Managing Director, UACN Property Development Company Plc, Mr. Hakeem Ogunniran, tells Udeme Ekwere what government can do to provide affordable properties
In your opinion, do you believe that there can be affordable housing for all in Nigeria?
Well I would say that in countries where
they have been successful in affordable housing, there have been
critical drivers of their success. The first thing is that such
governments have created the right environment for affordable housing.
Creating the right environment involves easing the process of acquiring
the size of land that you can use for affordable housing, and creating a
separate window for players to network. It is a network of
participants; governments, banks, development institutions and others.
As it is here, as a developer, if I have to buy land from the open
market, I have to apply for approval in the other manner, I have to
source funds from the bank to do my development, I have to pay all that I
need to pay, and that will make it impossible to deliver houses at
prices which are affordable. So, what government needs to do is to
create the right environment, understand that there is no affordable
housing in the social context, and put in a social context and create
that window.
In Chad, interestingly, it is a Nigerian
company that is working with the government to provide affordable
housing. The government of Chad provided land for the company and the
funds that it required from multinational institutions were guaranteed
by the government of Chad. They also created the right environment. And
so for it to be affordable housing, as a developer, government must
understand that you must be interested in both the demand and supply.
So, if you ask me to come and build, you have to create an avenue for me
to sell those products. Affordable housing means that the total costs
that goes to housing, that is rent, electricity and others on a monthly
basis, is not more than 30-35 per cent of a household’s gross domestic
income for the month.
Would you say that there is any
collaborative effort between developers and government institutions to
make sure that Nigerians have access to affordable housing?
Well, it all has to start with
government, because the issue starts with land and infrastructure. If
the cost of land is high, if the developer has to provide
infrastructure, by the time the house is completed, the cost is already
way high. When you add mortgage interest to it, it is simply
unaffordable. So government has to understand that they have to give
particular attention to the social context of housing. That was what
they did in South Africa, and that is why South Africa is the country
that has delivered more affordable houses than any other. The other
issue is that we really don’t understand what affordable housing means
in Nigeria. When we say affordable housing, it simply means that people
start from the basics. When it started in South Africa, affordable house
was 40 square meters, made up of a room, a toilet and a small sitting
room; and then you can graduate later to a higher class. You can go
higher to 60 square meters and when you are well off, you go as high as
you want. But today, anyone who wants to take a N5m house, wants a house
with two sitting rooms, guest houses, three toilets and all that. Those
are not affordable houses. However, if you look at what the Lagos State
Government is doing in that area, they seem to be on the right path.
They tend to have understood that you have to take care of both the
demand and supply. What they have done is to start Public Private
Partnership schemes to increase housing stocks to take care of the
supply end, and they have introduced the homes scheme to take care of
the demand end. And you will see what will happen in the state in the
next three years. The cycle of that project is three years, and if they
keep on with this in the next few years, It will go a long way to
solving the housing needs. I think other states need to follow suit to
deliver housing to the people in the way that would be reasonably
affordable. You cannot just leave it to developers, because developers
are in business and are there to create value to their shareholders as
well.
Your company has floated a Real Estate Investment Trust in the capital market, could you explain what REITS are?
Well, basically, if you look at the way
REITs evolved, it started in the United States in 1960. When the United
States Congress was going to approve REITS as a vehicle of investment,
part of the underlying objectives was to allow members of the public,
that is retail investors, the access and the opportunity to be part
owners of the properties, which they would have been unable to own
directly. That was the whole essence of the REITs. So, in this case,
what we have done is to put together our premium assets and we have
floated this trust and are selling 60 per cent to the public. So, these
REITs provide a unique opportunity to the public and other institutional
investors to become part owners of this property. What that does for
them is that they can invest in this unique asset class and the
investment offers them stable and regular distribution. But more
importantly, our REITs are unique because these assets are already
existing. So, investors can see these properties and conduct due
diligence; they can see the track record in terms of performance of
these properties, they can see the level of occupancy, they can see the
rental history of the properties. And so, you are investing in a UPDC
REITs that has earnings certainty and has little risks in terms of
whether or not you earn the required investment on your returns. So,
that’s from the angle of the investing public. From our angle as
developers, it gives us the opportunity to unlock value from our assets
for the benefits of our shareholders. And so, it is a two-way thing. The
investors are gaining and UPDC is also gaining.
How do these REITs generate money for investors?
What a REIT does is that it delivers
returns through distribution. A company pays dividends, while a REIT
pays distribution. When you invest in these properties, the properties
would collect rents. When the rents are collected, the beauty of REITs
is that at the beginning of the year, you know how much you are going to
earn from the REITs. You can therefore plan on what you will use your
distributions for. Typically, REITs distribute every month, and so it is
even certain, regular and stable. That is the difference between a REIT
and normal dividends on equities. Because, with normal dividends, you
have to wait for the company to trade from the beginning of the year,
declare their financial results, do auditing and things like that. But
for REITs it does not work that way, you already know how much you are
earning by way of rentals. So typically, the return on investment would
come from the rentals on those properties and capital acquisition in
case the REITs decides to sell those properties and make further
distribution to the shareholders
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