Sunday Mirror www.nationalmirroronline.net
Sunday, August 5, 2012
Govt must restore proper financial base for property sector – Akomolede Chief Kola Akomolede, a fellow of the Nigerian Institute of Quantity Surveyors and Valuers, and Principal Partner of Kola Akomolede and Co, attributes the downturn in the Nigerian property market to a combination of factors, while proffering solutions, in this interview with Tai Anyanwu. What has been the experience in the Nigerian property market in the last five years? Five years ago, the Nigerian property market was doing fine. But the moment the bubble burst in the banking sector, demand for property development shrank. And Nigeria’s property market has not been able to come out of the doldrums even now. It is good for some people and bad to others in that price had not been increasing the way it should have been. Rents have not been going up as it should in some areas. In areas like Ikoyi and Victoria Island it has even come down; whereas if there was no economic downturn, the rent would have gone higher than what it is today. So, the experience four or five years ago was good; but in the last three years say from year 2009, the property market has been experiencing some difficulties just because finance dried up. And you know property development is a capital-intensive thing. There is hardly any way you can go through it without very good financial system; whether you want to buy a house or build a house. Be more specific on the effects on the property market? Yes. Two ways; property developers need to take a loan from banks to be able to build houses, which they will sell to you and me. Some of them had taken loans, and had started the projects. Suddenly the banks giving the loans collapsed or were closed down by the Central Bank. That finance stopped coming. Secondly, there are even some of them, let’s give examples...you took a loan of one billion naira, you are developing an Estate. You intend to sell and then return the money. Midway, the banks says pay up. They declare you a defaulter whereas in the terms of your agreement you are not yet to pay because you have not even finished the project. That is why there are so many projects that were half way, and they were abandoned because there is no money to complete them. The other side of it is that even the demand for houses, that is, those who want to buy the houses from developers also need to take mortgage or loans from the banks. That one is not coming too, because the banks are not lending. The concentration as directed by the Central Bank was for them to recover existing loans or outstanding loans. Even till now, some banks are not lending especially to the property sector. How has the down-turn affected available properties such as the high-rise and exquisite properties in highbrow areas like Ikoyi, Victoria Island and Lagos Island? Commercial activity itself is down. Many of our highrise buildings in Marina, Broad Street and many other high-rise buildings in Ikoyi, Victoria Island and Lagos Island are not occupied. This is because most companies are
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For you to do that kind of thing, you would have to have the data of houses that are vacant. I can only talk about the rate because I haven’t gathered such data. But it could be a huge sum of money in trillions, calculating the rate. Many of the Federal Government buildings that were sold in Ikoyi are still vacant. More than four years after Obasanjo had left office, some of the people who bought them either don’t need it or the people cannot show up now perhaps because of EFCC; many of them are still empty. How long do you think the downturn will last? Unfortunately, while the rest of the world is recovering already, we have not yet started recovering. You know when it started it took some time before it reached here. So, it will take us longer time to recover.
Akomolede
not doing fine and new companies are not coming up. Until the recent bubble burst regarding petroleum subsidy issue, the only people you could see spending money anyhow and doing things in Nigeria in the last few months were people who are into oil business. Now we know what they do if not for the fraudulent collection of oil subsidy. Any other sector of the economy was affected by the downward trend in the economy. Talking about the crash of the stock market, another killer, most people collected their money when stock was even going up. Some people were busy selling their properties to buy shares. Some of us warned them against that, telling people that property is an edge against inflation rather than shares. What happened to the expatriates that majorly constituted demand for real estate products in Ikoyi, Victoria and Lagos Island? At the time of restiveness in the Niger Delta, most expatriates came here instead of keeping their staff either in Port Harcourt or Warri for security reasons. They were taking up the flats here and at that much. But by the time the trouble eased out a little bit, all of them relocated back to either to Port Harcourt or Warri. Again the insecurity in the country generally does not attract new investors. In fact, what people read about Nigeria in Newspapers or heard on CNN about Nigeria is not good. You and I may say ‘oh! It is only the North that is not safe; the remaining part of the country is safe.’ But all they know is what they reports say; there is kidnapping in Nigeria; there is Boko Haram, bomb blasts. The rate at which foreigners should have been coming to Nigeria to invest reduced on account of this. Again, that affects the demand for property and it is denying us foreign investment in the property sector. So something needs to be done to tackle the issue of insecurity in the country. It is not Boko Haram alone; kidnapping, armed robbery and nobody would read that somebody was found, that a Major General or Inspector-General was travelling along Lagos-Ibadan Expressway and he was kidnapped and killed; in broad day light. There is no business man, in spite of such stories, that will come and invest in Nigeria when there are other areas. How much could have been lost as a result of the down-turn?
Vacancy rates in prime areas high –Bismark CONTINUED FROM PAGE 4 have witnessed unlimited expansion in boutique hotels, Ukpong noted that cities such as Kano, Kaduna and Jos are currently expressing decline in hotel business due to frequent attacks by Boko Haram. Giving an analysis of what led to increase in hotel development in Lagos metropolis recently, another Lagos-based estate surveyor and valuer, Mr. Akin Olawore, said that lull in the high-end residential apartments has turned out to be the gain of hotel business. According to Olawore, most of the expatriates or foreigners, who were major buyers of luxury apartments, have found it to be less expensive to do their business in hotels for the short period of their stay. He pointed out that it was relatively economical for
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people to stay in hotels than having a permanent apartment with all the expenses attached. His words: “Rather than people to come here to do business and buy apartment blocks, which are more expensive, they rather stay in these hotels, do their business for two weeks, go for one month and come back again for business. “When you are in a hotel, you will leave when you want to leave and come back when you think you need to. So when you consider this in terms of cash flow, you will know when cash is coming rather than just tie down your money. So we have quite a number of investors who are operating like this now and that have increased the rate of occupancy of hotels. That is why you have Protea and the likes coming with almost 100 per cent occupancy almost all the time. So a lot up people
What can be done to revive the property market? Once the cause of a problem is known, the solution is already known. There is no country without a sound financial base that can progress economically. Confidence was eroded in our banks. That confidence must be restored. A situation where you wake up one day and you are told that that bank is no longer there; either it is being forced to merge with another bank or someone has taken it over and changed its name, you are not thriving leaving your money there. The workers there don’t have job guarantee or job security. So all that is needed is to restore the financial system and enable financial institutions to begin to lend money the way they were doing before, and at reasonable interest rates. Then the economy would pick up. The economy cannot thrive without a very good system of borrowing at reasonable interest rate. What needs to be done to revamp the economy is to make the financial base as strong as it should be. Once that is done, people who want to do business will be able to go to the banks and take money and pay interest. Those that want to go to property development will go to the banks at reasonable interest rates. Those who want to buy property that have already been developed by property developers will be able to take money and buy. Everything revolves around finance. As long as the financial system is okay every other thing will fall into place. Now that stock is down and properties too, where are investors keeping their funds now? I wonder. Sometimes I ask that question too. It used to be that they are taking it abroad. But it has become more difficult to take money abroad now. My guess is that some people are just changing their money into pounds and dollars and keeping it inside their wardrobes or beds. Is there any other issue on this apart from the foregoing? I keep talking about this strong financial system. You can’t have a good housing structure without a very firm mortgage structure on ground. Look, this is one of the few countries where people buy property on cash and carry bases. It is never done because property - unlike a car - to buy a property is too capital intensive. And that is why in developed countries they developed mortgaged policies. You just need to pay a deposit of five per cent to 10 per cent maximum; you get a mortgage to buy a house. In fact, in the UK, you don’t need to deposit anything. Once you have a good employment and there is a letter from your employer; the mortgaged company, seeing that you can conveniently pay such amount every month, will automatically give money to buy a house. But here, there is no mortgage. are going into hotel development, and because it is always available even if you are not sleeping there, you can have restaurant, hall, cinemas, so owners will continue to generate revenue unlike building apartments that no one is taking and are there for two, three years,” he said Olawore foresees more investment in hotel business if the government is able to prop up the tourism industry very well, develop the infrastructure to reduce running cost of generator and diesel drastically. Unless this is done, he said, it would be difficult for investors to compete with other African countries that have power. Also a source from the Nigerian Tourism Development Corporation (NTDC) confirmed that there was increase in application for hotel business registration in Lagos State in the last 10 years. The source said that the corporation had been receiving applications for various categories CONTINUED ON PAGE 6