Govt should reduce lending rates for mortgages – Interview With Punch
Mr. Dapo Wahab is the Group Managing Director, Pekuliar Properties Limited. In this interview with MAUREEN IHUA-MADUENYI, he says despite the influx of developers into the housing sector, the demand gap is still huge
Having been in the housing sector for a while, what is your assessment of its performance over the years?
I would say it is an emerging market, it is gradually growing. For an investor, it is a market that needs to be explored because it has not been fully explored but for the government; I think a lot needs to be done to support the sector, particularly for end users, the masses who intend to own their homes.
What is key is that the provision of housing is far from demand. We are about 160 million and the number of available houses is far from being adequate, and there is no tangible government support in terms of mortgages for the people to be able to afford properties in this part of the world.
What major changes do you think the sector needs from the government and individuals?
There should be policy change majorly. If you look at what is happening in other parts of the world, you will realise that mortgage is affordable and available. If you want to buy a property, there is a mortgage of 20 to 25 years depending on your age, and of course, it is in single digit of two to five per cent on a long-term basis; but in this part of the world, what you see is that the lowest interest rate is 20 per cent; it is amazing. The loan tenor is also very short usually; some banks do five years and other for three years, except First Bank that sometimes does 15 to 20 years.
What I think the government needs to do is to intervene by ensuring that the interest rate for developers is low, because we are looking at a long-term business. Then, mortgage should be available in single digit, if it is not single; then, it is not encouraging at all. For instance, if you borrow N100m and you are paying at 25 per cent per annum; in five years, you would have paid 125 per cent on the principal, which means you will end up paying over N200m or N225m; that is out of this world!
So, the government needs to change its policy and make mortgage acceptable like it is in other places all over the world.
Don’t you think the recently inaugurated Nigerian Mortgage Refinance Company can take care of the mortgage issues you talked about?
For me, it is just a company that is going fulfil a purpose, but how many people can they cater for? We are looking at how many states and developers. They can’t meet the demand of the developers; it would have been better to have more of that, which means the government will ensure that a policy will be in place to reduce the lending rate. I don’t want to go to a single bank where the competition is high and every developer goes there to be able to access loans. I don’t think it is addressing the real issue, which is to make a policy to reduce lending rate and get the regulators to ensure that all banks implement it. Whatever is on ground now is like a joke; for developers, that is not the intervention that is really needed. It is like an icing on the cake.
What alternative funding sources can developers explore?
Joint ventures are good; the positive side of it is that a lot of developments can come up simultaneously. What happened in the past was that someone acquires a landed property or inherited one and he didn’t have the finance to be able to build on the land; so, he would rather abandon it and hope that one day, one of his children would be able to build on it. But with JV, it is complex but once the parties understand how it works, it helps them.
It helps the development of the country; the future of JV here in Nigeria is bright once the human factor is well taken care of, which is greed. Once all parties involved understand how it works and are ready to play by the rules, it is a good means of sourcing for funds.
Apart from JVs, you can get offshore funding, which comes at a cost anyway, because it will require a local bank guarantee, which can be very frustrating by asking to get additional security to be able to get that. But by and large, if you don’t want to go to the banks and you don’t want to do JV, you can bring investors together, give them your proposal and once your integrity is sound, they will part with their funds with the hope of profit sharing. With that, the burden of loans and high interest rates will be taken care of and you can build capital from that.
It has been observed that whenever there is a concession from the government for development and something goes wrong, the consuming public suffers more. How do you think the public can guard against this?
Most of the time, what happens is that the consuming public is ignorant of how to handle such transactions. People should learn how to invest in real estate before going into it. Once you are putting your earnings into real estate, it is like buying a stock where you talk to a stockbroker to guide you, otherwise you will make mistakes. In real estate, the same applies; otherwise you will put your money into a wrong investment. You need to talk to property experts to be able to guide you.
To narrow it down, when you are doing a Build, Own and Transfer, look at the team and what they have done before. Beyond that, every penny you want to drop into it, you must ensure that the bank that is funding the project gives you security for your money; with that, if the project fails, the bank will refund you.
But most importantly, it is good to talk to a sound property investor that is recommended; it is also important to go through such professionals so that you don’t get your fingers burnt.
What has been your greatest achievement as a real estate investor?
As a company, when we make money for people, we get excited. We help people to manage their investment portfolio; they buy though us and sometimes we acquire as well as build for people. Our greatest achievement is when we are able to complete the process of buying, building and conceptualising what can be sold in a particular location. When you see your dream come to pass, you are excited; and when you sell the project to the end user and the margin to the investor is clear, that gives us a lot of happiness. That is our core competence, to manage developments for people.
Real estate business has become an all-comers affair, with everyone targeting the rich. Do you think there should be a regulation to control it?
In every business, you see all kinds of people rush in; it is not just in real estate, it happens in almost all professions and businesses, especially in this part of the world where there is laxity from the side of the government. It will be difficult to regulate real estate business because it is a business. But what people need to watch out for is testimony. For instance, anyone can say he is a good tailor but you need to see what he had sewn before, that gives some kind of assurance.
So, to the public, it is always good to investigate the people you want to deal with, who are they, what have they done and who are they dealing with? As is obtainable in every business, everybody wants to go into it, but it is for you to discern who to deal with.
On developers targeting the rich, I will say that with the kind of policy we have in this part of the world, development is tailored around the rich and medium income earners, because the cost of construction and fund is high. The only way you can build affordable housing is if you have your money and you want to give back to the society.
The government needs to play its part in that to be able to reach the masses; until that is done, there is nothing any developer can do; the cost of labour, land and construction is not determined by individual developers. It is determined by the government, and as long as they have not worked on that, there is nothing any developer can do; they can only build for those who can afford it.
Real estate developers, on the other hand, can find a way to be able to build affordable houses; we need to find out how to use alternative methods of development so that we can bring down the cost of construction. There is a new technology in China that enables them build within a short time and it is cost effective; we haven’t tried it here because we are still sceptical about it and mindful of consumer reaction to it, but we can give it a trial in one or two projects. If it works, it will bring a new approach and a lot of people will be able to afford housing.