Nigeria Creates Finance Company to Curb Housing Shortage

Nigeria Creates Finance Company to Curb Housing Shortage

Africa’s second-most expensive real estate market, Lagos, Nigeria is struggling with a housing shortage brought on by insufficient financing for home loans, interest rates about six times those in the U.S., and poverty, BusinessDayLive reports.

Interest rates on home loans in Lagos run 18- to -25 percent, according to Michael Chu’di Eje-kam, a director at London-based Actis in Lagos. Nigeria’s Central Bank has kept its benchmark rate at a record 12 percent to keep the naira stable and curb inflation before elections in 2015, according to BusinessDayLive.

World Bank estimates sub-Saharan Africa’s most populous country, with 170 million residents, has a national housing shortage of 17-million.

The government in January started to tackle the deficit by creating Nigeria Mortgage Refinance Co. The plan is to bring interest rates on mortgages down to about 10 percent, BusinessDayLive reports.

Nigeria Mortgage Refinance Co. is expected to fund lenders in the hopes of encouraging construction of 75,000 homes a year for low- to middle-income earners. The country does not publish house-price data, according to Global Property Guide. Real-estate transparency is the worst of 97 markets after Sudan, according to a 2012 index published by Jones Lang LaSalle.

A wrecking crew guarded by armed security forces razed homes recently in Nigeria’s Badia East slum to make way for more than 1,000 one-to two-bedroom apartments that will be
beyond the means of many Nigerians.

Property investors in Africa’s largest oil producing nation hope to lease the
apartments to foreigners and wealthy Lagosians. In the city of about 21-million people,
landlords typically demand one- to -two years’ rent up front due to the cost of land. Lagos is Africa’s most expensive city after Angola, said London-based property broker Knight Frank.

“The management of land resources is considered to be the oil of Lagos,” said Felix Morka,
executive director of the Social and Economic Rights Action Centre, which provides legal
assistance to evicted slum residents, BusinessDayLive reports.

Lagos state governor Babatunde Fashola, whose second term expires after the 2015 elections, is trying to create a workable city out of one best known for crime, traffic gridlock and daily power outages. Lagos is the most densely populated of the country’s 36 states with 70 percent of Lagosians living in slums, Amnesty International reports. The state government says Lagos needs 4 million more homes.

Rather than rushing into residential mortgages, companies are funding construction
of office blocks and shopping malls. These include Johannesburg-based FirstRand, Africa’s second-largest bank; Resilient Property Income Fund; and Actis, a London-based private-equity firm. Residential mortgages are offered by some local lenders such as FBN Holdings and Zenith Bank.

U.S.-based World Bank estimates there were 44,000 mortgages averaging 5-million naira
($31,472) each year from 2004 to 2010.

The ratio of home loans to gross domestic product in Nigeria was 0.6 percent at the end of 2011, even after the market surged fourfold from 2006, World Bank said. That compares with 31 percent in South Africa and 50 percent in Europe.

GDP per capita more than tripled to $1,725 in the decade through 2013, according to
International Monetary Fund, but inequality worsened with 68 percent of Nigerians living on less than $1.25 a day, compared to 63 percent in 2004, World Bank estimates.

Property scams are common in Nigeria. Buildings are often painted with warnings such as “This House is Not for Sale” to avoid con men selling homes to unsuspecting buyers or “Beware of 419” — Nigeria’s fraud code. Nigeria ranks 144th among 177 countries in Transparency International’s corruption perceptions index.

Office rents in affluent Lagos areas of Victoria Island and Ikoyi can cost about $1,000 per square meter, while residential rents can cost $10,000 a month.

David Frame is managing director of South Energyx Nigeria, a local company developing a desolate stretch of beach about 11 kilometers from Badia East. Frame touts the area as Nigeria’s future equivalent of New York’s Fifth Avenue.

The district, known as Eko Atlantic, probably will be home to 250,000 residents, with 150,000 more commuting there every day, Frame said in a December interview. A 15-story commercial building is scheduled for completion by March 2015 with land reclamation and a sea wall expected by 2017.

Residential and office lots in the first phase of the marina overlooking the ocean will sell
at $2,500 a square meter. Lots away from the water will go for $1,250 to $1,500,
he said. By comparison, BusinessDayLive reports that Manhattan’s Fifth Avenue — home to retailers Saks Fifth Avenue and Tiffany — has the world’s second-highest retail rent per square foot at $2,500, second only to Hong Kong’s Causeway Bay, global real-estate services firm Cushman & Wakefield said in November.

Developers have expressed interest in building a shopping mall, hospital and school, Frame said.

The housing market could expand more than 10-fold in the short term, Finance Minister Ngozi Okonjo-Iweala said in January.