“The Ministry of Housing needs to work closely with the Ministry of Transportation. That’s how most major cities in the world have grown. Railway is the biggest stumbling block for Real Estate to grow in this country. If government can provide rail, you do not need to tell these Developers to Build”
The above statement was made by Babafemi Awofala in an interview with Elsie Godwin of Nigeria Real Estate Hub. Babafemi Awofala is a founding partner with Brickstone Partners Limited.
Read interview below:
NREH: What is your 2016 real estate industry outlook like?
For that, I think the market for Real Estate in Nigeria and anywhere in the world is being correlated with the Debt market and right now, interest rates are up the roof because of the Liquidity issues the banks are having. There are also issues in Foreign Exchange availability for a number of Real Estate Developers. So basically, what you see is that they are not able to source for input for construction in the right pricing with little or no financing. So most of the real estate development we will have in 2016 will be Pre-Sales and Equity based project financing and most of this might not give the right momentum for the market to move high. The other reason is because of lag that happened in 2015, where there were still have a number of houses on the supply side which have not been taken up, so basically, we will see those developments being taken up in 2016.
As for now developments, I don’t think there will be many new Greenfield development in 2016. Looking at that, we could also dimension residential developments it into low income housing, mid-upper income and Luxury
Low Income Housing (Houses priced under 5 million, which is still a high amount!) – This group have demand profile that is very strong and the homes are always in demand. If you move up to middle level houses in residential sector (this includes high-rise apartment, multitenant buildings and the likes), those are going to face a bit of strain because those will have a bit of challenge in pushing through into sales. I think the luxury market might not have a good year because most of its development required a huge level of import elements. The local construction materials we have in Nigeria today could basically be used for the low income level residential development.
In the Offices and Retail Sectors (Commercial Property), there is currently an aggressive move by developers coming to develop malls and Grade A offices but I don’t think the uptake will be there in 2016 except there are new Tenants coming into Nigeria. In the Industrial sector (Factory Spaces and Warehouses), I think those will still come on board based on the fact that there is a huge pent-up demand in the manufacturing sector and a number of manufacturing companies need to grow their supply and distribution chain, so we see industrial real estate coming up.
NREH: Any particular positive or negative development expected in this industry this year?
On the positive side, what we see that might happen in the year for real estate development maybe large mass housing scheme that is being initiated by the Babatunde Fashola’s Ministry for Housing, Power and Works. They have said they are going to develop about 10,000 housing units in each state of the federation and it is quite an ambitious project. We think it might have a little impact on some states like Lagos, Rivers and Abuja. But in some less populated states like Ogun, Kwara and the rest, those might be a very large scale investment but we are not sure of their commercial viability if they are done in those states as there may be little or no uptake. On a negative side, this will be as a result of the current exchange rate policy that we see and this might impact the Luxury and The Ultra-Luxury Segment of the economy. Also, the lack of mortgage and the ability to solve Long Term Debt financing might affect the low income and the affordable housing market in the industry.
NREH: There seems to be a huge upsurge in the commercial real estate development/supply grade A retail outlets (Malls) especially in Lagos. Do you think we are going to witness a saturation soon?
For Malls, I don’t think we are going to see a saturation because in Nigeria today, Malls have become more of Tourist Site and they don’t have a geographical disadvantage….as you see families travelling over 2km on holidays to visit a mall…but where I see a saturation is having a total Mall GLA of more than 1,000,000 sq in Lagos alone.
NEH: Can we look at it from Saturation of Malls in Lagos state, do you see that happening soon?
Why I still feel Lagos still requires a lot of mall is because it depends on the owners strategy. If a Mall is built and it can be adequately priced such that it’s what you will rent a shop in Allen, Opebi or Surulere Highbrow shops and the likes, then you will be able to rather be in a Mall that go to road side shops. I think there is still room in the area of Mall development for Fashion, not necessarily Food and Beverage. We need Malls that are affordable and well-priced but the saturation I see is in high grade bespoke Malls.
NREH: What’s your take on Luxury Real Estate?
I think the Nigerian Luxury Real Estate sector is non-existence because we are yet to have High Grade 5 Star hotels in Nigeria. The hotels we see are not 5star hotels. But when you say Luxury real estate sector, I assume you mean Luxury residential houses and that sector could exist. I don’t see it being sustained because most people who are in the luxury space have the ability to own their own houses. So them going to buy into Luxury Development seems like an Ego Play
NREH: NMRC just refinanced the mortgages of some of the mortgage banks thereby improving their liquidity, how do you think we can continue to get better along this line?
I think NMRC just need to raise more bonds in the market. It’s a very straight forward thing. Government needs to just have a way to give long term financing to this banks to un-lend for mortgages.
NREH: Infrastructure is a huge part of real estate investment and thus impacts it greatly, if you had the opportunity to advise the Honorable minister, what would you be telling him to improve?
We cannot just focus on building infrastructures like Roads, Drainages, Electricity and the likes. Those are not enough drivers for me to locate a house. I think we need to get a railway strategy working, so that you can take a train from here to Benin and its not going to take up you more than 60mins to get to Lagos. That means I can live in Benin and get a job in Lagos. What the infrastructure housing needs is not power or Highway Roads, yes those are needed too but what we need to work with a Railway structure, so that along those railway corridors, we will be able to have Mega Developments that it will reduce the stress of living in Lagos. The Ministry of Housing needs to work closely with the Ministry of Transportation. That’s how most major cities in the world have grown.
NREH: Nothing particularly organised from the government end seem to be happening with the financing required for the supply side of the market, do you think it is necessary and if yes, how do you think that can be pursued?
The railway issue I mentioned to you today is the biggest stumbling block for Real Estate to grow in this country. If government can provide rail, you do not need to tell these Developers to Build. Also, on the supply side, the mortgage needs to be thought through deeply so that it can be single digit and affordable
What other improvements will you like to see in the industry?
I will like to see the Land Use Act laws improved
Brickstone is a development consultancy and contracting firm focused on the Real Estate and Infrastructure.