www.news.yahoo.com/analysis-nigerias-property-boom-only-brave-080448232--sector.html?.tsrc=yahoo


By Joe Brock
ABUJA (Reuters) - On one of the most exclusive
streets in Nigeria's capital sits a crumbling
mansion with an unwelcoming message
painted at its entrance: "BEWARE! THIS HOUSE
IS NOT FOR SALE".
The warning refers to a popular property scam.
In the most elaborate version, robbers break
into your house while you are away, change
the locks, and then produce multiple copies of
fake title deeds. Posing as estate agents, they
show buyers around your house and sell as
many copies of the deeds as possible. When
you get back, your house belongs to six people.
This sort of deception epitomizes the tricky
nature of Nigeria's real estate business, but
despite the risks, there are huge returns to be
had in a market where around 16 million
homes are needed just to meet current demand.
Navigating through opaque land laws,
corruption, a lack of development expertise
and financing, a dearth of mortgages and high
building costs will take courage and influential
local partners.
"There are sizeable challenges to overcome but
in many ways Nigeria represents the perfect
storm for real estate investment; huge
population, rapid urbanization and a growing
middle-class," said Michael Chu'di Ejekam,
Director of Nigerian Real Estate at Actis, a
London-based private equity firm.
Actis has $5.2 billion under management,
including two sub-Saharan Africa real estate
equity funds totaling $434 million, which it says
are attracting U.S. and European investors.
Nigeria's population of nearly 170 million is
bigger than Russia's and its economy is growing
at 6 percent, a combination which is producing
a new wave of property buyers from bankers
and airline staff to mobile phone and fast food
shop owners.
"I see demand from the middle-class higher
than ever before," said Deolu Dara, Associate
Vice President at Nigeria-based Avante Property
Asset Management, which manages several
multi-million dollar residential projects in
Lagos.
A successful real estate investment in Nigeria
can earn an returns as high as 30-35 percent,
while rental income yields in cities such as
Lagos and Abuja can easily reach 10 percent,
developers and estate agents say.
MIDDLE CLASS
Property in Lagos, a heaving metropolis of
around 20 million people, can be among the
most expensive in the world with two-bedroom
flats costing more than $1 million in upmarket
areas.
However, the top-end range is dominated by
well established players and developers should
target middle-income workers in major cities,
such Lagos, Abuja and the oil-hub Port
Harcourt. The most popular units fall in a price
bracket of 20-35 million naira ($123,000-
$214,100), developers and estate agents say.
Nigeria's middle class make up around 23
percent of the population and earn around
80,000- 100,000 naira ($490-$610) per month,
according to report by investment bank
Renaissance Capital.
In smaller cities and rural areas, a lack of
information about land and regulation is off-
putting, while a violent Islamist insurgency has
made the north of Nigeria unattractive, despite
huge unmet demand in cities such as Kano and
Kaduna.
The majority of Nigerians live in poverty in
shanty towns or in basic concrete block and
iron-roofed houses they have built themselves,
but building mass housing for the poor is not a
popular investment.
"If you know the market, the people, focus on
middle class and cherry pick your deals, you
can clean out," added Dara, who said Africa's
biggest oil and gas industry is also driving
demand. One foreign oil major bought 300 flats
recently.
Nigeria's construction and real estate sectors
are growing at more than 10 and 12 percent
respectively, a boon for foreign and Nigerian
construction firms, including UPDC, Cappa
D'Alberto and Julius Berger.
Yet, there is still not enough quality affordable
housing because business is frustrated by
widespread corruption, poor state
infrastructure and a lack of expertise and
financing.
Constructing a block of flats costs three times as
much in Nigeria than in South Africa, builders
say, and many developments are abandoned
when projects run out of money or become
slums because they are poorly built.
London-based estate agent Jones Lang LaSalle
ranks Nigeria 96th out of 97 on its transparency
index, just in front of Sudan but behind six
other African countries.
Having support from powerful politicians or
business magnates will help to avoid terminal
financial pitfalls.
LOCAL PARTNERS
"It's a business that requires local partners and
local knowledge or you'll run into problems,"
Dara at Avante says.
Avante's chairman is Wale Tinubu, the head of
oil and gas firm Oando and a close relative of
former Lagos state governor Bola Tinubu, who
still wields influence there.
London-based Actis has given directorships to
Nigerian energy firm Seven Energy and local
conglomerate UAC.
Once the supply challenges have been
overcome, there remains a problem with that
huge latent demand. No mortgages. Unless you
are willing to pay a 25 percent interest rate.
The mortgage debt-to-GDP ratio in Nigeria is
under 0.5 percent, compared with 72 percent in
the U.S. and over 30 percent in Malaysia and
South Africa, government figures show.
"In places like America you seem to be able to
buy property without a stress but it just isn't
like that here," said Ike Ejekam, 31, who is
about to buy a newly-built two-bedroom
apartment for 20 million naira in a gated
community in the popular Lekki district on the
Lagos peninsula.
Ejekam represents the new breed of buyers
who expect well-built housing with all the
modern conveniences. He works at a branch of
a local bank and is using his life savings and
funds borrowed from family members to buy
his property outright.
"I don't like to think about mortgages because it
scares me when I see how difficult it is for my
friends to get a loan."
Nigerian banks don't like giving out mortgages
because reliable information about buyers and
land is scarce, while there is no secondary
market to offset the risks.
MORTGAGE DENIED
The government says it is trying to fix this by
securing a $300 million loan from the World
Bank to establish a mortgage refinancing
company, which should free up some bank
lending.
A Federal Mortgage Bank was also launched
this year, which government hopes will help
build 500,000 new homes. The bank plans to
float a 200 billion naira mortgage bond, the
proceeds from which can be handed over to
home buyers with the state guaranteeing
against default for five years.
The government is also discussing passing
legislation to create a secondary mortgage
market and to improve land laws.
"With this sense of urgency we could have a
significant improvement in the mortgage
market by 2015," United Bank for Africa CEO
Phillips Oduoza told Reuters.
This optimism is also being felt by developers
as dozens of well-financed projects are
underway, including the Eko Atlantic City - a
multi-billion dollar project built from 9 square
kilometers of land being reclaimed from the
sea in Lagos.
The billionaire Chagoury brothers, who are of
Lebanese descent, are leading the mega-project,
which will feature parks, swimming pools and
skyscrapers with floor-to-ceiling glass. Banks,
including France's BNP Paribas, Belgium's KBC
and several Nigerian lenders are on board.
In Abuja, UPDC has started its 228-unit 'Metro
City', which consists of well-designed blocks
with balconies built in palm-fringed private
compounds. Privately owned Churchgate
Group is building its ambitious $1 billion
World Trade Centre, a series of skyscrapers
housing offices, flats and upscale shops.
"Nigeria is a huge real estate opportunity," said
Ejekam at Actis. "The story is getting out,
slowly."

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