‘Government needs to create platform for affordable, social housing’

MR. HAKEEM OGUNNIRAN is the immediate past Managing Director, UACN Property Development Company (UPDC). He is also the founder/Chief Executive Officer, Eximia Realty Company Limited. He spoke to VICTOR GBONEGUN on the challenges of affordability and social housing in Nigeria as well as the real estate’s potential in boosting the economy.

You are a lawyer but cut your fame in real estate sector, what drives the passion?
People don’t know that I used to teach real estate law in the university. I have a unique understanding of real estate because my foray into academics gave me significant insight into the underpinnings and workings of real estate transactions. I was working in UAC and had the opportunity of moving from what I was doing to UPDC, I grabbed the opportunity with both arms and that gave me a unique platform to manifest what hitherto has been innate in me.

As a former Chief Executive Officer of UACN Property Development Company, the company over the years added rich property investments/portfolios. How were you able to achieve the feat? What are the critical loopholes you noticed in the Nigerian real estate transactions?
I worked in UAC for 23 years and had varied experiences from legal to sales and marketing, running two significant businesses. UAC is a great company; it gave me opportunity and training. I spent eight years in UPDC and in those years, I had a rare privileges of working at the centre of real estate transactions in Nigeria executing projects, raising funds, selling to customers, creating platforms in the real estate industry.

The sector is challenged; there are significant problems that we grapple with in the industry. People always talk about funding, but for me, funding is not the main problem in the sector. The major problem is the availability and affordability of good titled land. We have instances, where you acquired title to a land and several years after, somebody else comes and then it becomes a problem. For me, uncertainty of title is a major problem.

Another is the issue of funding at both construction and retail end because of the structure of the economy. At the retail end, there are a little above 20,000 mortgages in Nigeria, the mortgages are unaffordable, the rate is too high, the tenures are too short. Currently, mortgages go as high as 20 or 25per cent. What that means is that in four years, you would have paid for the price of the house twice and it doesn’t make any sense. Infrastructure is also a key problem because a lot of developers today, are like local government. They provide power, road, sewage and water treatment yet; you would pay other charges like neighbourhood charge, land use charges and others.
These issues are serious problems, which affects the growth of the sector. I always take a value chain approach to real estate, look at the critical players and issues that matter to them. The environment is such a risk factor against real estate and it is very difficult.

Talking about planning approval, I was in a conference recently where one of the speakers narrated how he had to wait for 36 months before getting approval for a project, which they completed, in 14months. There are other challenges of inflation, high interest rate, challenges at the ports and all the usual problems of businesses in the country because you can’t isolate real estate from the economy.About 60 million Nigerians are said to be living in indecent homes coupled with wide housing gap. The country hasn’t been able to meet the need of the people too, how can we solve the problem?
Solving the housing deficit will require a whole lot of multi-level approaches. I don’t believe that government should build homes. I struggled to understand why government should be building houses; it should create the right environment for the private sector, to drive construction and delivery of homes with special assistance. I know that in the past, government has said that some people abuse the process but I think that government should partner with the right set of people.

I also call to questions the pre-qualification criteria that government had used before they put money in the hands of those people. Government needs to create the platform for delivery of affordable and social housing. Government should put in place deliberate programmes for funding the affordability gap for those who acquire houses and provide social housing for those who are unable to build homes. That requires a deliberate process and wholistic approach through policies that would bring together all the stakeholders.

Despite huge demand, driver for real estate investment in the country especially in cities with increasing populations, there has been lull in the sector, particularly this year. What is responsible for current situation?
The truth is, real estate typically mirrors the economy. Whatever happens to the economy also happen to the real estate sector. We are just coming out of recession, real estate suffered because when an economy enters recession, real estate is the first to suffer and the last to come out. In a recessionary period, your asset recovery circle is a little bit longer and that puts a lot of pressure on you as a participant in that sector. The reality of the matter is, the economy itself is suffering from declining demand, purchasing power, so much uncertainty around.

People don’t make real estate decision during uncertainty because that could be their largest real investment they would make in their life. They would want to make such decision when the atmosphere is a bit certain. Today, the lull is not only in the real estate sector, it is in food and beverages, and permeates the entire economy. The sector feel the pinch a lot more because all the enablers that are needed to drive the real estate segment are largely absent in the country.

Enablers such as financing options, incentives, low mortgages to drive the sector are lacking. Fortunately, we have seen interventions for other sectors like bank, textile but government has not provided any intervention for real estate, so the lull persists. I am not an advocate for handouts, but when you have a segment, which has come under such a heavy burden, the government could do well by putting in place programmes that would help to re-catalyse the sector.

You recently launched a real estate company, what was the motivation for the initiative and how would it impact the real estate industry?
I have worked for 33 years in all my life, worked for people, government and other organisations. So after I retired from UAC, I was convinced that I could do a lot more than I have ever done in the area of real estate. I also understood that we needed to do things differently and change the narratives.

With a lot of experiences, gathered over the years, I have to put everything together. I also consulted with people, potential investors, partners, funders of our initiative and that is how we launched Eximia, which is from a Latin word meaning extraordinary, outstanding and unusual. That speaks to what we set out to do in the market. We want to address specific problem that we have seen in the market. We understood that we needed to mobilise capital in a different way. The first thing we did was to launch a real estate cooperative last September to create an avenue for people to have access to long-term targets.

The idea behind the cooperative is to create an avenue for people to have medium to long-term real estate ownership target and to start saving towards it, which will helps us to mobilise capital in a very unique way. We taking a look at a model in Kenya called SACCOS, a cooperative, which account for over 35per cent of national savings and over 90per cent of housing finance.

Venturing into the sector now, are you not bothered about the downturns in the real estate market?
We are bothered but you just have to understand the market and the customers. I have spent a better part of the past five months to really work on our designs and engineer efficient service delivery to customers. We are coming to the market with our studio as low as N18million, one bedroom; N25/N27million and none of our products is prized above N30million for now.

Beyond that, we are also creating different mechanisms because a lot of people in that category have different cash flow and no bulk fund. We have to create a finance mechanism that assists them to take over their units after a particular period like flexible payment plans and others.

What do you think is the best approach to addressing the need for social housing in the country?
We need to do so many things if we must deliver social housing. We need to start through strong reorientation because what is called social housing or affordable housing is not social housing. Social housing starts with the designs. Social housing is supposed to serve and meet the needs of certain category of people so that they can migrate to higher level of housing in the future.

After China, the country that has done a lot of affordable housing, is South Africa. In South Africa, the country started from 40square metres houses and they move up to 80square metres gradually. But here, everybody wants to live in two bedroom flats with all rooms’ ensuite and boys-quarters. The first thing is that we need to revisit our understanding of social housing and once we have done that, come out with efficient designs properly done by value engineers. Then we have to talk about the construction methodology. I always say that we are still building houses but we have to start to industrialise the process of delivery houses. This already happening in some parts of the country, by so doing, we would be able to turn out large volume of houses within a short period.

By industrialising, it means we have to mechanise the process either through prefabrication and other processes which are cheaper, faster and more efficient. It is only happening in the United States of America, but it already happening in Maiduguri where you have a young engineer who has designed a particular type of block, which is being used on large scale. Once we have done that, government has to put the right incentives in place, to help us deliver the houses at affordable price.

High cost of housing and building construction has brought a substantial increase in disinvestment in the construction industry as well as added investment risks. What could be done?
It is not just housing sector that suffers from high cost in Nigeria, it permeates several sectors of the economy. Housing suffers an added problem because the main input, which is land, the cost of land is high. I think pricing is very artificial. In Nigeria, land cost as part of development could be as high as 20/25per cent.

Ideally, the cost of land shouldn’t be more than 10per cent. The infrastructure cost is also there. I did a project where the overall infrastructure cost was about 10/15 per cent, you also have the high cost of perfecting your title, permitting and approvals and all the materials, which you use are imported beyond land and cement, every other things are imported. So you suffer from all importation problems, including exchange rate volatility, which add to the total cost of construction.

By the time you do that, it is difficult to deliver prices at a cheaper rate. However, a lot of reforms are happening in Nigeria which we must commend the government to some extent. For example, at the national level under the housing finance programme, recently the Family Home Funds was established. I believed that the scheme would be a critical driver for solving housing deficits.

There is also NMRC which has recently been reorganised to drive mortgage refinancing and in mortages new underwriting standards are taking place, standard foreclosure laws and model mortgage foreclosure law has also been put into place. Recently, the mortgage warehouse was also launched and I believe that these initiatives would help to solve some of these problems and create a springboard for bridging the housing deficits.

As a high-profile player in the real estate business, which innovations/technology do you think Nigeria needs to adopt in improving the industry?
This is the era of prop-tech, where a lot of things are happening. Technology is driving everything, in our company for instance, one of our core goal is techno-savviness because we understand that would drive our business at both construction and the management end of the market. We need to allow technology to drive business, deplore technology that would provide standardisation, efficiency, and delivery.

What are your projections for the industry in 2019?
This is election years and we are going to lose about five to six months into the New Year. Another Central Bank of Nigeria (CBN) Governor would emerge. We are going to wait and see the policy thrust of the new government and CBN. A lot of things are still hazy but some things are constant. Housing deficits are still there and people will need houses, shortage of infrastructure is still there and there is the need for investment in those areas.