Taking Advantage of Nigeria’s $13.65bn Retail Property Market

With the value of the real estate industry in Nigeria projected to hit $11.36 billion in 2015 and $13.65 billion in 2016, following massive investments in Banana Island and Eko Atlantic, the time to invest in the sector and maximize returns from the expected boom is now, writes Eromosele Abiodun.

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The real estate industry has witnessed positive growth in recent years. According to a report released by the National Bureau of Statistics (NSE), the real estate sector grew by 5.9 per cent and contributed 8.37 per cent to the gross domestic products (GDP) in the 4th quarter of 2014 alone. Another report by PricewaterhouseCoopers (PwC) puts the value of the real estate sector in the country at $9.16 billion in 2014. According to the projections, further growth will increase the value of the real estate industry to $11.36 billion in 2015 and $13.65 billion in 2016.

According to the report titled “Real Estate: Building the Future of Africa”, the Nigerian real estate sector is growing at a rate of 8.7 per cent and is now the sixth largest sector in the economy.  The report also said that high net worth individuals invest 25 per cent of their assets in real estate compared to 18 per cent or less in equities and other instruments.

The report also identified the growth in the Nigerian middle class population and retail activity as the major drivers of demand for warehousing units as well as infrastructure-enabled industrial clusters and free zones.

In the commercial real estate sector, the report said that the market was being driven by an influx of institutional, foreign and private businesses into the country, as well as the growth of local established businesses and multi-national oil companies across the cities of Lagos, Abuja and Port Harcourt.
Rental rates in Lagos were said to be one of the highest in the world with achievable rents of more than $1,020/m2 (about N186,000/m2) annually.
Consequently, there is a prevalence of “buy now” advises by big players in the real estate business of the Lagos end of Nigeria market, and many of these deep pocket stakeholders are taking positions already for the ‘rocket launch’ of activities in the market.
Although it was widely reported that real estate pricing in key locations of Lagos slowed down by up to 22 per cent in some places, not surprising though due to four successive quarters of slowdown from Q4.2014 – Q3.2015 as a result of uncertainties simultaneously fuelled by the last general election. Be that as it may, Nigeria is Africa’s largest economy with Lagos and Abuja as its major cities. There are mix reviews from developers in Lagos and Abuja on the effects of recent construction, general economic slowdown and the change mantra of the sitting government. Among the choice areas, especially for international leveraging is Banana Island in Ikoyi, and Eko Atlantic City in Victoria Island that now angles for a boom. Capital has been poured extensively into both locations.

Attractive Retail Property

As Africa’s sixth fastest growing economy (according to IMF projections 2015-2019), Nigeria is likely the most attractive market for retail property. Private equity funds have been active in this space for several years.  Although housing prices still sits at the top of the range, it is highly ‘outpaced’ by Angola. An executive house with 4 bedrooms goes for $8,000 and $8,500 per month in Lagos and Abuja whereas in Angola, the same property costs about $25,000. So, price may not be the issue in defining the paradigm.

THISDAY investigations revealed that contrary to the often touted reason of “you buy when prices are low” syndrome, there is massive preparation of key operators in the private, public and foreign players in the economy that will follow post-election stability, ministerial appointments and success of security apparatus of the country in nipping security challenges in the bud, will give way to the influx of the targets of sane office and residential locations.

Also, bilateral and multilateral institutions and governments have expressed confidence in investing in Nigeria. Some companies that relocated to neighbouring countries are coming back in trickles and NATO is backing up West African and Central African countries to deal with Boko Haram insurgencies in the region.

Stakeholders in the industry are optimistic that the time to go into the sector is now. Managing Director and Chief Executive Officer of Huntingfieald Capital, a private equity focused firm, Onye Onwuka, told THISDAY that, “What I know is that the bits and pieces of market intelligence that we picked up from very reliable sources are that if we do not act now, we will lose money in the future. We are buying in those location now not because there is a slowdown or the over-reported twenty per cent drop that may give us immediate gain, rather those location may become unavailable when we will need them.”

He added: “We are in this business for the long term. We are also watching the stock exchange market indices and we know that a boom is in the corner from the Q1 of 2016, and because we retain a lot of multinational companies that we cannot afford to disappoint we have to guard our loins. Our clients are fussy about those locations; for security standards in their own countries, their neighbours and so on.”
Also, a top practitioner who wants to remain anonymous told THISDAY that, “When you invest in private equity, or even public equity, you are taking a massive leap of faith that those company’s management and executives and other exogenous variables don’t squeeze your returns. But with your investment in real estate investment you know what you’re going to get from your property if you follow the route.”

Highbrow Locations
However, sources familiar with the real estate business believe the location that fits the market postulation now is Eko Atlantic and Banana Island.

“There must be commonality that recommends these two reclaimed waterfront to national and international audience of distinguished and rich audiences. What distinguishes these locations? How and why will they fit the dynamics of the evolving Nigerian economy that is majorly private sector led? The Eko Atlantic for example is planted on a 10 million square metres of land reclaimed from the ocean and protected by an 8.5 kilometre sea wall, about the size of Manhattan, New York skyscraper district.

“It is a self -sufficient and sustainable location that includes state-of-the-art urban design with its own power, water, telecommunications, roads and over 100,000 trees. The project is privately funded by Chagoury Group of companies in strategic partnership with the Lagos State Government and the Nigerian Federal Government. Maybe the private sector now hear and understands each other’s language, especially with state and federal government as ultimate regulators  and backup for confidence,” he said.

He added, “It is also observed that Banana Island area of Ikoyi, Lagos Local Government Area of Eti-Osa in Central Lagos has serenity embedded in it. This banana shaped island is approximately 1,630,000 square meters in size and zoned into 536 plots consisting of 100 closes, which serve to enhance the banana panorama of the island. The island has world class utilities including underground electrical systems. Plot sizes range from 1000 square metres to 4000 square metres. “The island is designed for a mixed development with plots for residential, commercial, recreational areas; primary and secondary schools; fire and police stations, clinics, hotels and club-houses. Utilities here are enhanced with underground electrical systems, an underground water supply network, central sewage system and treatment plant, street lighting and satellite telecommunications networks, as well as overhead and storm water covered drainage. Banana Island is Nigeria’s lesson in “Change to Order from Disorder.”

The two locations, Onwuka added, are known for their wealthy, multi-cultural community and has some of the most expensive real estate properties in Nigeria.

Banana Island, he explained, has one of the highest densities of millionaires within its boundaries.

“Many years ago, Banana Island distinguished itself as a no go area for the middle class, cleaving to the rest of Lagos such as Ikeja GRA, Victoria Island and Lekki for the average millionaires. A first time visitor to this island is greeted by the sight of well laid lawns with beautiful flowers and well paved roads.

“The quietude and untainted environment is a major attraction as well and now with Eko Atlantic being designated as a financial centre of Africa, which is why I predict a boom coming up soon in the area.

“Beautiful trees shaped like umbrella to supply fresh air sucking the breast of Lagos Lagoon attached to the North-Eastern Ikoyi Island by a dedicated road strip that empties into the existing road networks,” he stated.

Banks and Investors
Meanwhile, further checks by THISDAY revealed that notable national and international banks have been quick to capitalise on the opportunities.
For instance, FCMB Group, First Bank Limited and Guaranty Trust Bank Plc are partnering with Eko Atlantic, with support from BNP Paribas Fortis and KBC.
From our findings of savvy investors, Eko Atlantic City and Banana Island represents far more than just the upcoming surge of Lagos land value and Nigeria continued unstoppable trajectory to become the financial capital of Africa, investing in them opens unprecedented opportunities for tapping into the wider potential of the continent as a whole.
A Nigerian expert from the U.S that is moving into the real estate business with his western partners, Architect Udom Edorensit, recounted his learning, “Progress is defined as the development of an individual or society in a direction considered more beneficial than and superior to the previous level. Real estate investment is a hedge against inflation especially in this widely recognised world’s most promising growth horizon. If you hate inflation it must be that you don’t have an asset that is inflating. If you own an oil field, a private university, and organic farm, a gold mine, or a rental property, you will be loving inflation! Inflation is increasing the prices of your goods hopefully faster than the input costs and the costs to operate your asset.
“You think rents and prices are expensive now, but I promise you they’ll look cheap 10 years from now. It is also a money making play on inflation. Forget about protecting yourself against inflation. Owning real estate is a play on making money with inflation. If there happens to be hyperinflation, your cash may be devaluing rapidly just as your real assets start surging in nominal value. When economic tightness returns sooner or later, there will be another surge in property and rental prices”, he concludes.
Beyond Economic Reasons
Beyond the economic reasons, there are also African beliefs of generational wealth transfer issues, it also serves utility function: Unlike cash, which serves no utility function, property addresses a fundamental human need, shelter and measurable wealth. The middle market aspirations to belong fuelled by nationalistic pride will continue to show resilience in an economy sustained by the demographics of a growing rich urban population that wants to belong. They also want to rob shoulders with the super rich in Eko Atlantic and Banana Island “TriBeCa of New York, Shibuya of Japan, La Jolla of San Diego, Carlifornia, Seveth Arrondissenent of Paris, Kessington Palace Gardens of London or Victoria Peak of Hong Kong” that is home to shakers and movers alike.
Etisalat, Airtel, MTN, Globacom, Zenon Oil, and many other companies have their headquarter offices in Banana Island. Many prominent Nigerians are known to have erected eye-popping edifices in Eko Atlantic Island as well. Prominent personalities that have their homes in these location includes: Mike Adenuga, the multi billionaire owner of Globacom – Nigeria’s second-largest telecom operator and oil exploration firm Conoil, Saayu Dantata, the son of Alhassan Dantata – the wealthiest man in West Africa at the time of his death in 1955 and Kola Abiola, the son of MKO Abiola – prominent businessman, publisher and politician, widely regarded as the winner of the 1993 presidential elections are certainly a great company to keep as neighbours.
The Limit of Bailout Funds to States
As the waiting game for the inauguration of President Muhammadu Buhari’s cabinet continues, there are indications that government at the state level may be heading for another financial crisis as payment of October salary fell due at the weekend.
These are states that recently secured the intervention of the President for the payment of outstanding salaries to their states’ civil servants running into several months. In the euphoria that followed the disbursement of the bailout fund to the states, the Nigerian Labour Congress promised to monitor the management of the money to ensure that governors did not divert it to other uses.
Coming out of an election victory, it was not difficult to extract such costly commitment from the President who eventually okayed a three-pronged relief package, including sharing of fresh allocations, granting of soft loans and restructuring of states’ debt-servicing payments.
Consequently, the sum of N804.7 billion was released as lifeline for states, to enable them pay their workers several months of arrears of salaries.
The breakdown of the bailout fund is as follows: Abia (N14.152bn), Adamawa (N2.378bn), Bauchi (N8.60bn), Bayelsa (N12.85bn), Benue (N28.013bn), Borno (N7.680bn), Cross River (N7.856bn), Delta (N10.036bn), Ebonyi (N4.063bn), Edo (N3.167bn), Ekiti (N9.604bn), Enugu (N4.207bn), Gombe (N16.459bn), Imo (N26.806bn), and Kastina (N3.304bn).
Others include Kebbi (N0.690bn), Kogi (N50.842bn), Kwara (N4.320bn), Nasarawa (N8.317bn), Niger (N4.306bn), Ogun (N20.00bn), Ondo (N14.686bn), Osun (N34.988bn), Oyo (N26.606bn), Plateau (N5.357bn), Sokoto (N10.093bn) and Zamfara (N10.02bn).
Unfortunately, ours is an environment where developments happened in quick successions in a manner that denies us the opportunity of following up on such important developments.
This is perhaps why nobody seems to be talking about the bailout fund anymore although those factors which made the state governments to go cap in hand to the federal governments haven’t changed a bit.
Apart from the fact that the prevailing low oil price at the international market is still depressing revenue accrued to the federal government with the attendant reduction in revenue available for sharing, the absence of a cabinet and by implication a clear-cut economic direction of this administration means we shouldn’t expect an end in sight to the precarious financial positions of the various tiers of government.
As it is, the bailout fund which was designed to meet the salary obligations of the states for a particular period has been fully expended, meaning that states were expected on their own to have paid the October salary of their respective civil servants last week.
But what we have is a situation whereby a month or two after the disbursement, the states are back where they were before the temporary slush, some even trapped deeper in the vortex of insolvency. Al­though many of the state governors de­ployed the funds to offsetting arrears of sal­aries owed workers, the money did not go far in clearing the entire backlog stretching in many cases from four to eight months.
Ironically, as revenue from the federal allocation nosedives, some states are recording increase in their wage bills. In Oyo State, for instance, the federal allocation to the state used to be N4.2 billion, while salary and wages summed up to about N2.9billion. However, the statutory allocation to the state has been reduced to between N2.5 billion and N3.2billion monthly, yet the monthly wage bill is said to have risen to about N5billion. The immediate fallout is the irregular payment of workers’ salaries and wages by the state. The Internally Generated Revenue (IGR) of the state government, which is about N1.2billion every month, could not bail the state government out of the monthly N1.8 billion deficit or more.

Consequently, major ongoing construction work in virtually all the states have stopped with little or no hope that the projects will be completed in the life of the current administration. In Ogun State, such pitiable sights of abandoned projects dotted cities like Ijebu-Igbo, Ilaro, Ijoko, and Akute as contractors have left sites with bridges and roads left uncompleted.
Now that it has dawn on many that states may have returned to era of insolvency, and the civil servants bracing for a showdown, the question is will the civil servants get the same level of sympathy that skewed public opinions on their side few months ago? The answer is obviously no.
My disappointment in the handling of the bailout largesse stemmed from the insensitivity of both the labour unions and the government of the various states to the reality on ground. For those of us keeping tabs on these states, nothing seems to have changed.
The businesses of states are still being run as if nothing had happened while the labour unions have also failed to come to terms with the lean revenue at the disposal of the states of the federation.
As far as I’m concerned, there is no way the states and the labour unions would not be on a collision course again because the reality is that business of government cannot be business as usual. With harvests of suspended projects donning the nooks and crannies of some of these states, meeting the huge salary obligations in a regime of dropped revenue will be a miracle.
In a situation whereby the revenue allocation has shrunken considerably, state governments are expected to cut their finances including the labour force. Unfortunately, none of the state governors has had the courage to review its staff strength to reflect the current financial reality.  Instead, some of the states have gone ahead to announce scores of aides with little or no financial relevance to the administration.
It is important that state chief executives not only lead by example, they should, as a matter of urgency, begin consultations with the labour unions on why adjustments must be made for the states to continue to run as a going concern. Labour will either accept job rationalization or cut in salary. But state governors should also stop acting as if they are richer than the states they were appointed to govern.

Sourced- Thisday News