Cash: High Interest Rate Discourages Developers

The Chief Executive Officer, Wealth Island Properties Africa, Mr. Tade Cash in this interview with Kayode Tokede speaks on the impact of high interest rates environment on developers, among other property investment-related issues in Nigeria and across the World. 
 
 
What do you see in the next 10 years with regard to property investments?
From an anticipatory dimension, despite the fact that a couple of people are moving out of Nigeria, the population of the country still makes the country the biggest consumer market for a lot of product- housing inclusive.
In Lagos especially, looking at the next decade with the growing population and being the fifth largest economy on the continent,  presently, there are some people who would not be able to afford to live again in the city because it is going to be one of the most expensive cities to live in.
The value of land in Lagos would become a gold mine, people that could positively take advantage of this anticipation would be lucky.
 
How has the securities market impacted the real estate industry?
Real estate and the securityies market which is also called “paper asset” what differentiates them is for now is both markets elasticity to inflation,
While I give credit some of the industry pioneers who are listed on the bourse and are leveraging public funds to expand the real estate market. The size of the market presently does put some limitation on the number of and attractiveness of real estate as an investment portfolio.
Whereas, the industry provides a magnificent cushion against inflation, it for now still an attractive as a unilateral portfolio for a company that does not have other baskets of product that can assure investors of.
Private placements can works but that will have to come from a place of experience and proven track records and most of all depth of team promoting the investment.
Paper asset is real but can be a difficult vehicle to wealth with from the properties perspective. But I dare say there are exceptional cases and I give credits to those who have pushed those boundaries.
 
Why does higher interest rates cause real estate purchase prices to decline?
This definitely discourages developers that like us to venture into financial transaction with institutions that peddles such rates.
For the housing needs we are trying to meet, its just sensible to shake hands with investors who can move at your pace and wont dump additional risk on you and your stakeholders.
 
Why has there been a gap in raising funds from government institutions to help the real estate market?
 
The real estate market in Nigeria is quite interesting as it presents a lot of opportunities at the same time. One of the issues we are face with today are short-term funding for long-term projects, as opposed to a long term funding.
The Real Estate industry is a unique ecosystem and being where a unilateral approach to pricing only complicates its functioning. As a developer, the proposal of a short-term funding can be underwhelming for practitioners and promoters of projects.
In Wealth Island Properties, where I manage we do what is called ‘Urban Development’ which deals with revitalizing cities and abandoned or marginal lands.
These are capital intensive ventures; from seeking government approvals and consents to allow of access those land to approving the works which basically is salvaging the difficult terrains through engineering solutions. Funds for these are usually invested with the hope that the solutions we are deploying will run through a course of time before the natural space is finally transformed.
So, dealing with the financial houses on our projects has been very difficult because the short-term perspectives only piles pressure on us and most of the time not realistic for our business plans.  I am hopeful that one day some of the financial houses in the country will see values in long time investing.
 
Do about commercial real estate?
Yes, we do. However, that should be five-percent of our portfolio, 95 percent of our portfolio is residential real estate because we believe that as a 21st century real estate, bringing comfort of housing to the populace will naturally empower them.
Recently though we have evolved into building mixed-development, which we called a freedom lifestyle apartment, connoting that people can live within these apartments and also work. All these are what the industry has pivot to from the recent disruption that Covid-19 enabled.
The goal of the mixed development is to create an environment that promotes living and working in the same space, cutting out commuting marginally or even totally while forging a healthy community that promotes a deliberate lifestyle.
 
What happens to the property values in the commercial real estate market when interest rates rise?
I think before work, a home is needed. Again the trend that has merged the wok p[lace and the home into one also puts pressure on exclusive commercial real estate.
While this is not totally forgoing the value it hold and I must say the value is very significant, it is our deliberate strategy in Wealth Island property to be focused on the fundamentals through the residential development.
The fifth biggest economy in Africa is also the commercial nerve center of Nigeria and that automatically underscore the purpose for Commercial development in the state. The potentials are huge and can’t be undermined, but like I said earlier, our strategy is to foray into that through mix-development.
 
There have been calls for real estate practitioners to prioritise renewable sources of energy due to the global shift towards reduction of carbon emissions, How are you aligned to this?
This is an inevitable reality, global warming, carbon emission and ozone layer depletion are keywords for the environment and as developers we are well aware the risk we are faced with.
For us, all our developments are built to be adaptable for renewable energy sources. In one of our development in the Ibeju-Lekki in Lagos, we harnessed the wind energy to generate power, because of its nearness to the Atlantic Ocean, we have developments across the cities where solar energy and alternate power sources are installed.
So, in a nutshell, I believe we are aligned with the global shift, but I just think we should have more government support, in terms of standardization of alternative energy devices, so we can have a direction. It is definitely a way to go.
 
How can real estate practitioners align with this global shift?
Like I said earlier, I believe the developers and stakeholders can come together to standardize the infrastructure for sustainable environment. And I believe it starts with the government setting benchmark through policy enactment for different elements of the environment.
The salinity of the water, sand component and mixture, cement mixture, iron rods, up till electronics that are high on voltage consumption and regulation electrification.
The amount of electricity consumption of an average apartment is designed into the building from the start and all these elements come together to affect the environment at the event.
I believe the, when we remember that at some point that Lagos will become the most populous city in the world by 2100- about 77 years to come, the urgency to regulate housing will become a matter of urgency.
 
How have you been able to navigate the inflation issues as a company?
This is not alien in this country and it has been a huge impediment to the real estate sector. However, one of the ways to navigate these issues is buying things in bulk, and to do this you must be able to access funding.
Having been on ground for over a decade, we have learnt the ropes and have developed a strategy for managing tough seasons like this.
What makes property prices seem ridiculous is inherent in the fact that the materials being used for a property development are really pricey, and this increase in the whole property once concluded is the business of real estate developer.
Our model has been able to not only keep us afloat, but has also helped us maintain reasonable pricing regime for our products.

 
Have you had any interface with the Real Estate Investment Trust?
 
We have not, in Nigeria there are many things that you cannot keep waiting for and you have to find alternatives. The important thing is to ascertain if it is a fair playing atmosphere. For us, we have not access any of such funding except for private investors funding, which are funding from those who believe in the vision and are ready to key into it.
The Mortgage structure in Nigeria is evolving and you can be rest assure that they are onboarding a lot of properties onto the programme, more than at any other time in the history of the country, but the growing population and the need to properly verify recipient, the issue of social trust and innumerable complications and identity management quagmire, we may not be able to say it is perfect yet.
I am sure the government is also concerned and working to solve the problem. From the private sector, it will help us reach the mass housing market, especially with the government backing, hence we are building our systems in readiness.
 
We have a projection that in the next 2050, Lagos would have a population of over 40 million, how is your company positioned for that?
We are one of the major investors of mainland properties, and why i said this is because Lagos started from the mainland and is coming back to the mainland, the sign are there.
We have a couple of properties, however, one of the prime one is at Magodo Central at the Magodo Phase 2 in Lagos. We are building more than 20 acres of land to create more avenues for residential accommodations. This is what we are bringing to the society to meet the housing needs in Lagos.
 
What has Magodo Central got that stands it out?
One interesting thing is that Magodo central does not have land discrepancies. In our engineering of marginal lands in Lagos, this is one of the projects that the government of Lagos has commended because of the solution it brings to the housing challenge in that environment.
 
What does the election year look like in the real estate sector?
Truth be told, there are couple of distractions here and there, and some of these housing salient issues has not been address.
The reason why housing has been a problem in Nigeria is that there has never been any presidential candidate that has treated housing as an economy plan. Housing is key to poverty elevation. For most lover and middle class, housing alone guzzles over 50 percent of their annual income. If that can be freed up, it’s an easy road to economic prosperity.
Housing is fundamental to the freedom of any nation, because it is an economy plan that can set any man free within the shortest period of time.
 
Do you think the presidential candidates have in their campaigns shown adequate commitment to housing provision if they win or you think they have not prioritised it well enough, given that Nigeria has about 28 million housing units deficit?
 
They have not. And this is worrying given that this is pivotal to economic freedom. A couple of them have mentioned housing in passing but you know that these doesn’t come a place of deep concern that we expect them to.
 
 
According to a recent report, over 70% of the global population will migrate to urban centres by 2050. How ready is the Nigerian real estate industry for this imminent surge?
Ironically, we are near that figure in Nigeria already or should I say that by 2050 Nigeria should have surpassed that already.
Today, Lagos accounts for near 11 per cent of Nigeria’s population and lack of proper planning that should have preceded such development is biting back at us now.
That is why the infrastructural development moves by Lagos: vis-à-vis the fourth mainland bridge and the Light rail project are a welcome development. I believe adjoining states like Ogun and Ondo State should also step up their game as well as the they have all to gain as alternative cities to serve Lagos growing population.
Twenty minutes train ride from some settlements in Ondo states can be a plus to the Lagos megapolis project.