Points Real Estate Developers Must Know About The Economic Recovery Growth Plan (ERGP)

Introduction To Real Estate Sector

The Real Estate sector is constrained by the cost of building houses, getting land, preparation of sites and borrowing costs.

Statistics have shown that in that past 5 years, the construction sector of Nigeria has recorded an average annual growth rate of 11.4%. The sector accounted for 3.9% of GDP in 2015 and employed nearly 1 million formal workers. Construction is forecast to grow at an average of 5.39% in the next three years on the back of private and public investment, after slow growth in 2016.

According to CBN’S report of November 2016, the interest rate on prime lending to real estate activities from 26% of lending banks is between 24% -29% per annum and 18%-23% annum from 52% of lenders.

The sector is hindered by the high cost of building houses, land, preparation of sites and services, as well as borrowing costs. Social housing programs can help reduce these costs, boost general economic conditions and create employment opportunities for the mass public, which should be a major goal of the government. In order to trigger the construction sector while improving access to social housing the Family Homes Fund is designed
The family homes fund will operate as a Public-private partnership with a fund target of N1 trillion.

Economic Recovery & Growth Plan (ERGP)

After more than a decade of economic growth, the sharp and continuous decline in crude oil prices since mid-2014, along with a failure to diversify the sources of revenue and foreign exchange in the economy, led to a recession in the second quarter of 2016. The current administration admits that the economy is most likely to remain on a path of steep decline if nothing is done to change the direction. This led to the creation of the Economic Recovery and Growth Plan (ERGP).

The vision of the ERGP is one of sustained inclusive growth. The Plans aim is to increase national productivity and achieve sustainable diversification of production; to significantly grow the economy and achieve maximum welfare for the citizens, beginning with food and energy security. ERGP also provides a blueprint for the type of foundation that needs to be laid for future generations and focuses on building the capabilities of the youth of Nigeria to be able to take the country into the future.

The ERGP operates the following policy objectives for the real estate sector.

1. To overcome critical constraints in the construction and real estate sectors.
2. Increase the availability of financing for the construction industry.
3. Invest in technical and vocational training for craftsmen (electricians, masons, carpenters, etc.) needed by the local industry.

Tactical Actions From The Plan

• Improved access to finance for the construction and real estate industry; e.g, by the fast-tracking implementation of the proposed Family Homes Fund, to build 2 million housing units by 2020
• Work with State governments to invest in vocational and technical training centres to develop skills for local craftsmen
• Construct 2,700 housing units in the short-term to create 105,000 direct jobs a year and gradually increase to 10,000 housing units per annum by 2020; construct 20,000 pilot social housing units
• Reposition the Federal Mortgage Bank of Nigeria by recapitalizing it from N2.5 billion to N500 billion to meet the housing needs across Nigeria
• Construct 12 new Federal secretariat complexes in the States where none exist and complete rehabilitation of the existing 23 secretariats

What Business Owners Need To Know

1. Market Scanning.

The Nigeria Real Estate Sector gives differing possibilities for investors and there is still substantial untapped potential. However, any successful market entry requires research and planning with a strong risk analysis within the housing sector. Whatever type of investment investors are considering, they need to understand clearly the opportunities and the potential unseen risks.

There are many strategies being developed in real estate in Nigeria; from sales to financing to investing in real estate investment trusts (REIT). Regardless of the strategy chosen, all rewarding real estate strategies will surely require proper planning, research, as well as analysis.

2. Loan Term View

There are quite a number of reasons to view the real estate industry in Nigeria positively. Demographics are improving and there is increasing political stability. Infrastructure is improving and many markets are becoming attractive investment destinations. Risks are inherent and must be considered by developers who are prepared to plan and invest in research; be creative and take a long-term investment view; can realize adequate returns.