Mr. Yemi Ejidiran is a quantity surveyor and Managing Director, Wemabod Limited. He spoke with CHINEDUM UWAEGBULAM on the real estate sector, especially decline in rents for high-rise office structures in Lagos Island, prospects of the retail sector and plans for Southwest region.
With the downturn in the economy caused by COVID-19 pandemic and lately rise in foreign exchange rate, the real estate appears worst hit. How has this affected housing in Southwest states. What are your plans and solutions?
There is no gain saying the fact that COVID-19 pandemic has affected businesses worldwide on general basis, but the real estate sector is badly affected. In any economic downturn, the priority of humans is not housing but ability to eat, fend for clothing and other essential things.
Housing has been pushed to the background by virtue of the fact that the disposable income of the general public has been greatly hampered by the COVID-19. You will agree with me that COVID-19 has affected all sectors of the economy.
What that means is that inflow of revenues has been hampered, which affected people’s cash flow and spending power. With this reduction in earning power of the populace and rising cost of materials, we have decided to seek development funds from federal agencies.
So, we are in partnership with Federal Mortgage Bank of Nigeria (FMBN) to intervene in producing medium income level homes, which we call comfort homes. We are also working with Family Homes Funds, which is a social incentive scheme, put together by federal government to unlock contributing savings through the National Housing Fund (NHF), regarding decent affordable houses in the Southwest region, with support from the state governments.
Development of homes by WEMABOD is not limited to the Southwest states, we are also moving into other states like Rivers, and other grade A cities, where we have identified there are sufficient real estate prospects.
However, we see there is a dichotomy between states in the Southwest; you cannot compare Lagos, Ogun and Oyo states with states like Osun, Ekiti and Ondo. Why? Because the summary of what has happened post-COVID is that the economic activities in the first three states are still upbeat and uptick. The reason is that 70 per cent of economic activities of the entire federation is concentrated around this region.
Real estate thrives very well in Lagos, followed by Oyo. We should not also lose sight that infrastructure development connecting these three states play a significant role in ensuring that real estate activities continue to grow in sustainable basis.
After the completion of the Lagos-Ibadan expressway and commencement of train services from Lagos to Ogun and Oyo, chances are that business activities will boom and there will be real estate opportunities in these train stations.
Office market is on decline in rents for high-rise structures in Lagos, especially in Lagos Island. What has prompted these discrepancies in rental values? Do you see the office market in these submarkets transitioning into a tenant’s market?
Lagos Island in itself can be partitioned along the lines of the old and new commercial real estate sector. When you talk about the Marina and Broad Streets, chances are that you have commercial real estate that belong to the old order, then you have the evolving ones, like those that have infrastructure like in Ikoyi and Victoria Island.
The reality of the matter is that Lagos Island needs a gradual reurbanisation, especially Broad and Marina Streets. More often, most of the grade A offices that are newly developed in Ikoyi, Victoria island, bring more rental uptake that are relatively higher than those in Marina and Broad Streets. That is causing the differential in rental values.
But things are also changing on a gradual basis. This is because the infrastructure around Marina and Broad Streets are being upgraded and enhanced. The rail transit system is landing in Marina, that will bring a lot of foot traffic to Marina and Broad Streets. Chances are that investors would eventually begin to reposition their investments around this area because real estate works with mass transits and foot traffic.
It is also quite clear, with urban regeneration going on with modern and adequate infrastructure, jobs are being provided, while with road transportation uptake, Marina and Broad Streets will also come back.
The equilibrium in demand and supply of office space will always exist and more in different forms such as co-working and virtual space such as working from home needs to grow. The real deal that defines this is the flexibility in pricing and rent payments between Small and Medium-size Enterprises (SMEs) and corporate.
Most of the SMEs operators require a lot of flexibility in pricing for commercial real estate office space, as some are seeking daily, monthly, quarterly and half yearly rentals. That is gaining ground now because the option provides a lot of flexibility, those SMEs are at the backdrop of poor cash flow and it enables them to plan.
For multi-nationals and corporate, chances are that the corporate will retain their office space as dictated by the open market. The high cost of operation such as service charges will still be there. In terms of rentals, the SMEs will continue to demand for lower rentals and flexibility in payments and for services rendered.
The retail market is facing a huge challenge regarding rent payments, with shopping centres now becoming more flexible with their tenants. What is your thought about the retail market? Do you foresee the market having a greater degree of stability?
The retail market in Nigeria remains largely underdeveloped, given the country’s population. Nigeria is about 200 million and you can count on your fingertips, the number of shopping malls we have nationwide and retail outlets are still insufficient.
However, the growth of retail facilities has also been hampered by the spending power of the populace. It has become impossible to attract people, which has created a stunted growth for retail development in the country. There is still room for a well-developed model, once it is strategically developed and right kind of tenant mix is adopted.
Retail development is generally moving away from predominantly groceries to more of entertainment and may likely do well. Now, developers are also bringing in a lot of ideas to ensure they retain tenants in their malls. You see more of naira denominated rents against dollar denominated rentals.
In fact, developers are encouraging tenants to make quarterly rental payments as against yearly or three years rent. Tenants also have more options now, either to have cooling system only in the common areas or provide their own air-conditioners. I see a degree of stability in retail sector, if the right mix of tenants is adopted.
In Nigeria, providing affordable housing for low- income earners has remained a major challenge in the country. What should government do to encourage homeownership for this segment of the society?
Providing housing for the low-income earners has been a major challenge, as government needs to encourage developers to produce cheaper homes and with minimal stress along the vagaries associated with project life cycles. For example, government needs to make access to land easier than what we have presently.
If you buy land, if you assume that you have a title you will be deceiving yourself. Oftentimes, you still see omoniles come to sites despite the fact you have a title. Those issues are still there. And it creates a major problem for developers to access land. If the barrier to access land is removed, the provision of housing will be more efficient.
There is also need for better planning approval processes, as some of the processes are so cumbersome and create bottlenecks. In a situation you’re unable to secure planning approval for a period of one to nine months; it has a negative effect in home production. Currently, we have about 17 million shortfall in housing, which portends that things have to be done with the speed of light and efficiency, but what we have in the planning approval process don’t guarantee that.
It is also important for government to encourage research and local production of materials that tend to bring down construction costs. As you know, construction inputs in our economy today, is more of foreign exchange dependent.
However, if government can invest heavily in research, encourage manufacturing and local production of construction materials, chances are that construction costs will go down. It is also important for government to improve credit system to enable off-takers access mortgages, which will fast track the rate at which people can be able to buy homes. It is also important for government to ensure efficient mortgage financing. The present mortgage system is not sufficient, robust to capture the huge market that is available for home purchases.
Talking about mortgage, there were high expectations among Nigerians when the mortgage system was introduced. What are the problems with the mortgage sub-sector? How can it be resolved?
The summary of the issues surrounding the mortgage system has to do with costs. The Nigeria mortgage rate is about nine times higher than what is obtainable in other climes such as United Kingdom and United States. That’s where disposal income is much easier than what we have here. Again, there are high interest rates due to limited supply of loanable funds. At the back of high interest rate is the inflation rate.
In development space, with borrowing rate hovering around 18-22 per cent and inflation rate at 19 per cent, the cost has already increased to 13 per cent. There is no way citizens can access homes at that cost. Government should use its muzzle to drive funding into the mortgage system, even from the pension fund, and deploy it for mortgage and funding availability in the real estate sector.
It can also get involved in direct construction of houses and placing them under mortgage scheme and allow support from multinational agencies in the Nigeria Mortgage Refinancing Company. It is also important for government to strengthen the credit system in the profiling of off-takers.
Few years ago, your financial resources nose-dived following a series of fire incidents, litigations and apparent improper maintenance of facilities. What new strategies are you’re adopting to resurrect WEMABOD estates and manage your properties?
As you have observed, WEMABOD is bestowed with real estate assets and the company has been in existence since 1962. The challenge that the company faced recently based on its operations has to do with the need to optimise its real estate assets. However, as a matter of strategic imperatives, WEMABOD has carved a niche for itself. We now have an overall aspiration and have put the past behind us. Our aspiration is to be the flagship of the real estate providers, with exceptional customer service and profitability in our chosen sector.
ur strategic pillars were on portfolio optimisation, as some of our properties are in stranger state, maximise revenue and earning capacity by enhancing quality standards of properties and upgrading facilities. We’re also investing heavily on renovations in some of this commercial and residential real estate, this is currently going on. You may have observed that in Western House, a lot is changing, and renovation is ongoing. This will be sustained in all commercial real estate in our portfolio. Currently, renovation work is going on in three other properties, while some have been completed in Ikoyi. Renovation works have also started in Investment and Awolowo Houses.
