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Nigeria, Africa’s largest economy —with its gross domestic product (GDP) of $530 billion, growth expectations hinged at 2.3% in 2019, and a long-term average growth rate of 3.5% —still holds between $300 billion to $900 billion worth of dead capital in residential real estate and agricultural land alone.

According to a report recently released by PricewaterhouseCoopers limited, the high-value real estate market segment holds-in value between $230 billion—$750 billion, while the middle market segment holds in value between $60 billion—$170 billion.

Experts have long emphasised on the need to explore the untapped potentials in a bid to grow the economy. This is especially in respect to the volatile crude oil prices in the world oil market which has posed a challenge.

PWC reveals real estate holds $900 billion in ransom
Aerial view of houses lived by residents.

What is Dead Capital? “Dead capital“, according to the Peruvian economist and development scholar Hernando de Soto who coined the concept in 2001, are “assets that cannot be converted to economic capital”.

[READ FURTHER: Lagosians cry over Land Use Charge]

According to the economist, capital, which is the resource used to increase productivity for wealth generation in an economy, is the most essential component of societal advancement and thus, deserves the utmost priority when developing solutions for advancing countries.

Analysis from the report: The residential and agricultural real estate sector, according to the report estimates by PwC, is one of the major forms of dead capital. With over 40 million households in a total country population of 200 million, The report reveals that a typical Nigerian house is over capacity with an occupancy rate of seven persons in a room.

Furthermore, the report revealed that approximately 95% of Nigerian household dwellings have no title or a contestable title.

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Despite various developmental plans, Nigeria continues to wrestle with rising poverty and unemployment levels, coupled with the epileptic manufacturing and industrial base. This is despite the fact that economic development could have been made possible by harnessing capital from areas that are often overlooked by people.

[ALSO READ: Bank credits to real estate sector low]

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Nigeria's Real Estate Sector recorded positive growth after three year low

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Why dead capital? Some of the factors responsible for the dead capital in Nigeria’s residential and agricultural real estate segments include, but not limited to the following:

  • The lack of credit access by small businesses and the prevalence of dead assets.
  • The state of Nigeria’s housing and property markets.
  • The high cost of land.
  • The high cost of securing and registering a secure land title.
  • More so, the land tenure system which is still being practiced in the communal and informal sector has made it quite a stressful process for anyone to own and register a land legally.

What can Nigeria do to bring dead capital life? According to the report, Nigeria is underperforming and one of the ways to end the underperformance is to unlock dead capital. This could be done through the following ways:

  • Structural Reforms: The conversion of dead capital to live capital through structural reforms would help in the conversion of most of the capital in the informal economy (which is currently valued at 65% of GDP) into the formal economy.
  • The development of electronic asset registries which are backed by blockchain technology could position the residential and agricultural real estate in Nigeria, therefore, unlocking the dead capital needed for the nation’s growth and development.
  • Systemised Trust Creation: The creation of trust in the system and increased participation in the segment will bring about capital conversion in this economic class through fiscal receipts into the formal economy.

In order to circumvent the above challenges, the country needs to invest in establishing proper and seamless land administration, as well as implement policies that will improve land accessibility. This, as industry sources believe, would also increase capital for infrastructure in the sector whilst stimulating economic activity.

[READ THIS: CBN sets deadline for retrieval of N7.9 trillion bad notes]

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