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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