During her presentation at the February 4 2023 Economic Outlook hosted by Nairametrics, the Chief Commercial Officer at Mixta Africa, Rolake Akinkugbe – Filani said she is a firm believer in real estate being a store of value.
She said there are now innovative ways available for home acquisition, especially for Nigerians looking to own a home for commercial or residential purposes.
According to her, home acquisition has been difficult for most Nigerians who typically complain about the steep cost of investing in real estate, particularly initial deposits.
However, she revealed that there are innovative ways to approach owning real estate assets. She also spoke to several other opportunities available for anyone looking to invest in the sector in 2022.
These are specially picked excerpts from her conversation at the event. You can also watch the video to the Economic Outlook here.
Fractional ownership
This means people can own a fraction of real estate. According to Rolake, this will be a key driver of home financing in 2023.
- It is instructive to note that one can invest in a property for a fraction of its cost, which reduces the financial burden and eliminates the need for a large upfront investment.
- This investment strategy can provide low-income earners in Nigeria with real estate ownership.
Looking out for emerging assets
She spoke about new and emerging assets in locations like Lekki, Epe, or Ibeju axis of Lagos state, the development of very important infrastructure along those locations will see a major take-up in the valuation of lands.
- According to her, over the last five to six years, the Lagos new town area has seen over a 200% increase in land valuation. She said:
- “The great thing about land as an asset is that you can either approach it from a speculative perspective or you can hold it with a view to building in the future.”
Portfolio perspective
Diasporan Nigerians often say they are in a much stronger position from an FX perspective when they convert to Naira. However, the issue then becomes when they want to liquidate that asset, with worries over what happens to the value of the Naira. Mrs. Akinkugbe-Filani said:
- “I always say that real estate is just one asset class, if you are a serious-minded investor, you should take a portfolio perspective and have in mind an average return that you expect to generate from that portfolio.
- “I think there are so many ways to acquire real estate, we’ve launched a rent-to-own scheme that reduces the initial barrier to entry. I think with any type of investment as an asset class, you need to look at it from a portfolio or a basket of assets perspective.”
- According to Rolake, the rent-to-own scheme earlier cited requires people to pay only 5% of the initial amount and save over a 3-year period with a view to acquiring the home at the end of that period and it has a built-in interest rate that tracks inflation and takes into consideration, the time value of money.
- Rolake also provided some insights into the affordability issues that prevent many Nigerians from owning real estate in the country.
Affordability deficit
She highlighted the fact that the common Nigerian phrase “housing deficit” is really an “affordability deficit” and to address this challenge, there are more innovative products that are coming into the real estate market.
- For instance, in the property technology space, more companies are providing different types of fintech payment options that ease the burden of putting down huge amounts of money at a time.
- All of these will introduce cost efficiency to the sector, which will help the supply and development side, which will then facilitate and drive the consumer side.
Real estate in the metaverse?
Rolake mentioned that she has noted interesting trends around the metaverse, and what can be done with NFTs and real estate. She advised interested parties to take action steps with their eyes open.
She said:
- “Real estate is called real estate because it is talking about real physical assets, so this should be savings or money that you can use in a speculative way. We just need to do a bit more market research to understand what the long-term upside of many of those newer types of technology-driven asset classes are.”
Role of imports in real estate
While addressing how dependent Nigeria is on the materials needed to set up real estate in Nigeria, Rolake said it depends on the market segment operators are in. She said:
- “We do residential and what we call middle income and high income, and we are finding that we are still extremely import dependent on even the middle income and high-income segments of the market particularly for fixtures and fittings. Obviously, we can localize much of our cement value chain because it is a corporate defense mechanism for developers who are not as exposed on the FX side.
- “I think on the affordable end of the market, there is a lot more we are trying to do locally, when it comes to development, it doesn’t just start from the foundation. We do a lot of sand filling in our country because we’re building in places that historically have not had hard soil.
- “Many Nigerian developers have to import sand from the West African sub-region, so the cost build-up for a typical infrastructure developer in the real estate space starts right from when sand filling, piling, and foundation are done, which is one of the reasons why we are facing the rises in home building costs which trickle down to the consumer.”
According to Rolake, the main killer is the financing of development. She said the real estate sector has fared poorly in attracting long-term low-cost capital because it’s about developments that take a long time to come into the market and once they are on the market, the cash flow forecasts are over 3, 4, or 5 years in some cases.
Improving Nigeria’s real estate sector
Rolake said there is a need to localize raw materials across the value chain and she alluded to advocacy groups that are trying to do that. She thinks it is better to import from within the West African region than from outside the region, thereby keeping value within the region.
According to her, further up the value chain, operators are localizing more of the engineering and mechanical services which makes it much more cost-effective.
- She recommended unlocking low-cost capital for the sector, rather than relying on short-term commercial papers which will hemorrhage any typical real estate business.
Rolake mentioned that the sector needs more incentives and a much more effective land tenure system in the country.
- She also said it is important for the public sector and real estate developers need to have conversations about historically government-owned properties that are lying fallow that could be converted to affordable housing for Nigerians.
- Rolake said there is a need to focus more on how we boost productivity through investments in infrastructure rather than wait till the businesses who are already struggling, export or sell their goods and then they are taxed.
- “If a lot happens right at the level of the factors of production, then businesses become naturally more productive and they don’t feel the pinch as much from taxes,” she stated.
Brilliant points!