By Maduka Nwekem, [email protected]
Durojaiye John, a real esate developer and Managing Director, Legrande Properties Development Company Limited, has said developers are finding it hard to do business in Nigeria due to the current economic crisis.
He explains that inflation is outpacing income growth, meaning people’s wages aren’t keeping up with the rising cost of living, including housing. This reduces the pool of potential buyers who can afford real estate.
He said that with lower purchasing power, the demand for houses, especially for owner-occupancy, is likely to suffer and this can lead to a declining market.
He said the government’s initial steps indicate a plan to address the real estate market and that they are supporting the industry by empowering relevant sectors, such as the Federal Mortgage Bank (FMBN) and Federal Housing Authority (FHA).
He the government can intervene by enacting policies that address inflation
How are real estate operators coping with the current economic situation?
We have been making progress despite the effect of inflation. What we are suffering is the erosion of naira value; not also matching the buying income per capita of individuals. That is the major problem. It is running negative.
Inflation is going up even as the minimum wage has not changed. The capacity to buy is no more there. Those buying into real estate now are money launderers buying houses for value. For real estate to thrive, you must have people who buy properties and ready to live in their houses or ready to pay rent. We don’t have that because our per capita income is low to match the cost of increase in inflation, so it is very terrible for real estate.
Also, the cost of building materials is high. Building continues to increase but our per capita income has remained the same. So, people just struggle to design houses as expected and houses we would have built in this millennium, people will not be able to build them now because we are not seeing people that will afford it. If we have a better design, it is going to cost you much and people will not be prepared to buy it.
You won’t get buyers for it and that is why most developers are looking abroad for buyers. So the market has been squeezed at the edge. That is the major problem for every developer all over the world but in this country that is the major problem. So the government needs to look at the per capita income of the people to have the capacity to even veer into the urban areas. If you look at it and study it very well, you will see that people are relocating back to the rural areas to live.
So how are the operators surviving the situation?
It is a very serious question because developers are running into serious debts when they have houses they built but cannot sell. They have houses they never finished because the clients said they cannot pay extra money for its increasing cost. Many developers are facing this all over the place. Go to the banks and check, the highest bad debt records banks are carrying are from real estates. So anyone who said they are surviving now is a lie. Everybody is just using cloth to cover their body. Until something is done on the cost of materials, something is done about the per capita income of the people, something is done about the mortgages, about the credit policies, we can’t survive. Who will survive with an interest rate at 26 to 28 per cent in real estate? No one can survive it. So many of them; there are many but we cannot mention all of them.
For real estate to thrive very well the two areas must balance out. There must be the willing buyer and the willing seller and there must be the supplier of houses.
Do you think the government has the capacity to do this?
I think that the first step the government has taken shows that they have a programme and plan that will really help in the real estate market market.
One thing they have done is to come and support the real estate in building their capacity and that is what they are doing right now. What the government has done is to use two of their sectors to empower these areas.
These are the Federal Mortgage Bank (FMBN) and Federal Housing Authority (FHA). So, they are looking at two areas also; building a minimum of 500 houses in every state of the federation and the Federal Capital Territory. They are also looking at building at least 100 houses in every Local Government and that is in the 774 local government areas of the nation. It will help the real estate to build their capacity.
The only thing that is remaining on the other side is for the government to be able to turn to the private sector and increase the minimum wage from N30, 000 to at least between N150,000 to N200,000 to be able to balance it for real estate to bounce back.
Do you think the government is living up to that?
I think the government is trying. What remains is for people to not criticise and blame the government all the time. People should not always say the government is bad. At times, people can look at what they can do to help the government because we shall continue to see bad governments.
So, we should try to see how that government can be better. That is what we stand for, to continue to partner with them to deliver these houses and make sure that the houses are delivered and are affordable.
