Impact Of Real Estate Sector To The Economic Growth Of Nigeria

Impact Of Real Estate Sector To The Economic Growth Of Nigeria

Abstract

This study was intended to evaluate the impact of real estate sector to the economic growth of Nigeria. This study was guided by the following objectives; To identify the factors limiting development of the real estate sector in Nigeria, To determine how the real estate sector can contribute massively to the economic development of Nigeria.

The study employed the explanatory design; secondary data from the central bank of Nigeria 2012 statistical bulletin were used and data was analyzed using regression statistical tool. The study covers the structure and activities of real estate in Nigeria and its contribution to the nation’s economy. The study findings revealed that The real estate sector significantly impacts on the economic growth of Nigeria.

This research will serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.

Chapter One

Introduction

1.1 Background to the Study

The Real Estate sector offers a great potential source of growth for Nigeria. Until now, the understanding of its composition and growth has been somewhat limited to its required use in Nigerian national accounts. Development is a general word that encompasses all aspects of human life, segments and disciplines, which give direction to the state of an economy. Globally, real estate sector is one of the most profitable ventures of every economy and one of the indices of measuring economic growth of a society. It is a sector that mirrors the economic viability and sustainability of an economy and its poverty level.

Though there was no accurate data about housing shortage in Nigeria, it was however estimated that the shortage has risen to over 17 million (Ebie, 2005). Successive governments over the years have attempted to resolve these shortages with various policies but rather than reducing, the shortages kept increasing year in year out. According to Ajanlekoko, 2001, the Federal housing agencies located in each state of the federation, were statutorily created to execute public housing programmes for each state of the federation based on the formulated housing policies.

Specifically they are to undertake the development of estates by acquiring, developing, holding, managing, selling, leasing or letting any property movable or unmovable in their respective states; provide a home ownership saving scheme in respect of any housing estate or building owned, constructed and managed by them with a view to enabling members of the public purchase or build their own houses; provide sites and services scheme for residential, commercial and industrial purposes for the people of their respective states; construct and maintain modern dwelling houses at reasonable costs for sales to members of the public, undertake the construction of offices, commercial and industrial buildings for letting out to members of the public among other things, engage in other investment activities and opportunities as may be determined by the respective state governments.

If there has been effective implementation of housing policies, all these would have significantly benefitted the masses and above all contributed to the growth of the nation’s economy as a result of profit made from sales and rents. Unfortunately however, most of the state housing agencies are under-utilized and have been rendered redundant and could hardly carry out their primary responsibility as elaborated in the respective laws setting up these agencies (Zubairu, 2001). Basically, the problems of housing delivery in Nigeria are rooted in three major factors namely lack of finance, escalating cost of building materials and infrastructural development cost. These three problems are however peculiar to all housing delivery agencies and somewhat make affordable and mass housing difficult and has however reduced the contribution of the real estate sector to the nation’s economy.

1.2 Statement of the Problem

Today in Nigeria, most of the housing corporations and the housing estates built by the previous governments merely exist by names (Mailafia, 2005). In some states, housing corporation staffs who are specialists in real estate development and management are rendered irrelevant in their special field while state ministries have taken over construction and in some states they have been merged with the ministries.

This situation has relegated housing development to the background and hardly can we see any government owned housing unlike in the second republic. These has drastically affected the amount of income generated though the real estate sector. However, private partnership participation has enable more person to benefit from the business to improve their personal standard of living. However, the researcher is examining the impact of the real estate sector on the economy growth of Nigeria.

1.3 Objectives of the Study

The following are the objectives of this study:

1. To examine the impact of the real estate sector on the growth of Nigeria’s economy.
2. To identify the factors limiting development of the real estate sector in Nigeria.
3. To determine how the real estate sector can contribute massively to the economic development of Nigeria.

1.4 Research Questions

1. What is the impact of the real estate sector on the growth of Nigeria’s economy?
2. What are the factors limiting development of the real estate sector in Nigeria?
3. How can real estate sector contribute massively to the economic development of Nigeria?

1.5 Hypothesis

HO: Real estate sector has not contributed to the economic growth of Nigeria.

HA: Real estate sector has contributed to the economic growth of Nigeria.

1.6 Significance of the Study

The following are the significance of this study:

1. Findings from this study will be a useful guide for the policy makers and the government of the day on how real estate sector can contribute to the nations development and how the housing policies can be implemented effectively to boost economic growth.
2. This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.

1.7 Scope / Limitations of the Study

The scope of this study on the impact of the real estate sector on the growth of Nigeria’s economy will cover the structure and activities of real estate in Nigeria and its contribution to the nation’s economy.

Limitation of Study

1. Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

2. Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Chapter Five

Findings, Conclusion and Recommendation

The objectives of the study was to

1. To examine the impact of the real estate sector on the growth of Nigeria’s economy.
2. To identify the factors limiting development of the real estate sector in Nigeria.
3. To determine how the real estate sector can contribute massively to the economic development of Nigeria.

Findings from the study revealed the following:

• The real estate sector significantly impacts on the economic growth of Nigeria.

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Land Registration Bureaucratic Process

Top on the list of issues affecting Nigeria real estate industry is the bureaucratic process of land registration. Nigeria is among the worst globally when it comes to registering property, according to the World Bank’s Doing Business 2013 report, which ranks it 182nd out of 185 countries. The registration process can last as long as 6 months to 2 years, taking an average of 12 procedures, and costing about 20.8% of the value of the property.
The lackadaisical attitude to work is the major cause of undue delay at the land registry. Oftentimes, a developer’s application would pass from office to office over several weeks and by the time the necessary approval is obtained, he may have lost his source of funding or incurred huge interest on loan obtained for development.
Hopefully, the new comprehensive Second Lagos State Development Plan (LSDP), adopted in 2013, aims to streamline the regulatory environment and improve incentives for private investment and business; for example, land registration initiatives, the creation of GIS maps and the piloting of an e-approval system for development permits.

High Costs of Property Development

Building a house is very expensive in Nigeria. A three-bedroom house, for example, will cost about US$50,000, compared to US$36,000 in South Africa and US$26,000 in India, according to Finance Minister Ngozi Okonjo-Iweala.
The cost of construction is high for three reasons: high costs of building materials, high skilled labour costs, and costs associated with poor roads and sewerage systems.

About 75% of dwellings in Nigeria’s urban areas are built of concrete. Cement prices in Nigeria are about 30-40% higher than in neighboring countries and world market prices. The lack of public infrastructure adds as much as 30% to the total costs of the development.

Collapsing Buildings

Building collapses is also one of the top issues affecting Nigeria real estate industry. From 1974 – 2010 as a result of over 60 building collapse in Nigeria, 401 people have died and several more haven’t been reported or accounted for.
Nigeria is so blessed as a nation that we rarely ever experience natural disasters such as earthquakes, Tsunami, or Tornadoes. But yet, despite the absence of all these collateral damaging natural disasters, our buildings still collapse in Nigeria.

Why? Because of our own man made infrastructural disasters. Since we didn’t have our own natural disasters to bring down our buildings, we simply created our own version through sheer negligence. Privately owned buildings both commercial and residential account for the highest number of collapsed buildings in Nigeria.

Bribery and Corruption

Bribery and corruption is also one of the issues affecting Nigeria real estate industry. The Jones Lang LaSalle 2014 global real-estate transparency index places the Nigeria in the “opaque” category of transparency, meaning Nigeria suffers from elements of corruption, lack of fundamental data and poor environmental sustainability programs when building large-scale properties.

Bribery and corruption have a negative effect on the Nigerian real estate sector. There are instances where developers who have not satisfied the preconditions for allocation of land are granted allocation while those who are qualified are denied.

Taxation

Real estate investors are subjected to multiple taxations, the taxes and levies paid by them include development levy, income tax, building plan approval levy, property tax, land use tax, and we also have cases whereby real estate investors are expected to pay renovation tax whenever they want to renovate their properties.

Devaluation of the Naira

The recent devaluation of naira is also among the top issues affecting Nigeria real estate industry. This is because the Nigerian construction industry is heavily dependent on foreign importation for the raw materials and equipments they use for construction. With a devalued naira, the cost of purchasing these raw materials and equipments will definitely increase.

As a result of the high costs of doing business, property developers to remain profitable will have to pass on these additional costs incurred to the market. According to industry experts, the estimated rise in the costs of housing is 25% – 35%.

The effect of the naira devaluation would have been much milder if construction materials are produced locally thereby cutting down the cost of construction and in turn making properties more affordable for the average Nigerian.

Limited Source of Funding

Nigeria possesses all the key factors for real estate investment — a growing middle-class population, growth in consumption, rapid urbanization and a young demographic compared to more mature economies.

Yet, financing remains a problem both for property developers and prospective homeowners. So whether you’re thinking of investment property financing or securing real estate loans for financing a personal home purchase, you will still have to deal with the familiar problem of insufficient capital sooner or later.

This could be attributed to underdevelopment in our mortgage industry as it generated less than 100,000 transactions between 1960 and 2009. According to World Bank Report (2008) the contribution of mortgage finances to Nigeria’s Gross Domestic Product (GDP) is close to negligible with real estate contributing less than 5% and mortgage loans and advances at 0.5% of GDP.

Lack of Competent Builders / Contractors

There is a dearth of competent and professional builders’ contractors of Nigeria. This is also one of the issues affecting Nigeria real estate industry. Most Nigerian builders/contractors are quacks who place more emphasis on money and the initial mobilization fee instead of getting the right workforce and professionals that will execute the project.

When this becomes the case, the workforce is chosen based on availability and not competence and having the right skills. Experts have blamed incompetent artisans and weak supervision of workmen as one of the major reasons of building collapse.