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Tuesday, 26 November 2013
Ease of property registration: SA dwarfs Nigeria in private equity investment interests
As against 80 inter-regional private equity firms looking to invest in South Africa’s real estate market, 30 in Egypt and 40 in Kenya, only 16 of such companies are interested in Nigeria’s real estate market due, in part, to difficulty in registering property and doing business generally.
The Central Bank of Nigeria (CBN), which disclosed this in the 2012 report on Nigerian economy by the Nigerian Economic Summit Group (NESG), adds that there are also 10 domestic and private equity firms looking to invest in the country.
Private equity investments in Africa have seen phenomenal increase from $151 in 2002 to $3 billion in 2011 and, according to Emerging Markets Private Equity Association, South Africa accounted for the largest portion of these investments, leaving Nigeria with just 10 percent of the continent’s total.
On account of demographics and strong buying power, Nigeria is seen as a green field and an investment haven, yet investors are slow in moving into the market due to unfavourable business environment.
In its 2011 report on ‘Doing Business’, the World Bank ranked Nigeria 180 out of 183 countries in terms of ease of registering property. Currently, there are 13 steps in the registration process which can take up to 82 days. Four of the steps carry their own associated costs which on average total 20.8 percent of a property’s value, according to the NESG report.
In an earlier report, BusinessDay had quoted Olusola Olubode, former managing director of Refuge Homes Savings and Loans Limited (mortgage bankers), as saying that Nigeria lagged behind countries like Ghana, Thailand and New Zealand in ease of registering property, pointing out that in Ghana it required just five procedures, 34 days and 1.3 percent of a property value.
Olubode also hinted that in New Zealand, property could be registered online in two days at a cost of 0.1 percent of the property value, stressing that Nigeria was one of the world’s most difficult places to register property, especially when, in Thailand, registering property required just one step, less than a day and 1 percent of property value.
Similarly, Abdulrahman Kadiri, CEO of Lagos-based Oak Properties, told BusinessDay that in Dubai, United Arab Emirate (UAE), in less than 72 hours a buyer should have perfected his land titles, adding that “you don’t even have to pay through your nose to get building approval”.
Dapo Ojo of Estate Links Limited also said that in the UK, it took 1-2 months, six procedures and 4 percent of the value of the property to register a property, while it took the same 1-2 months, six procedures and between $1,000 and $8,000 to do the same thing in the USA.
Actis, easily the most bullish private equity investment firm with special focus on emerging markets in sub-Saharan Africa, laments that “land and capital are major challenges to investors, especially in Nigeria”.
The company’s director, real estate, Chu’di Ejekam, explains that to find a well-priced land at the right place is a big issue, adding that land price which is not supposed to be more than 10 percent of the construction cost is so high, especially in Lagos, that oftentimes it makes projects unworkable.
Capital, he explains further, also poses a major obstacle because to build a world-class retail mall like The Palms or Ikeja City Mall in Lagos, for instance, requires huge capital outlay of about $100-$150 million.
“To build a mall of an appreciable standard requires 50 percent equity and 50 percent debt such that building a mall like Abuja Jabi Lake Mall, for instance, which is estimated to cost $130 million, requires an investor to bring as much as $65 million equity to the table, and not many banks are ready and able to provide the $65 million debt,” he adds.