To avoid a backlog of land registration applicants this period of the COVID-19 pandemic, the Lagos State Government introduced a dropbox facility at the collection centre of the Land Bureau where applicants can include application and supporting documents in an envelope containing their phone contacts and email address.
This new system was announced on the 20th of July, 2020 by the Permanent Secretary of the Lagos State Lands Bureau, Mr Olabode Agoro, at a webinar on: “COVID 19 Disruption and Land Title Administration in Lagos State: Preserving the Business of Real Estate”. He mentioned that:
“Upon submission of the envelope containing the application and supporting documents, a file number is given for tracking the application and a team of dedicated officials at the Bureau would proceed with the processing of the application. The team [will] contact the applicant where documents are outstanding…. The Bureau has [also] limited the number of persons allowed at a time into its customer service centre to use the dropbox.”
A critical stage during land documentation is the application for the Governor’s Consent at the Land Bureau. This is done to confirm the transfer of ownership of the land. After the Governor’s consent has been obtained, the applicant can pick up the document with proper registration details at the Land Bureau and complete the land registration process with an exchange of contract.
Shoprite controls 22% of Nigeria’s formal retail, future to be driven by indigenous retailers
Nigeria’s retail market faced a myriad of challenges following the recession in 2016.
The Nigeria Shoprite knew when they made entry through the launch of The Palms in December 2005 is a sharp contrast to its current condition. Little formal retail competition, a stable currency and much higher GDP growth rates were core themes in Nigeria’s story about a decade ago and as a result, Shoprite’s business grew by over 10% annually for 13 straight years in its Non-South African country operations where Nigeria played a major role.
Shoprite sat at the very heart of Nigeria’s retail boom which saw the total retail space grow 10x from 2005 to late 2017. Despite the 13 years of strong growth, the combination of events that have occurred over the past 3-4 years was enough for Shoprite to decide, albeit in a much softer way than their South African counterparts, to call it quits by selling a stake in their Nigerian subsidiary to potential investors. All in all, the signaling that comes with a complete or partial sale of Shoprite’s stake in its Nigerian subsidiary is much worse than the action itself.
Why are they leaving?
Nigeria’s retail market faced a myriad of challenges following the recession in 2016 provoking a loss of confidence in the market as investors suspended their large exciting retail projects and a handful of retailers exited the country. With a slowdown in retail developments, Shoprite, who serve as the go-to anchor tenant in Nigeria’s major malls found it difficult to expand.
Segment sales growth in Nigeria since June 2019 have been unimpressive compared to Shoprite’s home market in South Africa, even though that economy has been in recession since the beginning of the year. The xenophobic inspired attacks in September 2019 saw 14 Nigerian malls with Shoprite as its anchor tenant looted and damaged. This worsened sales growth and led to a 59% reduction in weekly customer visits according to their 2019 results presentation. Two months after the protests, customer visits were still 14% lower than the typical.
Although Shoprite’s recent performance decline is highly influenced by currency fluctuations, the group mentioned in their 2019 results presentation that they were taking immediate actions in reducing dollar-denominated rent, borrowings and curbing capital allocation for new stores and developments proving these were also a struggle for the company.
How big is Shoprite in Nigeria?
Shoprite’s relevance in Nigeria’s retail is highly significant with its anchor presence in 25 malls controlling about one-fifth or c. 21.81% of Nigeria’s total retail space. This indicates that any shakeup with Shoprite has significant consequences for Nigeria’s retail industry. Before the entrance of other retailers, Shoprite Nigeria had very significant dominance in Nigerian retail centres dictating lease terms due to its heavy traction.
Who are the potential investors in Shoprite that can close the void?
Retail Supermarkets Nigeria Limited, the Nigerian arm of Shoprite Holdings revealed they have identified Nigerian investors that “share in its vision”. Shoprite Holdings is keen on creating a “truly Nigerian business” for its Nigerian arm by transferring the majority of its ownership to indigenous investors. This provides an opportunity for indigenous retailers who started out in standalone shops seeking to expand their local dominance by growing into malls.
A few notable Indigenous retailers who have recorded significant growth recently include Hubmart, Jara, Prince Ebaeno among others. While some retailers have expressed interest and started to expand their footprint into formal retail centres, others have expressed disinterest in that strategy.
Hubmart expanded into formal retail centres through their entry into The Lennox Mall in 2018 leading to a total of 4 retail stores in Lagos State. Prince Ebaeno has so far avoided the formal retail strategy and stuck with standalone stores. Now they control a total of 5 retail stores in Lagos and Abuja. Jara (officially EDLP Nigeria Ltd) recently launched a small retail centre in Ikeja and another in Edo State and are looking to establish a nationwide discount supermarket and retail chain and aligning with Shoprite could expedite that process. The company is linked to the Persianas Group (owners of The Palms chain of malls) who, as we will point out, have a vested interest in this process. Other retailers such as SPAR, keen on expanding their local presence in formal retail may also be looking in Shoprite’s direction.
It is worthy to note Carrefour, an International retail store with relatable dominance across other African countries who tried penetrating the market by anchoring the c.20,000 sqm Twin Lakes Mall by Actis. Further expansion by Carrefour after Twin Lakes Mall would have threatened Shoprite’s dominance. However, plans for this mall were suspended largely due to the macroeconomic downturn, retail market fundamentals and a change in Actis’ investment strategy. The sale of Shoprite might just serve as an opportunity for Carrefour to make market entry if they are willing to look long term as problems that suspended Twin Lakes Mall still persist.
What does this mean for the market players?
- Shoprite – The mighty anchor: As we expect the Nigerian arm of Shoprite to continue to build the business in Nigeria with potential investors, a transfer of ownership to indigenous investors with better staying power should reduce the risk of foreign exchange volatility as they patronize indigenous products and report profit in naira. Shoprite can then focus on its South African arm without the distraction of volatile commodity-based economies like Nigeria which make it hard to operate.
- Other Retailers: In our Boom & Bust report, we pointed out that retailers typically start out in standalone shops, expand their footprint and gain the capacity to grow into malls. In Nigeria, the malls came much faster than the tenants could grow as strong homegrown brands are only just coming into their own. This potential sale provides an opportunity for an existing retailer to bolster its operations, not just by moving from standalone stores to formal centres but dominating the market as an indigenous retailer (This is in a case where Shoprite’s brand name is not retained).
Observing international retailers that have or are in the process of exiting Nigeria such as Woolworths, Truworths, Mr Price, they tend to stick with operations in their country of origin as they understand the market and have historically generated impressive returns. An indigenous retailer acquiring Shoprite’s property portfolio will be immense for organic growth and will likely see the retailer support the development of multiple shopping malls in the future.
- Asset Owners: Shoprite’s announcement most likely causes a major scare to mall owners due to the amount of retail space controlled and the proportionate control of income. Many asset owners found out about their plans at the same time as everyone else. Novare, Resilient Africa and Persianas Investments who control 40% of Nigeria’s formal retail and own 10 of the 25 malls that Shoprite are in, have a lot to lose if this process does not run smoothly. We expect them to be involved in this transition that will change who their largest tenant will be.
Where have we seen this before?
- In November 2013, Woolworths announced plans to exit Nigeria noting high rents and supply chain challenges.
- In February 2016, Truworths shut down its 2 stores in Nigeria citing stringent import regulations and rising costs as major challenges.
- In July 2019, Woolworths shut down its 2 stores in Ghana after “a comprehensive review of its operations”.
- In April 2019, Foschini and Edgars closed down their store in West Hills Mall, Ghana as they review their business strategy and eventually pull out of Ghana.
- In June 2020, Mr Price announced plans to exit the Nigerian business in H1:2021 after referring to the Nigerian market as a “distraction”.
- It is time for Indigenous retailers to dominate
Shares in Shoprite Holdings increased by over 11% on the 3rd of August, 2020 showing that investors are more confident with the decision. Nigeria’s macroeconomic realities do not seem favourable particularly for international retailers due to the foreign exchange volatility. However, local retailers such as Prince Ebaeno, Hubmart and Jara have better-staying power and are even expanding stores due to the lower exposure to foreign exchange volatility that international retailers have cited as a crucial problem.
This chain of events could establish dominance for indigenous retailers as seen in the Kenyan retail industry with the current largest retail stock in Sub-Saharan Africa. Their first formal mall opened in 1984 and their indigenous tenant pool has grown organically over time. Indigenous retailers undoubtedly need to be supported but the current immense opportunities could tell a new story for the sector 5-10 years from now.
Property owners, agents to charge tenants 6% stamp duty and remit to FIRS
The directive was given so that they would not run foul of the Stamp Duty Act.
The Federal Inland Revenue Service (FIRS) has ordered all property owners and their agents to charge 6% Stamp Duty on all tenancy and lease agreements they enter into with all leasees and remit promptly to the Service.
This was disclosed by the Director, Communications and Liason Department, FIRS, Mr Abdullahi Ahmad, in Abuja on Wednesday, according to News Agency of Nigeria.
Ahmad explained that the directive was given so that they would not run foul of the Stamp Duty Act.
Nairametrics reported recently when FIRS announced that stamp duty will be paid on house rent and Certificate of Occupancy (C of O), in line with its new adhesive duty.
The agency explained that the new policy was necessary so as to give the instruments the legal backing required, and make them legally binding on all parties involved in such transactions.
Ahmad stated that property-related transactions like tenancy or lease agreement fell under the Ad Valorem category of the stamp duty which attracted 6% duty payable in percentage of the total value or sum of the tenancy or lease.
According to FIRS, the burden of payment of the six per cent lies on the beneficiary of the tenancy or lease agreement, whom the Stamp Duty Act identified as the tenant or renter.
How it works: The responsibility of collection and remittance fall on the landlord or agent in charge of the property for lease or rent.
He said, “In any case, the party making the payment shall have the obligation to account for the applicable stamp duties.
“Some other Stamp Duty types and their rates are Appraisement or Valuation of Property, 1.5 per cent; Certificate of Occupancy, Partnership N1,000 flat rate; Gift of Land, 1.5 per cent Legal Mortgage, 0.375 per cent, Legal Mortgage (Upstamping) and 0.375 per cent.”
Others are deed of Conveyance or Transfer on Sale of Property, 1.5 per cent: Gift of Land, 1.5 per cent Memorandum of Understanding (Related to Land, Sales, Joint Venture, Surrender, Subdivision Agreements, 1.5 per cent, Power of Attorney (Irrevocable/Land Related), 1.5 per cent and Sales Agreement, 1.5 per cent.