- Real estate in Nigeria, particularly in Lagos State and areas like Lekki, is considered a highly profitable investment option due to its high demand and capital growth potential.
- The real estate sector in Nigeria faces challenges such as a lack of public trust, professional quackery, and building collapses, which hinder its growth and development.
- GMH Luxury differentiates itself in the market by prioritizing maintenance and transparency, offering flexible payment options, and providing unique benefits to subscribers. The new administration should focus on infrastructural development and currency stabilization.
In Nigeria, real estate is considered the best investment option due to its high demand and capital growth potential. Lagos State, especially areas like Lekki, is a prime location for real estate acquisition in Africa.
However, the sector faces challenges such as a lack of public trust, professional quackery, and building collapses.
GMH Luxury distinguishes itself by prioritizing maintenance and transparency, offering flexible payment options, and providing unique benefits to subscribers. The new administration should focus on infrastructural development and stabilizing the currency while GMH Luxury aims to expand in Lagos, other Nigerian cities, and West Africa, with the vision of operating in every African capital within a decade.
Nairametrics spoke with the MD of GMH, Ayoolanrewaju J. Kuyebi and this is his take on real estate investment in Nigeria, its high demand and capital growth potential.
What is your take on the investment landscape in real estate; going by the outgoing administration?
In Nigeria, considering the previous administration, I believe that the best investment option available is real estate. Real estate offers significant capital growth opportunities due to its high demand.
The value of real estate is primarily determined by demand. In Nigeria, the demand for real estate is thriving, particularly in Lekki, which remains the top location for both sales and rentals.
Lagos State is the number one city in Africa for real estate acquisition. So, before looking at the investment landscape, let us take a look at the value of real estate as far as Nigeria is concerned.
As of the last quarter of 2022, real estate contributed approximately $3.9 billion to Nigeria’s GDP. This contribution is projected to grow by another 10-15% by the end of this year.
The housing deficit in Nigeria currently exceeds 20 million units, with an annual housing turnout of about 50 to 100,000 units. This indicates a sustained demand for real estate. Considering Nigeria’s population of over 220 million, expected to reach 400 million by 2050, the housing deficit will continue to escalate.
In terms of investment, real estate is one of the most lucrative options in Nigeria. It provides a higher return on investment and offers considerable value for your money.
Assessing the previous administration on real estate, do you think the administration achieved anything?
Achievement is subjective, particularly in the real estate sector, where factors such as location and proximity to social amenities play a crucial role. During Buhari’s administration, one notable development has been the establishment of Dangote’s refinery.
This has had a significant impact on the real estate market, particularly in the area of Ibeju Lekki. The demand for real estate in this area has skyrocketed, resulting in an astronomical increase in both demand and property value.
Over the past five years, land in and around Ibeju has appreciated by over 1,000%. To put it in perspective, a piece of land purchased for N1 million five years ago can now be sold for over N10 million today.
In your evaluation, what do you think can be the current challenges faced by real estate in Nigeria?
Real estate in Nigeria can feel like a challenging game where you’re already four goals behind because suitable finance is hard to come by. Public trust and credibility are lacking in the real estate industry, and everyone you meet seems to have their own stories of woes to tell.
This lack of public credibility makes it extremely challenging to sell properties. Another significant issue is the presence of professional quackery in the industry.
For example, an accountant might claim to be a developer and undertake construction projects independently.
Due to this, people have become hesitant to invest in high-rise buildings, because the perception out there is that you cannot build anything above 5 storey building; any building that is above the 5-storey is being checked out to know who is the foundation contractor; to be sure that there is no professional quackery.
Additionally, semi-skilled labour is scarce in Nigeria. It’s not uncommon to have to hire bricklayers or POP workers from neighbouring countries like Togo or the Republic of Benin.
Even with the combined expertise of professional bodies in the building community, such as town planners, architects, engineers, and project managers, Lagos State still tops the list for high-intensity building collapses.
Nigeria holds the unfortunate distinction of having the highest rate, frequency, and intensity of building collapses in Africa, with Lagos State leading the way. Over the past 48 years, Lagos State has reported 322 building collapses.
Unlike in the past when collapses were more likely during the rainy season, now they can occur at any time throughout the year. Even prominent locations like Banana Island, Oniru, and Ikate have experienced building collapses.
When analyzing these incidents, a common thread emerges: all the collapsed structures were above five stories. This indicates a high influx of professional quackery and an unregulated environment. Accountants or mechanics with money might decide to embark on construction projects and direct the workforce.
Although Lagos State has comprehensive physical planning laws, it is lacking in reinforcement.
Having worked in Lagos, Port Harcourt, and Abuja, and dealing with regulatory bodies in these cities, I can attest that Lagos has some of the best physical planning laws. However, enforcement could be significantly improved.
Even if just 50% of the physical planning laws were effectively enforced, the rate of building collapses would decrease significantly.
In Lagos, you can’t carry out any construction activities without the involvement of officials from the state. In contrast, during my two years in Port Harcourt, no one from the regulatory bodies visited our site, despite it being a mega filling station.
This highlights the efforts made by Lagos State, but nobody can give what they do not have; there is a shortage of staff and the lack of prerequisite experience required to check structures that are 5 storeys and above among those responsible for enforcing physical planning laws.
However, it’s worth noting that you rarely hear of building collapses in well-regulated areas like Eko Atlantic, Royal Garden Estate, or Victoria Garden City in Ajah.
They have implemented strict processes and compliance measures. If you want to build there, even with sufficient funds, you must engage a reputable contractor.
Before commencing construction, your chosen contractor will undergo a rigorous vetting process. Your architectural drawings will be examined to assess the competence of your consultant.
We have built-in royal gardens and VGC before and we are about to do something at Eko Atlantic, obtaining approval is an arduous process. Both the consultants and contractors must face a consulting panel to evaluate the contractor’s capabilities.
Furthermore, once construction begins, each stage of the work, including safety compliance, is closely monitored and approved. The quality of the process significantly impacts the outcome. Often, we focus too much on the result and overlook the crucial importance of a well-executed process.
Can we delve into the real estate packages that GMH Luxury has?
At GMH, we have taken a different approach to ensure excellence. Unlike others, such as Jakande, who witness the depreciation of their stunning structures within a few years due to neglect, we prioritize maintenance. We achieve this by entrusting the management of our facilities to reputable facility managers.
Our main goal is to ensure that our subscribers receive the full value of their investment.
To guarantee transparency, each of our facilities charges a variable fee, ranging from 10% to 15% of the original cost. We are dedicated to preventing any potential fraud against our prospective homeowners.
The facility management company provides quarterly reports to the residents, allowing them to monitor their expenditures. It is even possible to have a surplus budget at the end of the year, which can be carried over to the following year which is most likely the case.
Another aspect where we distinguish ourselves is in our treatment of investors who can no longer continue their partnership with us. We strive to leave our subscribers in a better position.
We do not make deductions from your money; instead, we provide a full refund. If you have paid 50% of the property’s value, we assess its current value and offer you a profit share, including interest on your deposit. These are the unique benefits we provide to our valued subscribers.
While we have recently eliminated payment plans within the 0 to 18-month range, we still offer flexible payment options. Our preferred method is the milestone payment system, which benefits both us and the subscriber.
What do you mean by milestone payment?
The concept of milestone payments is quite simple. Instead of paying the full amount upfront, you can enter a project with as low as 10% of the payment. The remaining amount is then divided into smaller payments based on the completion of specific deliverables.
Let’s say we’re constructing a building. When the foundation is completed, you make a payment, when the first floor is finished, another payment is made.
The same goes for the third floor and subsequent stages. This way, your financial exposure is directly tied to our progress. The only risk you take is your initial deposit. If we don’t move, you don’t move.
These milestone payments are spread out throughout the project. For example, if the project lasts 24 months, your payments will be distributed evenly throughout this period. We equally do the outright payment in three months.
There is a major difference between the milestone and outright payment. With outright payments, you can purchase the property at around 70% of its premium value. However, with milestone payments, you are buying at 90% of the premium value.
This higher percentage reflects the time value of money since the project extends over a longer period.
If the premium value of the property is, let’s say, N100 million, someone making an outright payment would buy it for around N65/70 million. On the other hand, someone using milestone payments would purchase it for about N90 million because of the time value of money.
We are currently working with two mortgage banks that give mortgage finance to willing subscribers.
What is your take on Mortgage Banking and its effectiveness in Nigeria?
Mortgage banks are supposed to be cheaper than commercial banks, but that is not the true reflection of what the bank is doing. The main distinction lies in the extended repayment periods they offer.
While a commercial bank may grant you a mortgage with a repayment period of 2-3 years, a primary mortgage institute can provide a tenure of up to 10 years and you can also access federal housing funds as well.
Do you think the federal government is doing enough to encourage real estate business; housing, mortgages, and legislation?
Nigeria’s policies look great on paper, but the problem lies in their implementation. Although there are intervention funds, such as BOI and Infracredit, available for real estate, they are not easily accessible.
While the policies and funds exist, they haven’t translated into practical benefits for the people. For example, there was a request for PENCOM to invest a percentage of their funds in real estate, but the money ended up in the federal government’s money bank instead.
This means that people don’t have access to those funds.
In the real estate market, we operate in, which caters to medium to ultra-luxury properties, the maximum loan amount from FBN mortgage used to be 15 million nairas. However, with this amount, it’s difficult to find a suitable house.
Recently, it was increased to 50 million nairas, but even with that, it’s challenging to find a suitable property in today’s market. Additionally, to access the 50 million nairas, you need to contribute a 30% down payment. However, as an individual, you can’t directly access the 50 million nairas; you have to go through the PMI (Primary Mortgage Banks).
You still need the PMI to provide additional financing because FBN mortgage won’t release the funds when you need them.
On paper, the processing time is stated as 6 weeks, but in reality, it could take up to 6 months or more. By then, the opportunity to secure a property might be lost, and someone else who is willing and financially capable might seize it.
So, when the government claims to provide intervention funds, it’s often the capitalists who benefit the most. The money doesn’t have a direct impact on the people who genuinely need it.
Instead, capitalists end up purchasing these properties and reselling them to others.
What do you think the new administration can do to revive and reposition the fledging real estate in Nigeria?
Lagos state has outperformed other states in the real estate sector, and there is still potential for further progress. I’ve been residing in Lagos state since 2005, and I’ve witnessed its remarkable transformation.
Back in 2005/2006, travelling from Lekki Epe Maroko to Ajah during peak hours took a minimum of 5 hours due to a single-lane road. However, with the completion of the road, the journey now takes just 30 minutes.
If we look at areas like Lekki and Ikoyi, the construction of the Lekki Ikoyi link bridge significantly reduced travel time, by almost 70%. Now it takes less than 5 minutes to commute between the two areas.
This improvement had an immediate impact on real estate, with property values along that route skyrocketing. Lekki has essentially become the bustling centre of Ikoyi. Currently, a road is being built to connect Freedom Way to VGC, and once completed, it is expected to further increase the value of the real estate in that area.
Considering the progress made so far, I believe there will be a significant advancement in infrastructural development, and Lagos state has the potential to achieve a special status. However, the pace of infrastructural development must match the rapid population growth to meet the increasing demand for facilities or people will continue to be on the road for 6 hours daily.
For the new administration, we remain optimistic that they will prioritize infrastructural development, as well as work towards stabilizing the foreign exchange rate and strengthening the Naira against other currencies. We anticipate a substantial leap forward shortly.
Where do you see GMH Luxury in the next 10 years?
Our main focus right now is to concentrate on Lagos, specifically Victoria Island (VI), Lekki, and Ikoyi. Once we have established ourselves in Lagos, we plan to replicate our success in the capital city, Abuja.
If the security situation in Port Harcourt improves, we may expand our operations to Rivers State. Looking ahead, our goal within the next 10 years is to enter the West Africa market and eventually expand to Cape Verde. We envision having a presence in every capital city across West Africa under the umbrella of GMH.
In the next 5 years, we aim to be operating in five West African countries, and within the next 10 years, our ambition is to establish ourselves in every capital city across the African continent.