•Big Real Estate Player, HAKEEM OGUNNIRAN Reveals!
What will happen to the real estate sector this year? Will it be positive? Will it be negative?
Recently, City People had a time out with Mr. Hakeem Bamidele Ogunniran, the Founder/CEO of Eximia Realty Co. Ltd, a real estate and infrastructure development company, which was set up in 2018, after his retirement from UPDC. EXIMIA has since completed 2 projects (The Mews, Katampe Abuja and Fiona Lanton Apartments, Lekki, Lagos), in addition to developing a robust project pipeline, focused largely on mid-tier housing; including Eagle Creek Apartments, Ibeju-Lekki, Lake City and the Maestroville @ Lekki, Lagos-all ongoing at the moment.
The interview was conducted last year, during his 60th birthday. City People asked him what the industry looks like. How does he see the shape of the industry today? “That is a big question,” he responded.
“When you are looking at the industry, you have to look at the Economy, because Real Estate thrives off the back of strong macro fundamentals. So, you have to look at all the critical economic indices. Recently, the CBN increased the MPR. That is about the 3rd time this year (2022). MPR has gone from 15.5% to 16.5%. That is a major problem, because that means that interest rates will go up. People are already borrowing at 20% to 25% in the industry. So, with this increase now, people are going to be borrowing at about 30%. That is a major, major issue. Cost of Funding is a major issue because of rising Cost. There is limited access to Long Term capital. And you always need Long term capital in Real Estate, because Real Estate is still typically a Medium to Long term project. The typical gestation period is 12 to 48 months. So, you can not be using 90 days money to finance that otherwise you will just go bust. So funding is a major problem.
“Now, we are also experiencing the impact of COVID on our supply chain. People don’t understand that, China is the supply chain capital of the world. In our industry, about 80% of our inputs are imported. And of that 80%, about 30% to 40% come through China or from China. There is a whole lot of issues around the supply chain. And of course, we have seen incredible, unbelievable cost increases. I will give you an example”.
Before Covid, Steel was going for about N180,000 per metric ton. immediately after Covid it went to N220,000, to N250,000 to N300,000 to N400,000 and N500,000 we are talking about 300% to 400% increase of a major, component of the development process. That is a major, major problem.”
“Of course, Cement price has also gone up by almost 30% to 40% in the past 1 and a half years. Now, with the depreciation of the Naira against the dollar, the industry is in trouble, because the prices of a whole lot of your input, like finishing items, sanitary, simple, simple, things have gone up, because we hardly produce any thing in Nigeria. And people tell me that there are companies producing sanitary items here. But what percentage do they produce? If you add all of them together they are probably producing like 2% of what the industry needs. So, today if you want to order sanitary items from some of those companies, your Lead time is 12 months. Who has time to wait for 12 months. So, you pay money and wait for 12 months. In Egypt, or, South Africa there, if you are building, you will just go down the road and you will buy everything that you need, and you will continue your building.”
“So, exchange rate is a major, major, inpact.”
“I have also been saying this is a time of Regulatory intensity, because a whole lot of bad things have happened in the industry, like the building collapse, a lot of fraudulent activities are happening and you can see that the regulatory have also stepped up their game.”
“I think this is not the time to sit on the fence. There are issues with Titles. Today, you can’t beat your chest and say I bought this land, my Title is final, anything can happen. Look at what happened in Magodo and the one in Agidingbi 2 years ago and the Judgement which affected over 1,200 houses. That case was in court for almost 40 years. Five years ago, there was a judgement in Iwaya, which came almost 40 years after, as well. Osapa London is there, the dispute between Eletu & Ojomo family. The one in Ajah is there between Ajiwe and Olumegbon family. So, the issue of Title is a major, major issue.”
“Of course, there is also the problem of Infrastructure. The truth is that in this country, every developer is a mini local government on your own. So you provide basically, everything you need. All these add to the cost. But looking into the future, I can say the forthcoming elections will have an effect. We are in an election season. So elections will also have a major, major impact on the sector. Why do I say so? Because people don’t make real estate decisions when there is uncertainty or when there are issues around like kidnapping and insecurity.”
“I always say that for most people, the single largest investment they will make in their life is their real estate investment. So, they don’t want to make such when everything is just hazy. They want to make it when they can keep a cool head, calculate, look at the economy and environment.”
“Let’s also look at the various categories, and you can see how the real estate sector is doing. If you look at the Residential segment, you will see that there will always be demand because today, Home ownership penetration in Nigeria is 25%, which means that there is still 75% of us looking for homes. So, there is always a major, major opportunity. But if you look at that segment, it is only the Luxury segment that you are sure of demand. That segment is very strong. If you look around Ikoyi, you will see all the buildings. I will give you a typical example. That building that collapsed in Ikoyi, Customers had deposited over 15 billion. So, from those guys who have gone to court now it came out that they had deposited over 15 billion for that single development. So, there is a lot of cash, chasing good, high-quality properties in the Luxury segment”.
“In the other segments, like Premium, and Classic, they are tough segments. Competition is very, very tough and keen. So, I always tell the players that in those segments you have to do something different. Your Value Proposition must be exceptional. Customers are looking for Developers who understand them as Customers, who know what they want, who don’t assume for them, who don’t assume for the customers.”
“And for the Office Segment? It is heavily challenged because of over-supply in the industry. Already there are over 220,000 sq metres new additions to the Grade A category, in the past 2 years.
When Mrs. Alakija’s property on Kingsway Road, Ikoyi in Lagos is completed, that will bring another 55,000 sq metres of space into the market. And the market is not expanding. So, what people have been doing in that segment basically is to snatch each others customers. It is a very tough market.”
“The Retail segment, is also very tough, because of weak purchasing power. Customer counts are down. Some of us believe that the future of that segment is more in neighbourhood malls, that caters to specific areas of the society, because with the upsurge of e-commerce and digital, there is a lot of shift to online purchases. That will help another segment of the industry. What do I mean by that? It will help the Logistics and Industry segment of the industry because once e-commerce goes up, you need a strong supply-chain backbone to deliver what is sold through e-commerce platform. And that is already happening in Nigeria”.
“The Hospitality segment is recovering but you need a lot of patience capital in that sector. So that is it generally.”
“Then, in the Living Segment, what we used to call Residential Segment is good, particularly, at what I call Comfort Home Level. There is a strong demand, strong opportunities, if you are able to get the right location, and deliver what you want.”
“We started targeting the younger generation, by building Micro apartments, but we have Nigerianised them. We have made them a bit more robust to speak to the Nigerian environment. We do mostly studios, 1 and 2 bedrooms and that has done fairly well in the market. So, if I look into the future for the industry, it will be with mixed optimism, cautious optimism because there is Demand. But I always say that in the industry, anytime you want to make the industry to grow, you have to stimulate both ends of the housing eco-system. You have to stimulate Demand. You have to Stimulate Supply.”
So, recently, there was a reform of Pensions, which is good. That will stimulate Demand. But Supply is challenged, because of all the issues which I have mentioned. That is my general overview of the real estate industry.
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