and was impressed with the plastering. You can actually take a break from painting your house because of the quality of plastering done. When you are looking at the house from afar, you will actually think it’s painted in ash colour but it’s just plastered. That’s the exterior so imagine the way the interior will be.
Finishing is very important and we don’t pay attention here. It’s either we are too much in a hurry or don’t know what we are doing or don’t pay attention to quality or excellence. At whatever level, everybody deserves their level of quality. A lot of people who do these things don’t even know what they are doing because they don’t have enough expertise so we have challenges in those ways; materials and labour.
Q: So do they impact on the cost and affordability?
A: Of course they impact. There are people who sell little for so much and even deliverables at times is dependent on money. If you can’t get your project turned out at the appropriate time as planned because of the lackadaisical attitude of your workmen, your rate is counting in the bank. When you are through, your core structure will include your rate so the longer your project stays, the more expensive your project becomes.
Q: We have come to the end of the interview but do you have a final word, suggestion, recommendation on how housing can be improved in terms of affordability particularly in Lagos State?
A: I think the Government is doing something. I see a lot of houses coming up in terms of blocks of flats and Governor Fashola is working on the Lagos Homes Scheme. That’s good and I hope that they’ve thought through on the mortgage aspect as well because that will now really help. Once that is tidied up, then the management becomes very important because I think that one thing the Jakande project did not incorporate and is affecting the project right now is the management of the estates that were built.
Value has to be maintained for it to be retained so I hope that they will tidy those ends. Government should be better positioned to achieve it because we have a poor maintenance culture in this country such that you can’t imagine what an individual developer faces in making sure that the estates are well managed because people won’t just pay.
Every last Saturday in Lagos now is more or less debt collection on streets. The gates are locked and you can’t go out because people refuse to pay eight hundred, one thousand or five thousand naira monthly for one thing or the other and we still expect that things will be fine. It can’t be and it impacts on the value! Check out any well laid out place anywhere in the world even in Lagos compared to a place that is just left to evolve on its own, the price differential is usually huge even if there are just side by side and started the same time.
If a place is well planned, it will attract better value than a place that is not so whatever you think you are gaining by avoiding spending on maintenance, you are losing in the value you are able to generate. I hope that they’ve incorporated all of these things. If they’ve done that or if they have are going to, it’s a good thing because they are still the best to do it right now. Government has to support these things for it to happen and working with certain developers to achieve this is a good way to start these things and I think that they are in the right direction.
Q: Do you see some kind of collaboration between Government and Private sector? Do you think those kinds of collaborations or partnerships will help increase the housing stock and also drive down or improve affordability?
A: Yes, that’s what is happening even in Lagos Schemes. I’m sure it’s the developers that are on those sites under whatever agreement they’ve had with Lagos State to develop those places. I’m sure there are developers involved, it’s not just Lagos State constructing everywhere so yes, that collaboration is there. There has to be and must continue to be especially to cater for the affordable and if we are talking of affordable, there is the social housing because there are people who can’t pay.
Q: (Laughs) You mean the no-income people?
A: (Laughs too) Yes! They don’t have income but must stay somewhere because shelter is a basic need.
Q: But is that totally the responsibility of the Government?
A: Yes, it is the responsibility of the Government. However, Government is never good anywhere in the world in providing it hundred per cent so they have to come with incentives to be able to attract developers to do it because the developer must have to do it at some margin. That’s why incentives are important and Government. In other countries when a project is approved, a percentage of it must be given for social responsibilities and when you do that you have some respite or some tax relief so that it can balance out. These are things that have to be done.
Thank you very much for your time, it’s been very insightful