The number 10 and its magic effect on Nigerian home ownership

Only 10% of Nigerians who desire to own homes can afford to, according to 2019 data by the Central Bank of Nigeria. Compared to the 72% and 78% rates obtainable in the USA and UK, respectively, ours make for grim statistics. There are various reasons for this housing deficit. The inefficient mortgage system in Nigeria has been widely identified by experts as the biggest barrier for home ownership in the country; and has therefore subsequently generated lots of debate. However, the often-overlooked close second is the high initial deposit threshold prevalent within the real estate industry for prospective home and business owners.

Developers, grappling with high construction costs, operate, especially in states like Lagos with an above national housing deficit, with minimum initial deposit thresholds as high as 30-40%. This development has further discouraged home and business ownership, leading to a rapidly increasing housing deficit that has resulted in tenants in rented apartments paying as high as 60% of their average disposal income, far higher than the United Nations’ recommended 20-30%.

Governments, especially at the federal and state levels, have continued to grapple with this problem – ranging from constant rejigging of the existing mortgage system to building low-cost houses where available. However, all stakeholders agree that the private sector could make the biggest dent on this challenge as the untapped investment potential required to bridge the over 20 million housing deficit in the country is estimated by the World Bank at ₦59.5 trillion. A key ingredient required to unlock this potential, for private developers, is the adoption of a minimum deposit threshold of 10%.

The few developers adopting this model are already shifting the needle. “Faced with a difficult choice between two properties in our dream area, my wife and I spent months searching for any competitive edge that could tip the scale without much success until one of the developers reduced his minimum initial deposit from 30 to 10% and that was the decider,” said Mark Idiaghe, a banker. “Now, to be clear, this option resulted in a slightly higher overall price when we factored in the recalculated interest, but we were sold as that 10% could now comfortably come from our savings rather than the other equally costly sources that we would have used to make up 30%.”

Experts’ view

Princewill Njoku, a US-based realtor who recently expanded into the Nigerian market, believes the 30-40% initial deposit rates popular within the real estate sector in Lagos, discourage home and business ownership. “What I have been pleasantly surprised to learn is that more Nigerians are very interested in owning their own homes and business premises than is generally talked about, but the high initial deposit thresholds have been a barrier,” he said. “Most developers don’t have the balance sheet to sustain low deposits, so they just try to take as much cash off buyers to keep their businesses afloat.”

For Anthony Asuzu, a real estate lawyer, lower initial deposits result in faster and more seamless transactions in his experience. “As part of ensuring that property transactions are executed faultlessly and legitimately, I have noticed that the high deposits required, which can go as high as 40% and even 50% in some cases, don’t often protect the interests of the buyer,” he said. “In the rare cases where we see lower deposits, the transactions move faster and tend to result in satisfactory closures. The more industry giants stable enough to adopt the 10% minimum initial deposit do so, the more Nigerians will own homes and businesses.”

Dr. Samuel Ugwumba, the CEO of Wilbanks Properties operating in Lagos and Dublin, said: “In general, a 10% minimum deposit encourages home and business ownership because it locks in the current market value of the property, and this is vital in an economy like Nigeria’s where we are currently seeing inflation rates of as high as 18.6% (June 2022). According to the National Bureau of Statistics in its recent Consumer Price Index, we see inflation increasing to 18.6% on a year-on-year basis, compared to the 17.75% recorded in June 2021. The minimum initial deposit threshold of 10% also provides some sort of cushion against the unavailability of housing finance/mortgage.”

The Fixer

One of the rare – or perhaps the only – adopters of the 10% minimum initial deposit is Alaro City, which recently revised its minimum deposit threshold to 10%. Located in the Lekki Free Zone, this city-scale development has not only emerged as the choice location for discerning home owners looking to invest in the future of Lagos but has also catalysed investment in the area. Seen as a model for Public-Private-Partnerships, which are a key focus for the Lagos State Government, Alaro City is a joint venture between Rendeavour, Africa’s largest new city builder, and Lagos State, the economic and financial nerve centre of Nigeria.

Conceived on 2,000 hectares, Alaro City boasts of impressive infrastructure such as world-class roads with storm drainages and cycling lanes, green spaces, power, water, and internet, among others. The number of visionary investors who have already moved or expanded their businesses in the new city is perhaps the biggest indicator of the potentials that the model city situated in a free zone holds. Over 50 companies are already present in the city and notable leaders include MANTRAC (CAT), Starium (BUA Group), Ariel Foods, etc.

Among the numerous advantages offered to businesses and home owners in the new city is ease. “Alaro City is designed to make your life easier; from building and operating a business to building and living in your ideal home,” said Yomi Ademola, the Managing Director of Alaro City. “Our globally acclaimed masterplan, the world-class infrastructure we create, and the experience of a leading builder of new cities across Africa combine to create the ‘plug and play’ effect. Once you come to Alaro City, your only job is to plug your structure and play. Now, we have extended this ease to your entry. By revising the minimum deposit to 10%, we are making sure that the ease with which we are known for meets you right at the door.”

While businesses have led the way in taking advantages offered by Alaro City, it is projected that the new city will accommodate 30,000 residents within low, medium, and high-density housing in the first 1,000 hectares of the city. Developers looking to invest in the housing market within a well-planned city in a free zone like Alaro will no doubt be further spurred by this new minimum deposit threshold. Experts believe that this move by an industry giant will be emulated by discerning investors and eventually move the needle in home ownership in Nigeria past the abysmal 10%.