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Real estate development in Nigeria/Africa is challenged by undue high interest rates often on interest-only lending basis with terms and conditions that are almost like borrowing from a 'mafia' organization - knee-jerk lenders. With that is the 'tooth-pulling-with-a-toothpick' exercise one experiences acquiring clear and marketable title to land.

Nigeria land rights is prone and fraught with land title frauds. In addition, absence of secondary market to absorb mortgage backed securities, poor underwritten quality of the assets, makes unleashing real estate market potential in Africa like expecting the sun to rise from the west.

The valuation of properties in sub-Saharan Africa is still driven by valuation methodologies based on UK system. While those methodologies are good, there is need to change some of the approaches to incorporate local situation and improve the skill and training of the valuers. African governments are not effectively disposed and suited to policies and programs that promotes efficiency in land development economics by creating and adopting financing incentives to attract developers and produce various real estate to support/address the needs.

In the case of Nigeria, the percentage of mortgages or notes held by financial institutions often constitutes less than 10% of their outstanding debts. Given the short term lending practices typically on interest-only terms, it is very expensive to borrow and develop in Nigeria/Africa. Often practitioners default to describing activities in say Nairobi, Lagos, Abuja, Accra, Kampala, Freetown, to indicate a booming market. Good. But these cities are hardly representative of the rest of the country, where in most state capitals and related towns and cities, the quality and grade of the real estate is non-descriptive and non-existent.

Nigeria’s real estate is yet to produce Class A investment grade portfolios and/ or holdings that can attract huge pension and insurance funds interests. These can happen with effective leadership and lobbying arm of the practitioners impressing on the government need for good policies to get certain lending practices, laws and regulations changed. As long as land conveyance is still the preserve of local/state and federal government functionaries, with their inefficiency and paternal practices, Nigeria and most African countries will remain providers of 'shelter's and not housing.

It's obvious what the difference between shelter and housing is. In US, shelter is used to describe a facility developed for 'homeless people' and/or animals, hardly something most celebrate because it denotes a less than desirable social program. But African real estate practitioners take pride in using 'shelter/housing' interchangeably when describing their real estate business development. With developed economies and developing ones, the use and application of  a word makes the statement and differentiates the opportunities. Here is an example. If a real estate practitioner in Africa were to speak with a US developer/lending organization and use 'shelter/housing,'  immediately the US side will default into thinking a development for homeless folks or animals. Got the picture?

That said, real estate is a local commodity whose benefits accrue to the local population. Its development is best enhanced by laws and regulations that address the challenges and opportunities, and in turn afford improvement in the quality of life and attendant standards of living. With the need for billions of square feet/meters of good real estate products to address residential, industrial and commercial needs lagging and appearing beyond the reach of the population, the present best practices falls short of effectiveness, leading one to easily write-off real estate opportunity in Africa.

It's hard for most African nations to deliver about 100,000 housing units [affordable] annually to their teeming population. The government conveniently overlooks these needs due to limited knowledge and scope. With poor housing, the social consequences are seen in human behavior and health conditions that hinders effective growth of the economy.

In US, real estate constitutes about 70% of the nation's economic wealth, and a driving force for/of revenue for local governments. Compare that to Nigeria/Africa real estate which is not a significant aspect of the economy because land rights and laws affecting them are shrouded in practices that discourages its potential impact.

Activities in land for economic development are best represented by laws and regulations, and financing mechanisms that ensures the collateral is secured and not subject to the caprices of a government or judge, whose conduct and practice jeopardizes the underlining asset.

Until there is an open land rights market, a fair/equitable judicial system and a liberalized lending practices, extends borrowing to at least a minimum of 15 years on fixed interest rate of no more than 7%, on amortizing debt schedule, with call options [refinancing], Africa’s real estate will never emerge as a component of  its economic development agenda and programs. The quality of existing real estate stock in Nigeria/Africa is less than 5%, meaning there is huge opportunities but it is more like 'water water, yet none is fit to drink.'

By Ejike Okpa II

The author eokpa@airmail.net is a real estate practitioner with education and experience from Nigeria and US, a one-time guest speaker at a Shelter Afrique, Nairobi based organization, sponsored symposium on Africa housing issues, in Brazzaville, Congo. An alumnus of Harvard GSD in real estate and certificate in mortgage securitization by Harvard and European Business School, he has written extensively on real estate issues. He currently serves on the board of DDF, a NMTC development fund and on a board of Texas economic development bank.