While others see the current economic recession as a plague, the Managing Director, Lekki Gardens, Dr. Richard Nyong, sees it as blessing in disguise and believes it should bring out the best in the operators in the real estate sector in Nigeria. In this interview with ABIOLA ODUTOLA, the property developer also urges the Federal Government to crash interest rates in order to ease access to fund by operators in the sector. Excerpts:
Several developers and even the Lagos State government have initiated the rent-to-own idea as a way of breaking the barrier of owning houses. What is your take on this development, in view of the ongoing economic recession?
The rent-to-own scheme makes a lot of sense, because it is an important phase in real estate sector. It is the responsibility of all developers and government to ensure Nigerians access good and affordable housing, even in the face of recession. For each of us who have been able to provide same to clients, we are doing a huge service, because the financing structure in the environment is quite tough for whoever wants to provide same. If you go international to get money, you have to pay locally, and the forex position has shifted tremendously in the last one year.
How has the value of naira against the dollar affected the real estate sector?
It affects our financial planning. For instance, if you had borrowed at, say, N170 to the dollar, you would be paying back at about N500 or more to the dollar now. But applying for loans from Nigerian banks can be cumbersome, because they take their time to know who they want to give their money.
Does that mean there is a meltdown in the industry?
There is a squeeze, but developers have no choice but to provide housing for all. Every company that is doing that is doing a good job; that is the way to build a market when there is nothing.
As a business, we have looked at the situation and come up with not just a rent-to-own scheme, but something a bit more relevant to our market space. With 9.5 per cent interest mortgage, you can own a house.
People are paying 35 per cent deposit and paying over five years, which is very competitive with what they would have paid to rent a property for five years. Critics argue that it is relatively possible to have affordable housing in Nigeria, especially from private sector, due to high cost of building materials.
Do you think this is true?
It may look difficult to provide affordable housing, but it is possible, because it is relative. What was relatively possible, or called affordable last year, is not what is affordable this year. To break that jinx, we fought to reduce the price of houses by 30 to 70 per cent across locations where we played.
For instance, a two-bedroom flat in Lekki was between N20 million to N25 million before Lekki Gardens emerged, and we sold ours for N13.5 million.
We did the same with Ajah, where we were able to use affordability to change the game. When you talk about affordability, you have houses of N8 million to N10 million, given the desires of the people you want to target, it can be affordable, but some people are looking for N2 million house, and they have only N500,000 and their current rent is N250,000. If you rent a home for N250,000 and you want to own it for N500,000, you and I know that it is not feasible.
But entrepreneurs and business people strive to win customers’ loyalty and followership and in doing that, one of our most important tools is the price mechanism.
But some believe it is fairly possible to drive down prices in the private sector. Do you agree?
The private sector is the most potent one to drive down prices. Look at the telecommunications industry, prior to the private sector taking it up, it was exclusively for the rich. Today, the man on the street has two phones.
Yes, he is paying more for call credits, but accessibility has changed. Government policy changed that. The government has to make the right policies. If developers can access good credit facilities, if there is a structure that enables people to do business, they will be more competitive and they will produce more results. It is tough to raise money for real estate and real estate is capital intensive.
How much has the on-going recession affected the sector?
The economy is forcing us to be even more creative, prudent and ask questions differently, which is the beautiful side of it. But I know that nobody can deny the difficulty in the market space. Real estate is capital intensive in nature, and in times of recession, the first place people try to cut down on is investing in the longterm. They want to focus more on immediate needs. Though, the market has shifted a bit, but our brand has been bold and consistent to face the economic headwinds, as well as the challenges we have faced as a brand.
In being creative, are you considering dry construction or other new technologies?
New technology alone cannot solve the problem, because it is not the only thing missing in the market place. There is lack of funding, a change in people’s decision in terms of what they can afford to buy and what they want to spend their money on. People would rather hold their money.
The economy is forcing us to be more creative, prudent and ask questions differently, which is the beautiful side of it. But I know that nobody can deny the difficulty in the market space.
It is not like there is no money, but people want to see the direction of the economy and want to be more intelligent about their expenses. It is not only about the technical operations but fundamentally asking where we can play and what products will allow people to take investment decisions.
It is the investing public that is your market focus and they are also the people holding on for the government to act. So, since we are in an economy like this, we want to know how to work on our products, to know how to help clients pay their rents. We need to bring up ideas that tie buying a house to saving rents, or helping people not to pay rent anymore.
What challenges have you faced in these past years?
You can’t run away from issues like approval, unclear government policies on a lot of issues or the unstructured nature of real estate in Nigeria, where there is no clear guideline or support on the materials you access.
You have to buy sand, for instance, from an unstructured vendor; government policy can shut him down and you are left stranded and you have to explain to clients.
Cement suppliers can raise prices and everyone will adjust to it. So, there are unstructured and inconsistent arrangements for sourcing materials. There is also the unskilled nature of artisans.
The toughness of the business environment is enough to stop anybody. The interest rate should be reduced significantly. If it is crashed and reduced to just three per cent, people can afford to do business.
The Central Bank of Nigeria should crash the rates that are used to trade government’s financial instruments. Let there be clarity from the government on where we are going in the economy, so that people can rally around it. The titles and approvals around real estate should also have clarity, so that everybody can see that it is a fair and easy thing to do. Policies drive housing.
Once you are clear on policies, people will adjust. Those are the key things that every government can do immediately to support key sectors and the housing sector in particular.
