"It’s The Nigerian Economy, Stupid"

Sat, Dec 12, 2015
By publisher

Realnews 3rd Anniversary Lecture


– Exploring the Potentials of Real Estate Investments To Boosting the Nigerian Economy





I consider it a privilege and an honour to have the opportunity to share my thoughts on this very germane topic at the 3rd Anniversary Lecture organised by Realnews Magazine and Publications aimed at finding a direction and determining the foreseeable and hopefully, a prosperous future, for the Nigerian economy.

With a new political administration in place under President Muhammadu Buhari, Nigerians and indeed, the whole world is interested in how the country proceeds forward to unleashing its economic potentials and actualising its much acclaimed status of an African and global giant.

The recognition of the strength and the power of nations are however no longer determined simply by population, the size of armed forces or arsenal of weapons of mass destruction or even the vastness of its natural resources. In contemporary times, the size, robustness and the resilience of its national economy, the advancement of its technologies and indeed, the welfare of its citizenry are the pre-eminent indices that place nations high in global ranking.

As a nation and a people, we find ourselves with yet another opportunity to defining and determining what lies in our collective future. This cannot however, be achieved without first defining the structure and future of our national economy. I dare say that most of the national malaise afflicting our collective wellbeing, be it general insecurity and violent crime, corruption, unemployment, tribal and ethnic frictions – are all largely attributable to a limited and shrinking economic space and the lack of economic opportunities for individuals and peoples to thrive.

Having provided an introduction, the rest of this paper cover the following grounds: the second section will be a very brief commentary on the Nigerian economy as I am sure more competent experts would have provided more elaborate and incisive diagnostics of the Nigerian economy; the third section will place the importance of the real estate/mortgage sector in perspective as an integral part of economic development; the challenges of the sector will be enumerated in the fourth section while the last section will proffer a number of solutions and suggest a way forward towards unleashing the potentials of the real estate/mortgage sector for national development.



The Nigerian economy has emerged the largest in Africa as a result of the rebased national GDP put at US$510 billion. The profile of the Nigerian economy following its rebasing also indicated that it is largely diversified with services, industry and agriculture being the largest of the commanding heights.

Services accounts for the largest sector of the economy, contributing about 50% of GDP while Information and Communication constitutes one of the fastest growing segments and accounting for about 10% of total output. Agriculture, which in the past was the biggest sector, now accounts for about 23% while crude oil and natural gas being the main exports constitute only 11% of total GDP.

GDP growth has been reasonable and steady over the past two decades during the democratic dispensation of the 4th Republic, trending with higher-than-global averages of 4.3%, 5.4% and 6.3% recorded 2012-2014. What has also been significant in recent times is that the ratio of contribution from the non-oil sector has overtaken oil to become the major contributor to GDP growth. This is despite the fact that Nigeria is Africa’s largest oil producer and exporter as well as the world’s 8th largest oil producing country, and having earned over US$600 billion since Independence in 1960 from the resource.

However, dwindling revenues from oil, a high unemployment rate (24%), mass poverty and gross dearth of public infrastructure constitute the greatest hindrances to economic development.

While it is still at this point shaping its economic plan for the country, it is quite evident that for the present Administration, tackling public corruption and the diversification of economic revenues to focus on tax revenues, as well as agriculture, manufacturing and the real estate sectors are priority action points.



A real estate activity is defined as any economic transaction related to the purchase, sale, owner-operation or lease of property. It includes income-generating residential properties, such as apartment buildings and single room rentals. It is important to note that the global real estate market accounts for between 3.3%-4% of total world GDP, translating to between US$75 trillion to US$90 trillion.

The real estate or housing industry is an integral part of economic growth. It has proven to be an effective macro-economic policy device, an innovative financial tool and an anchor for social stability. Its significance is hinged on its constituting about 60-70% of GDP in developing economies and about 30-50% in developed economies. Statistics however indicate that the Housing Sector is yet to achieve its pride of place in Nigeria, as it currently accounts for a mere 8.04% of GDP as at Year 2014.

Perhaps and tragically so, what depicts the importance of the housing sector and the real estate industry to national and indeed global economies is the global financial crisis of 2007-2008 which was attributed to the aftershock in the financial sector when the US real estate market crumbled. The fall in real estate values predicated uncertainties in the secondary mortgage market, which in turn led to the collapse of the US capital market, extending to other areas of the economy. Of course, history recorded that it did not take much for this contagion to hit global financial markets with dire consequences on virtually all other national economies.

The Nigerian real estate industry has witnessed positive growth in recent years. According to National Bureau of Statistics reports on the economy, the real estate sector grew by 5.9% and contributed 8.37% to the GDP in the 4th Quarter of 2014 alone. A report released by PricewaterhouseCoopers (PwC), puts the value of the real estate sector in the country at $9.16 billion as at Year 2014. According to projections, the value of the real estate industry is expected to grow to about US$11.36 billion in 2015 and $13.65 billion in 2016.

Furthermore, according to the PwC Report, the Nigerian real estate sector is growing at a rate of 8.7% and is currently, the 6th largest sector of the economy. The growth in the Nigerian middle class population and retail activity were identified as the major drivers of demand for warehousing units as well as infrastructure-enabled industrial clusters and free zones. The commercial real estate market was said to be driven by an influx of institutional, foreign and private businesses into the country, as well as the growth of local established businesses and multi-national oil companies across the cities of Lagos, Abuja and Port Harcourt.



It should be of interest to note that the real estate sector has proven to be one with the most profitable investment opportunities in Nigeria. It is characterised by relatively low variability of returns. Against the backdrop of a huge and rising maturing population, rapid urbanization and a growing middle-class, Nigeria represents a near-perfect market for real estate investments. Nigeria’s construction and real estate sectors are growing at more than 10% and 12% percent respectively, a boom for foreign and Nigerian construction firms.

Despite the attractive investment environment, there is still an inadequate supply of quality, affordable housing in the country. The majority of Nigerians live in poverty, in slums or shantytowns or at best, in ‘illegal’ basic concrete block/iron-roofed houses that were self-built.

Businesses and society cannot function without real estate services such as the provision of offices, shops, factories, housing and many other forms of real estate. It is therefore a fundamental source of employment and economic growth, and a major contributor in addressing the critical challenge of providing liveable and functioning cities for a growing urban population.

A robust and viable mortgage system in Nigeria is capable of stimulating the economy and creating jobs. The demand for housing and mortgage in Nigeria is vast. Nigeria. As at 2012, the national housing deficit was recorded by the United Nations and corroborated by the National Bureau of Statistics (NBS) to be upwards of 17 million units. The deficit is projected to increase by an average of 2.6 million homes per year, and reach 23 million by Year 2020.

In terms of economic resources required to close this deficit, financial estimates are as high as N60 trillion (US$26 billion) to bridge. This huge figure represents the vast and untapped investment potential of the country’s real estate sector, albeit on the demand side. The housing supply side equally holds potentials as a very strong driver of economic growth in any economy, if properly handled, as there are so many linkages within the economy as regards housing and employment generation.

The benefits of a developed real estate market to the economy include but are not limited to the following:

  • Driving GDP growth;
  • Generating mass employment covering a wide range of skill levels, professionals and sectors: building, manufacturing, financial and legal services, to mention a few;
  • Developing the capacity of the manufacturing and real sector;
  • Promoting and expanding the consumer market for goods and services.

Although there are many factors that influence the well-being of the citizens and the economy, a performing real estate sector can provide the basic platform for all the other sectors to deliver their full potential, and for the economy to thrive and remain competitive.

The state of the national economy can equally affect the development of real estate by either driving or restraining it. Under conditions where supply and demand are balanced, the currency is stable and national economic development is sustained and healthy, the real estate industry is expected to thrive. On the other hand, if the economy is overheated or market structures are imbalanced resulting in poor overall quality of the national economy, it is most likely for the development the real estate industry to be restrained.

Problems such as inflation, economic stagnation, weak currency experienced in a typical national economy downturn will greatly restrain the development of the real estate industry.

The drastic fall in oil revenue has had serious and far reaching implications for the Federal and State governments as well as on the man on the street. The immediate impact has been the depletion of external reserves to support the value of the Naira. The resultant depreciation has seen the US$/Naira exchange rate falling from N159 to N220 in the parallel market over the last few months.

Given the reliance on the importation of some component building materials, this has reflected in the high cost of construction and high delivery costs. Invariably, when real estate becomes less affordable, construction slows down, which leads to loss of a wide range of jobs that would have been obtainable through construction linkages.



There are a number of challenges hindering the development of the Housing Sector and its potentials in contributing to economic development. These include the following:

  • Access to cheap long term finance remains a constraint to housing development. Due to the prevalent short term nature of deposits in the financial sector, less than 1% of private sector lending from Deposit Money Banks (DMBs) are granted as mortgages. This also constrains the ability of Primary Mortgage Banks (PMBs) in carrying out their primary mandate for mortgage lending as they compete in the financial markets for the deposits with banks.

For instance, the CBN Annual Economic Report (Draft) for 2013 indicated that of the 82 licensed PMBs, only 26 met the minimum mortgage assets to loanable funds ratio of 60%, while only 3 met the minimum mortgage assets to total assets ratio of 50%, “reflecting persistent lack of focus on the core mortgage banking business by most operators. A major concern to the regulatory authority was that a substantial portion of PMBs’ investible funds were held as placements and related cash investments with DMBs.”

  • Another challenge is the cost and processing time for obtaining title documents and statutory consent to land-related transactions. It is common knowledge that title documents such as Certificates of Occupancy for landed property take years to be issued and the costs for title transfers are significant, reportedly as high s 21% of the property price.

According to the World Bank’s Doing Business Nigeria 2015 obtaining a construction permit requires 17 administrative procedures which may take as long as 106 days at 26% cost of the property value.

  • Coupled with the high cost of transaction is the high cost of input and housing production costs. It is estimated that the cost of land, cost of construction and cost of infrastructure are significantly comparably higher in Nigeria. While the cost for materials and labour needed to build a standard 3-bedroom house in Nigeria is about US$25,000 (exclusive of land and tax costs), only US$21,000 and US$16,000 are needed in South Africa and India respectively. Not surprisingly, the high cost structure results in housing development beyond affordable means of the vast majority of Nigerians.
  • Poor infrastructure inflates the price of transporting and producing goods, and a shortage of skilled labour means that training must be conducted prior to building, which is an additional cost which is often incurred by the real estate developers and passed on to the off-takers.



Despite these inherent challenges, steps can be taken to ensure that the economic potentials due from the real estate sector are harnessed through emphasizing the real estate industry as an economic growth point, by using the sustained and stable development of real estate investment to lead economic growth.

It is evident that the housing sector, particularly investment in the development of real estate, can stimulate growth in the national economy subject to the following policy considerations going forward:

  • The implementation of the private sector-led National Housing Policy 2012 where Government effectively plays its role in creating an enabling environment to drive private sector-driven housing delivery;
  • Land reform in terms of streamlining land ownership, land tenure, and property registration systems to be efficient and cost/time efficient. This may find expression under a wider legal and regulatory framework review that will enable the proper functioning of a comprehensive mortgage system in Nigeria and easing restrictions in property transactions. It is important to note that a number of such bills are before the National Assembly for passage including the review of the Land Use Act, bills for securitisation and enforcement of lien/foreclosure, amongst others.
  • Improving the capacity of the Federal Mortgage Bank of Nigeria (FMBN) and other housing-related DFIs to provide liquidity for the primary mortgage market. For instance, the recapitalisation of the FMBN and the extension of sovereign guarantee will enable it access low single-digit funding from the international financial markets and issue gilt-edge capital market instruments for investments by institutional investors.
  • Promotion of the use and acceptance of locally sourced building materials and wider adoption of local building technologies.
  • Provision of basic infrastructure and sites and services to housing project sites to facilitate housing estate development and reduce cost of delivery on developers which are ultimately passed to buyers.
  • Government concessions and incentives to encourage private sector investment in the housing and real estate sector of Nigeria, more especially, those related to low cost housing development.
  • Achieving and maintaining conducive macroeconomic policies (stable and low inflation rate, low interest rate regime and stable foreign exchange rate).



To conclude, it is apparent that the development of the Nigerian Housing Sector or real estate market presents a compelling and strategic option for Nigeria in the light of current development challenges.

Government’s active participation in providing the enabling environment for its growth and development will enable Nigeria to optimally derive the benefits obtainable to rebuild the economy, derive maximum advantages from the linkages, synergies and economies of scale.

Although there are clear supply side constraints, these can be overcome as the sector grows. The high demand for real estate shows no sign of abating, and represents a great opportunity for expansion of the sector, particularly in low-end housing.

As previously mentioned, benefits of an expanding real estate sector include an increased demand for skilled, permanent jobs, and downstream benefits in the construction sector. This is not to mention the social benefits citizens have from increased access to housing.

Evidence suggests that there is considerable room for profitable investment in the housing/real estate sector arising from the huge existing housing deficit in the country. If this growth pattern is sustained and improved upon, numerous jobs will be created in the process, the housing deficit will be bridged, and the economy will be stronger as a result.

Thank you.


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Real Estate: Building the future for Africa – Price Water Coopers (PWC) 2015

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Wang Kun (2007). The interaction between real estate and the economy

World Bank Doing Business Nigeria 2015

—  Dec 12, 2015 @ 11:30 GMT