Sub-Saharan REITs Conference: Stakeholders brainstorm on how to unlock potentials in housing sector

—Advocate sustainable national housing scheme

By Kingsley Adegboye

STAKEHOLDERS in the country’s housing sub-sector converged in Lagos last week to brainstorm on how to unlock the potentials in the nation’s housing industry with a view to addressing the increasing housing deficit of the country. The Sub-Saharan Africa Real Estate Investment Trusts REITs, was put together by the Nigerian Stock Exchange NSE.

Delivering his Keynote Address entitled “My Thoughts on How to Unlock the Potentials of the Housing Sector”, Minister of Power, Works and Housing, Mr. Babatunde Fashola said “Before I share my thoughts, I think it might be helpful to share my personal experience. If you have lived in other people’s houses because you could not pay your own rent you will appreciate the discomfort of homelessness and the indignity.

“In 1982, I was privileged to work as a vacation jobber at the LSDPC in Ilupeju, where my colleagues and I were assigned the responsibility of sorting out the allocation of flats then under construction by the Alhaji Lateef Jakande’s administration. I have been a tenant myself and know the pressures and anxiety that come with payment of rent in advance of two – three years from a salary that you are yet to earn monthly in arrears.

“It reinforces the need for a credit system in our real estate sector, where payments for rent are matched not only to the quantum but also the timing of income. So people who get paid weekly, monthly or yearly, should pay their rent weekly, monthly or yearly. It will relieve a lot of pressure on ordinary working people, it will allow increased occupancy of many flats that are now empty across our country because of the income mismatch of paying multiple years advance rent from weekly or monthly incomes received in arrears”.

Reiterating that the need for credit reinforces his belief in the resort to the time- tested use of mortgages as the best method for increasing access to housing for the vast majority of Nigerians and indeed Africans, Fashola noted that “only if we can build the houses in a sustainable manner”.

According to him, “It is still pertinent to share with you my experiences as an advocate, where I have had cause to either act for the landlord to re-possess premises from defaulting tenants; or when I have acted for tenants to prevent unlawful or forced evictions.

“There are the frustrations of landlords who depend on their houses for income and who are saddled with defaulting tenants on one hand; and the trauma of families with children who are unsure when they will be thrown on the streets on the other hand. In my own quest to own my own house, I also have a personal experience.

Mortgage institutions

“Land that I bought that was resold illegally to a third party, or savings made from frugal earnings in the hope of securing a mortgage from mortgage institutions who later denied me on the ground that I did not have a collateral for my loan, or indeed government housing scheme for which I paid the advertised fees as deposit only for the scheme to be canceled and refund not made.

“There is of course my experience as governor, where I bore the responsibility of the expectations of citizens looking for affordable housing. While the question of ‘affordability’ as a concept seems to elude definition as I will attempt to show, against the odds, against unsubsidized cement, unsubsidized labour and other building inputs, my team, back in Lagos State, succeeded in putting 200 flats on the market every month at an interest rate of 9.5% per annum for a 10 – 20 year mortgage.

“To illuminate the Lagos Home Ownership Mortgage Scheme LagosHOMS, under my watch, it was launched in February 2014 to address the housing deficit in Lagos State. LagosHOMS is a government initiative to encourage and support home ownership of tax paying, first time buyer residents of Lagos state to purchase decent and affordable homes through the provision of accessible mortgage finance. The Lagos State Mortgage Board LMB, administers the scheme.

“It is meant to create a mortgage culture among Lagos State residents and to make available 200 homes monthly through a transparent public draw process for pre-qualified applicants who have met the LMB eligibility criteria, which include, paying taxes consecutively for the last five years and registration with the Lagos State Residents Registration Agency LASRRA.

“The scheme also incorporated an embedded seamless repossession process with applicants providing an Affidavit upfront to relinquish the homes in the event of lingering payment defaults. An Alternative Dispute Resolution ADR, process is an integral part”.

Speaking further, the minister said “In all our post-independence history, two housing initiatives have first mind mention. The Alhaji Jakande initiative which was localized to Lagos and the Alhaji Shagari initiative which was national. One common thread they both share is that they have not been replicated or continued. So, sustainability was a problem. Another commonality was that they occurred at a time when our national currency was very strong. The Naira traded at almost parity with the US Dollar which is the main currency of our foreign reserves”.

Pointing out however, that today the story is much different, Fashola stated that “Another feature I am told is that the Shagari housing initiative did not incorporate enough diversity to reflect different weather conditions and cultural differences in the country. One size fits all, and therefore, there were places where acceptability was very low. Whatever the outcome was, we must indeed salute the courage and the service of these distinguished pioneers of mass housing”, he averred.

Agreeing that it is difficult, if not impossible, for government to provide all housing needs given the diverse demands, the minister said the truth, which we must accept, is that 100% home ownership is an ideal, but the reality is that, best practices in places like the UK, USA, Canada and Singapore are stories of a mixture of ownership and rental arrangements.

According to him, success is defined and measured by the increasing number of tenants who become owners and not by the attainment of 100% home ownership, insisting that “with this in mind, my thoughts are directed on how to gradually and consistently increase the number of tenants who become owners, with a focus on first-time owners.

Sustainable National Housing Programme

“Accordingly, our first thoughts and actions are to avoid the limitations of the past initiatives and deliver a sustainable programme of National Housing that has wide acceptability. The Roadmap to this in our view is to evolve nationally acceptable designs that respond to and accommodate our socio-cultural diversity. Having meticulously evaluated some 21 options, we have, based on research adopted the following six designs, with input from a diverse team of Architects from across the country.

“They include one, two and three-bedroom bungalows, with court yards, that respond to the climate condition and cultural leanings in the North-East, North-West and North-Central parts of Nigeria,

blocks of 16 and 24 flats of one, two and three-bedroom flats and bungalows of one and two bedroom apartments in the South-South, South-East and South-West of Nigeria and the FCT”, Fashola noted.

Explaining that the designs focus mainly on the greater majority, he said most vulnerable first-time home owners, who do not earn large incomes, junior workers in private companies, young families where husband and wife can pool their incomes together to qualify, artisans, drivers, market men and women, officials whose income bracket falls within grade levels 9 – 15 in the public service, are the targets.

Role of capital market

Delivering a paper on the role of the capital market in housing provision, Mr. Oscar Onyema, Chief Executive Officer, The Nigerian Stock Exchange, said in Nigeria, the real estate sector has recorded steady and consistent growth over the last decade.

According to Onyema, in PwC’s report entitled, ‘Real Estate: Building the Future of Africa,’ predicted that Nigeria’s real estate investment will rise by about 49 per cent, from $9.16 billion to $13.65 billion in 2016. It attributes this to a growing middle class driving demand for residential property development, and indirectly, retail, industrial and commercial real estate development.

Onyema who said “We believe that this growth can be accelerated by deploying capital market tools such as REITs, listing of real estate companies, and creation of real estate ETFs to unlock capital in the sector”, pointed out that since 2007, when the Securities and Exchange Commission SEC introduced the framework for the establishment of REITs, the Nigerian investing public has been given an opportunity to invest in a diversified portfolio of choice real estate assets.

“While the Nigerian market may not be as developed as other emerging markets such as Mexico, South Africa and Singapore, this asset class has definitely come to stay. Today, we have about N40b in REITs market cap listed on the NSE and a total of N96b in the Construction/ Real Estate sector of our equity market.

Eonomic headwinds

“In spite of the challenging economic headwinds in Nigeria and other commodity based economics, the capital market including the NSE, remains one of the main vehicles to promote sustainable economic development and wealth creation. This conference is in line with the Exchange’s strategic initiative to promote and create the enabling environment for sustainable development of Real Estate Investment Trusts (REITs) in Nigeria and sub-Saharan Africa.

“REITs and Closed End Funds listed on The Exchange will be reclassified from the Main Board to a separate board specially created for REITs and Closed End Funds under the Equities Market. Through our growth agenda, the NSE will continue to engage other regulators, market operators, investors and other stakeholders towards delivering a culture of service excellence, intimate knowledge of clients, innovative products and world class market infrastructure such as REITs and other collective investment schemes listed on the NSE. The proposed changes, which will be implemented over the next three quarters of 2017 are aimed at promoting transparency, disclosure, visibility and liquidity of listed REITs and Closed End Funds in our market.

 

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