Enhancing Entrepreneurship in Real Estate through
Technology and Innovations
Speech Delivered at Federal University of Technology
Akure (FUTA) Annual Lecture, Aug. 13, 2015
By Vincent Nwani, Ph,D
Director, Research and Advocacy
Outline
Contest
Issues in Real Estate
Market Structure
Key Enablers
Entrepreneurship
Conclusion
Context
• 170 million people growing at 2.6% p.a
• Rising urban population with 85% living in rented apartment
• Real Estate contribute below 1% to Gross Domestic Product, compared to 24.7%
in Malaysia, 29% in South Africa, and 85% in New Zealand,
• Short fall is estimated at 17 million housing units, and it will require N49 trillion
to bridge the gap based on an estimated average cost of N3.5million per housing
unit (Federal Mortgage Bank of Nigeria (FMBN).
• Nigeria is currently building less than 100,000 homes a year
• The country is one of the lowest cement consumers with 130kg per capita,
world average is 300kg
• Rate of building degradation is one of the world’s fastest (World Bank Study)
Issues in Real Estate Market
•
•
•
•
•
•
•
•
•
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Affordable mortgage finance,
Property registration,
Title perfection and foreclosure issues,
Access to construction financing for developers, Poor regulation of
the real estate sector in Nigeria.
Incidences of obligatory failures in the form of government’s
delayed payment to construction contractors.
Standards, safety issues and arbitrary regulations
High cost of construction
Land use Act and obsolete regulations
Poor workmen leading to poor finishing and delivery
Poverty and weak demand due to affordability
The Real Estate Market
A review of the global markets revealed the following business
models within that industry:
 Property Development / Property Trading Model
 Real Estate Development / Property Investment Model
 Property Financing
 Property Marketing, Management and Maintenance Model
 Integrated / One Stop Shop Model
Business Models
Property development / Property Trading Model
 In this model, real estate companies undertake the development of property with the sole
intention of selling them on completion thereby deriving revenue from theirTechnology
trading activities
Customer
as against rental income.
leverage
Satisfaction
Property Development / Property Investment Model
 In this model, real estate companies on completion of development hold property from which
rental income is earned. They typically do not sell on completion of development.
 However, it is not unusual to have a development company operating as trading and
Financial
investment company.
Services
Property
Marketing / Management & Maintenance Model
Industry
Reforms
 These are companies involved in the sales and letting of property so far constructed. Most of
them often times are realtors while others are property companies and agents. They usually
manage and maintain the estates so let out by them.
 Top players in this category include; Knight Frank and Rutley, Nigeria, Jide Taiwo & Co, etc.
Real Estate Business Models
Property Financing
 In this model, well capitalized real estate companies undertake to finance real estate
development, finance mortgages, etc.
 In the Nigerian environment, this area is still dominated by financial institutions especially
banks.
 In connection with this model, property companies are also exploring the possibility of running
virtual mortgage finance companies alongside their core businesses with the likelihood of
incorporating these companies as full fledged mortgage finance companies.
Integrated/One Stop Shop Model
This model involves a combination of the whole spectrum – where a firm acts as the developer,
trader, financier and manager of real estate
Nigerian Real Estate – Industry Segmentation
Residential Real Estate
•Luxury Apartments (High Income Earners)
•Block of Flats (Middle Income Earners)
•Mass Housing (Low Income Earners)
Commercial Real Estate
•Office Space
•Retail (i.e. shopping malls, restaurants, gift shops, etc)
•Industrial (ware-houses, factories, etc)
•Hospitality (hotels), health centres
 Specialty Real Estate
•Students Accommodation, worship & trade centres
•Military and Police Barracks etc.
Critical Success Factors in Real Estate Market
 These are the industry success factors which are broadly similar both
globally and locally
1
•
Access to Off-take Finance
2
•
Land Acquisition & Prime Location
3
•
Quality, Pricing & Packaging of Final Products
4
•
Quality Management & Business Knowledge
5
•
Brand Name or Equity
6
•
Strategic Business Alliances
Ensure operational
and market
effectiveness
Other Success Factors
Globally the following factors are also key:
7
•
Diversification
8
•
Time to Market (Political & Economy driven)
•
Differentiation
9
10
• Raw Material Availability & Affordability
11
• Operational Efficiency
Emerging Success Factors for Real Estate Entrepreneurs
• Quality, pricing and
packaging of final
products
• Bespoke products and services
• Value based pricing
• Friendly and flexible customer payment options
• Clarity of overall vision/strategy ( well articulated and
shared)
• Quality Management
and Business
Knowledge
• Executional effectiveness
- Courage/decisiveness
- Speed
- Willingness to take responsibility
• Innovativeness
• Full grasp of industry issues, challenges,
opportunities, trends, etc.
Emerging Success Factors for Real Estate Entrepreneurs Cont’d
• Brand Name or Equity
• Business Alliances
• Ability to build up value in a brand through;
• Effective promotion of the brand
• Consistently meeting and exceeding customer
expectations
• Increase brand equity by continuously increasing
the perceived value of the company’s products to
the customer.
• Ability to build alliances to leverage the following
• Technical expertise
• Technology
• Funding
• Reach
Off-Take Finance…as a critical success factor
With emerging markets like Nigeria, there is significant shortage of finance for house purchase and
construction. Thus;
Current problem

Funding gaps
Caused By
Short-term Solutions
• Banks as only main source of mortgage
finance
• The set up of the NHF
• Introduction of Primary Mortgage Institutions
(PMIs)
• Improved impact of Building Societies/ Cooperatives
• Short-term re-payments and High interest
rates
• Improved mortgage facilities and terms due to
increased competition in the banking sector
Government’s Expected Role
• Create environment to stimulate private sector participation in
long-term housing finance
• Develop sound property rights
• Reforming the Land Use Act Decree to aid easy access to land
• Restructure Federal Mortgage Bank of Nigeria (FGBN)
• Co-operatives and credit institutions should be encouraged to
service low-end market
• Private sector to be encouraged to provide bulk of actual
investment funds for MIPs, HIPs and HNWIs
Improvements
Off-Take Finance…the way forward
The development of a variety of
instruments for the mobilization of
funds from the capital market
through “securitization” of
mortgage portfolios.
Financing through Real Estate
Investment Trusts (REITS) which
uses the pooled capital of investors
to purchase and manage income
property or mortgage loans.
Selling of securities backed by a pool of mortgages.
These securities are created through the
aggregation of mortgage loans with similar features
into pools of securities for issuance to investors
through the capital market.
Invested Funds
Real Estate Industry
Recently, the Nigerian Securities and Exchange
Commission released guidelines for the operation of
REITs in Nigeria. More activity in this regard is
thus; expected in the short-term.
REITs:
 REITs gives an investor a practical and effective means to professionally managed real estate in a
diversified investment portfolio.
 TYPES OF REITs:

Equity REITs, it owns and operates income-producing real estate. Equity REITs have
become the primarily real estate operating companies that are involved in a wide range of
real estate activities, including leasing, development of real property and tenant services.

Mortgage REITs lend money directly to real estate owners and operators or extend credit
indirectly through the acquisition of loans or mortgage-backed securities

Hybrid REITs are a combination of an equity and a mortgage REIT. As the name suggests
hybrid REITs own properties and make loans to real estate owners and operators.
Benefits of REITs
 The following are the various benefits of utilizing REITs as a form of take-off
finance:
 They allow individuals share in the ownership of relatively expensive real
estate
 Liquidity: REITs offer the most liquid way to invest in real estate. REIT shares
are traded daily on a national exchange, so, unlike actual real estate, they
can be bought and sold at any time.
 They provide long-term financing to property developers of real estate
 REITs are total return investments that typically provide high dividends plus
potentials for long-term capital appreciation (upon asset disposal)
 They are attractive additions to investment portfolios as there is relatively
low correlation between them and publicly traded real estate stock returns
and the returns on other market sectors.
 Inflation hedge: As an investment in tangible hard assets, REITs can provide
an inflation hedge.
 Deferral of income taxes: No tax is payable on REITs until they are sold. At
that point, profits are taxed as capital gains, not as ordinary income.
Market Segmentation
Individual Market Segments
Characteristics
High Net Worth Individuals (HNIs)
 Typically Price insensitive once convinced of
value
 Typically focused on quality of service
 Seek wide range of services preferably bundled
High Income Professionals (HIPs)
 Class conscious
 Relatively price insensitive
 Quality conscious
Medium Income Individuals
 Price sensitive
 Sensitive to quality of service
 Higher credit risk relative to other classes
Low Income Employees (LIEs)
 Price sensitive
 Relatively insensitive to quality of service
 Higher credit risk relative to other classes
Self Employed Professionals
(SEPs)
 Price sensitive
 Relatively insensitive to quality of service
 High credit risk relative to other classes
Key Buyer Values for Real Estate
Location of
Property
Speed of
Service
Quality of
Service
Buyer
Values
Value-Added
Services
Variety of
Products
Financing
Options
Accessibility
Entrepreneurship – Which area do we play in
Business Area
Niche Opportunities
Market Entry
Property financing
• Increased funds flow into the banking system post consolidation from
pensions reform Act and ultimately into housing and real estate
development;
• The emergence of a bond market will transform the mortgage
industry
Difficult
Property Development

Explosion of property development and commercial development
primarily focused in major cities are on the increase
Fairly Easy
Building & Construction
• Extensive opportunity abounds in real estate development and
renovation and refurbishment of various property
Fairly Easy
M & M Specialists
• Though highly fragmented, with the increased need for residential &
commercial property development especially by HNWIs, HIPs &
MIPs, there is increased opportunities for Maintenance Specialists to
function
Fairly Easy
Related Industry players
• The burgeoning real estate industry in Nigeria, is throwing extensive
opportunities for players in this group as the demand for equipment
(lease & purchase), tools and raw materials are on the increase
Easy
Who are our main competitors?
•
What are they doing to achieve their strategic objectives?
The main competitors within in the Industry can be identified below:
•1a Top Property Developers
UPCN, HFP Engineering, LSDPC, CityScape International, Lkki
Gardens
•1b Recognized medium sized
developers with at least one
successful scheme
Grant Properties, Solid Homes, Cornerstone Construction, Dormant
Property Investment Company
•1c New developers proposing
development schemes
Northern foreshore, Megamond Property Investment
• Maintenance Specialists
Jide Taiwo & Co, Diya Fatimileyin & Co, Ebosi Eleh & Co, Knight, Frank
& Rutley Nigeria
• Financial Institutions
Banks and mortgage finance institutions
• Building & Construction
Companies
C & C Construction Company Limited, Cappa & D'Alberto Plc., Ames
Construction, H.F.P Engineering Nigeria Limited, Inter-Bau Construction
Limited, Jagal Nig Limited, Kerldbert Holdings Limited.
• Related Industry Players
Dangote, WAPCO, Stabilini, Bagco Nigeria Plc, Tractor & Equipment,
Tower Aluminium, Askar Paints, DN Meyer, Berger Paints, Nigerite,
Kolorkote, Aluminum City Limited.
Riding on technology and Innovations
 Invest significantly in R&D
 Identify costs in the construction sector that can be eliminated from the
building process
 Standardisation is surely needed in the industry in a way that allows
talented construction industry players
 Design
 IT & Social media – Networking and marketing
We all have a role to play
 University - R&D
 Private Sector – Finance, PPPs, Trade associations advocacy
 Government – Regulation, Land use reform, property registration and
title papers
Conclusion
 Nigerian construction remains rudimentary and wholly inefficient.
 There is high cost of building materials and poor workmanship and
these fuels housing shortage
 The entire construction space is calling for:
 new ideas – technology and innovation
 Global best practices and standards which enhance safety,
boost efficiency and bring down costs at the same time.
 Positioning for new real estate market – top material manufactures
will soon become builders
 Fix the land issues – Review Land use Act. 1979, establish Land
Bank managed by the private sector
Vincent Nwani Ph.D
Director, Research and Advocacy at The Lagos
Chamber of Commerce and Industry
Commerce House: 1st Floor
1, Idowu Taylor street
Victoria Island,
Lagos, Nigeria.
Mobile: +2348033827944
Email: vincent@lagoschamber.com
vincent_nwani@hahoo.com
Website: www.lagoschamber.com
… We will Translate this Plan from Words
into Actions and Results