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| El Dorado: the city of Gold - or the modern day Lagos |
My adopted theme for this post comes
from the mythical kingdom of gold that went by the same name. Legend had it
that El Hombre Dorado (the golden
man) or El Rey Dorado (the golden
king) as part of an initiation rite, covered himself in gold dust and would
dive into Lake Guativita. As with
most myths and fables, after several iterations, what was originally imagined as a place, went from a city to a kingdom and soon spanned an entire empire.
However as Sir Walter Raleigh, and several unfortunate Spanish Conquistadors
would tell you, after several expeditions through countries like Brazil,
Colombia, Guyana and Venezuela, from the late 16th century onwards,
this city is stubbornly yet to be found; and the only thing these exercises in
futility turned up was a better understanding of the geography and topography
of most of northern tip of South America. Countless lives and resources were
wasted in pursuit of a fool’s errand. While one can only but imagine what the
origins of the mythical city were, the incontrovertible reality was that there
never was such a place, many people learnt this at a very high cost; they paid
with their dear lives.
These sorts of myths are still being
perpetuated today. In the 1970s and 1980s, one of the more popular electioneering
or propaganda slogans was the theme of “housing (or electricity, or water, or whatever) for all by year…”, the idea being that if they put off the target date long
enough (the year 2000 being the preferred date of choice as it seemed far off
enough), they would already have served their time in government and escaped
into retirement before people realised the wool had been pulled over their
eyes. In any case, the year 2000 slowly crept by and amongst many other
promises, we found out that there were still no houses, or power, or good
governance, and worse still even those things we had or were making do with,
had either been completely run-down or had been abused to a state of total and
complete disrepair including the railway service, the national airline, and the
once reliable road network, and of course the ever elusive houses still do not
exist.
The year is 2015; and we are by no
means closer to the El Dorado of
housing for all (not even most). Instead what we find is that in spite of the
continuing demand for accommodation and a reported deficit of 17 million houses
across the Federation. In cities like Lagos, Abuja and Port Harcourt, property
rates bear no grounding in reality, and housing rates, whether for acquisition
or lease purposes are seemingly plucked out from the air as though the property
speculators where magicians.
Interestingly though, there is a
rising pace of property development especially within the Lagos metropolis.
Older (or more established) parts of the city are being re-purpose, while newer
parts are rising up in previously unheard of places as Lagos continues to grow
and expand. This trend has even seen the creation of Nigeria’s first artificial
development in the Eko Atlantic scheme. Developments in neighbouring Ogun State
or on the Lekki axis are sold tantalisingly as being “10 - 15 minutes from Alausa” or “just
behind the new Lekki Free Zone/Airport”. It is marketing at its most clever
and is part of a deliberate ploy to lure people to invest and achieve their housing
dream.
Economic commentary is rife about Nigeria’s
much touted upwardly mobile middle-class; investors are told that the growth of
this demographic group and their rising disposable income is another veritable
reason why they should buy into this market. Yet, even those who belong to this
group can’t afford to buy or rent a home where they want to. While their
contemporaries in more developed nations are afforded the luxury of choice,
unless you are one of the successful few to have looted the nation’s treasury,
or work in one or two given industries at a certain level of leadership, your
choice is made for you.
The working New Yorker can decide to
live in any of New York’s five boroughs and even Manhattan, home of the New
York Skyline and the Empire State Building is not out of reach. He may have to
pay more for choosing to live in the heart of the city, and may need to forego
things like a car or other cost elements, but he can (and some do) actually
live there. Ditto London and Paris, Barcelona, Madrid, Milan and Rome. Some
people in these cities (especially those raising families) would rather a more
quite, remote and serene environment in the suburban part of town and these
choose to live outside the city; the presence of a viable public transportation
system and a friendly, motorable road network make their choices practical. So
for example it’s not unheard of for people to live in places like Kent or Basingstoke
and yet work in London; they merely commute daily, by train or car.
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| A typical property under development |
That is not the case in Lagos.
Similarly in Abuja, despite the plan of building an ideal capital city, 30
years since the dictator decreed that all Federal agencies relocate to the
city, the concept of a rail system is only just now being discussed and the
reality is that it may never see the light of day. And so the rates for
property in the city centre continue to soar, giving rise to the advent of
satellite towns which are now the order of the day. When a well-paid, mid-level
to senior career employee can’t afford housing in these areas, then you must
understand that there is a real problem (call it market failure if you will). His
annual income compounded over five years can probably not afford him a home in
some of the nicer parts of town and with mortgage rates at 25% and above, you
begin to wonder whether it is in this lifetime he is expected to buy and repay
for the house he aspires to own. On a lighter note, I once spoke to a lady who worked
with a Property developer; she was trying to market one of their apartments to
me. When she shared the proposed payment terms with me, I had to ask her if she
could afford to part with a million Naira a month; essentially what she was
proposing. I mean how practical is that?
But how did property costs get so out
of hand, you may ask. I can espouse a few reasons. But one that stands out is the
expat conundrum. It used to be that many builders and landlords
would say the apartments were for rent to expats because Nigerians were either
not good enough or more likely because Nigerians could/would not pay the
astronomical rates they were charging for the property. To their minds
multi-national companies would only be too glad to put up their valued
expatriate human resource in these serviced apartments. At the same time
insecurity became an issue in Lagos and the narrative we began to hear was one
to the effect that crime only takes place on the mainland, while the island is
the only “safe” place in Lagos. In other words, if you want to safeguard your (expatriate)
staff, get them a place in Ikoyi or VI, but be prepared to pay a premium. This
helped drive up the price as they created a form of exclusivity and a captive
market, which quite suited beneficiary Landlords.
However, over time, many companies have
come to realise that this is not a sustainable business practice and have
sought alternatives in order to bring down their overheads. For some of these
companies, accommodation is one area where savings could easily be made either
by hiring a local or looking for alternative accommodation in a more suitable
area, for example in Lekki Phase I, lately the default alternative made easily
accessible with the advent of the new bridge to Ikoyi.
We have created a property bubble. Or
rather, estate “agents” and ambitious landlords have driven the rise of this
property bubble.
Economists will tell you that most
economic bubbles eventually burst and the results can be cataclysmic. The US
sub-prime mortgage crisis triggered a recession that has left the global
economy with scars that are yet to heal completely. Our bubble however seems
alive and well. It is not made of soap, but of much stronger stuff; no pin
prick or hand gesture will penetrate this one. Even at the height of the
economic recession, the value of property in Ikoyi and VI barely budged. There
may have been a few fire sales and the margin on deals probably reduced a bit,
but for the larger part property prices remained ridiculously high.
A leisurely drive through Ikoyi will
give you a clear impression of the depth of the problem. As new developments
and luxury apartments continue to spring up on the island, what is most obvious
is the fact that though some have been completed for over 5 years, they are
still largely vacant and unoccupied, even though they are billed as being for
lease. Who builds a rental property and leaves it unoccupied for five years?
As corruption has flourished in
Nigeria, with brazen looting and outright knavery of the commonwealth the order
of the day, the vagabonds in power have grown more sophisticated and as criminals
are wont to do, they recognise the need to launder their money and legitimise
this ill-gotten wealth. In Nigeria, the safest and most secure investment vehicle
for this is landed property. With the exorbitant prices bandied about, these individuals
are the prime candidates to acquire this choice property and they amass them in
large numbers. These are the kind of property owners who can afford to own
multiple apartment buildings and can’t be bothered if they are bringing in
revenue or not. Unlike you or me, they have no mortgage or loan to pay back so
what’s the hurry? The impact on the market is scarcity of accommodation,
increased property prices, opportunistic pricing and additional pressure on the
disposable income and rent payable by the middle class. Property in adjoining
areas starts to go up and the vicious cycle continues.
The myth is perpetuated by a long
list of ambitious property developers, banks and financial institutions,
property speculators and land grabbers (omo-oniles),
estate agents, money launderers and so on. Their role is to drive up and
sustain these artificial prices so they can create wealth for themselves
without the added burden of having to create any real value in the property
market or the wider economy.
I had long concluded that things
would remain this way and would never change; I now have to rethink my
position. “Why the change?” you may
ask, well I recently saw something that gave me hope. A few weeks ago, a newspaper
headline published the names of 3 public servants who apparently own property (in
Abuja and Lagos no less) the value of which far surpasses their stated level of
income; just one of these individuals alone was stated to own 18 different parcels of landed property! This is usually a good indicator that things don’t
add up and so they have been taken to task by the Independent and Corrupt
Practices Commission, part of whose remit is to investigate official
corruption. In an ideal world, if these individuals are found to have put their
hands in the till, then they will be duly prosecuted and these properties
seized. If this becomes the norm, many who have so acquired wealth will be
stripped of their property. And the government will be in a position to dispose
of these proceeds of illegally acquired wealth in a fair and transparent
manner.
In the past, when cases like this
have come up, because of the flaws in the system, it was not unusual to find
that even the disposal process was fraught with irregularities and was
deliberately compromised so that the property ended up being merely transferred
to a preferred beneficiary of the disposing parties. However with the way
things are panning out, one gets a sense that these loopholes will now be
plugged, the system strengthened and the vigilance of the monitoring agencies
raised to ensure that no one takes undue advantage and games the system.
We must give President Buhari credit
for this and if he is able to restore the confidence of previously cynical
Nigerians like myself, then he may as well sign up for a second term.
IamMaverick
29 October 2015
