Richard Nyong is the Managing Director of Lekki Gardens. In this interview with MAUREEN IHUA-MADUENYI, he says more investment in housing will unlock the potential of the Nigerian economy.
Construction activities have dropped due to the economic recession, how has it been for Lekki Gardens?
Lekki Gardens is a business that was born in a season of adversity, difficulty and scarcity, and out of necessity. In 2009/2010 when we started the foundation of the business that evolved into Lekki Gardens, that is training people about real estate, it was during the season of the stock market crash. The real estate market was also down, particularly in Lekki. People were looking for alternative investment sources that will assure them of annual capital appreciation and peace of mind. People who bought properties for N120m in 2007, for instance, saw values dropped to as low as N80m. It was really bad. That was when we came into the game. So, our business is used to difficult times.
However, the economy is forcing us to be even more creative, prudent and ask questions differently, which is the beautiful side of it. But I know that nobody can deny the difficulty in the market space. Real estate is capital intensive in nature and in times of recession, the first place people try to cut down on is investing in the long-term. They want to focus more on immediate needs. Though, the market has shifted a bit, but our brand has been bold and consistent to face the economic headwinds as well as the challenges we have faced as a brand.
In getting creative, are you looking at new technologies such as dry construction?
When you face a challenge of this magnitude economy wise, you must be creative. To focus on technological creativity only is not going to solve the problem. Technical excellence is not what is missing in the market place. There is lack of funding, a change in people’s decision in terms of what they can afford to buy and what they want to spend their money on. People will rather hold their money. It is not like there is no money but people want to see the direction of the economy and want to be more intelligent about their expenses.
There is also blurriness from the centre. People don’t really know the direction of the economy. Everyone says 2015 was an election year, 2016 we want to know the body language of the leadership team of the country. Now, there is a lot of stability but still no business traction. In the biblical times, there were various times of famine; some because there was a siege on a particular country. If a famine occurs because the country’s key supply route has been blocked, you either apply diplomacy to negotiate your way out of the crisis or you go to war.
In another season, a famine may occur because of drought in which case you think irrigation, which is creativity in a drought. So, you must define the dynamics that brought a problem before you can become creative with finding the solution.
So, it is not only about the technical operations but fundamentally asking where we can play and what products will allow people to take investment decisions. It is the investing public that is your market focus and they are also the people holding on for the government to act. So, since we are in an economy like this, we want to know how to work on our products to know how to help clients pay their rents. We need to bring up ideas that tie buying a house to saving rents, or helping people not to pay rent anymore.
Once you are able to do that, you begin to touch a new market space and access the financial inflow that you are worried about.
For us, it is more about asking questions on what to do in this kind of economy; it is an economy where money is scarce and prices are still going up. At the core of our business is creativity, so we are going back to the drawing board to see what is possible and doable, and that is what we are doing.
A lot of developers are considering rent-to-own as part of the creativity you are talking about. Are you looking in that direction too?
Our core model is an off-plan model that allows people to buy properties in locations they desire at far lesser prices. The rent-to-own scheme makes sense and, of course, we have a department that handles our own unique rent-to-own scheme. It is an important phase in our business as a real estate developer.
For each of us who have been able to provide same to clients, we are doing a huge service because the financing structure in the environment is quite tough for whoever wants to provide same. If you go international to get money, you have to pay locally, and the forex position has shifted tremendously in the last one year. So, if you borrowed at say N170 to the dollar, you will be paying at N480 now. It affects your financial planning. However, if you go to the local banks, they are taking their time to know who they want to give their money.
So, there is a squeeze and developers are trying to provide this kind of service for clients. Every company that is doing that is doing a good job; that is the way to build a market when there is nothing. As a business, we have looked at the situation and come up with not just a rent-to-own scheme, but something a bit more relevant to our market space. With 9.5 per cent interest mortgage, you can own a house. People are paying 35 per cent deposit and paying over five years, which is very competitive with what they would have paid to rent a property for five years. So, instead of saying how do you pay for 20 years, we help people pay for five years and own properties in very good locations. It is the least we can do.
A lot of people think that the concept of affordability is relative and that the private sector cannot really provide affordable housing. What is your take on this?
The private sector must provide affordable housing. It is relative like you said. For instance, what was relatively possible or called affordable last year is not what is affordable this year. What we did as a business was that when we came into the industry, we fought to reduce the price of houses by 30 to 70 per cent across locations where we played. A two-bedroom flat in Lekki was going for N20m to N28m before we came in, and we said we wanted to sell it for N13.5m and it sold.
So relatively, the person that could afford it could buy almost two and the person who couldn’t find it more affordable. The same thing with Ajah, we were able to use affordability to change the game. When you talk about affordability, you have houses of N8m to N10m, given the desires of the people you want to target, it can be affordable but some people are looking for N2m house and they have only N500,000 and their current rent is N250,000. If you rent a home for N250,000 and you want to own it for N500,000, you and I know that it is not feasible. But entrepreneurs and business people strive to win customers’ loyalty and followership and in doing that, one of our most important tools is the price mechanism.
So, the private sector is the most potent one to drive down prices. Look at the telecommunications industry, prior to the private sector taking it up, it was exclusively for the rich. Today, the man on the street has two phones. Yes, he is paying more for call credits but accessibility has changed. What changed that was government policy. The government has to make the right policies. If developers can access good credit facilities, if there is a structure that enables people to do business, they will be more competitive and they will produce more results. It is tough to raise money for real estate and real estate is capital intensive.
There is also the part of social housing where you are not trying to make profit, but you are trying to subsidise, even that most of the time is provided via the private sector partnership with the government. Yes, the government has a part to play, but creating this change sits with the private sector.
Your company is reputed to have built about 6,000 housing units in four years, how did you achieve this feat?
We would have loved to achieve far more, we would have loved to achieve 25,000 in the four years, but the centre of it all is that when the economy is good people make stronger decisions about real estate. So, the economy and government policies, I think, have favoured us in that light. But we owe a lot of our progress to the way we have been able to work with our customers. This is because at the end of the day, we are not building these houses to keep but for people. The extent to which the market has accepted our ideas and thoughts in housing has been the foremost essence in our delivering that amount of houses.
Yes, we have set up some management, delivery and customer acquisition systems, which are important. We also have a strong value proposition to the customer and we kept a good track record of trust where people began to trust us. All of these are important; but at the heart of it was the acceptance of our business and brand by the public and by our customers, which has given us the credibility to continue. And that kind of partnership is what we always ask for.
What challenges have you faced in these past years?
You can’t run away from issues like approval, unclear government policies on a lot of issues or the unstructured nature of real estate in Nigeria, where there is no clear guideline or support on the materials you access. You have to buy sand, for instance, from an unstructured vendor; government policy can shut him down and you are left stranded and you have to explain to clients. Cement suppliers can raise prices and everyone will adjust to it. So, there are unstructured and inconsistent arrangements for sourcing materials. There is also the unskilled nature of artisans. The toughness of the business environment is enough to stop anybody.
There is also the issue of access to funding; the more you can give good funding to clients, the more they come. If the interest rate is three per cent, mortgage will thrive because you can take a 20-year mortgage and pay little. Interest rate is 19 to 20 per cent and the banks have a spread of four per cent; so the interest is 25 to 30 per cent. Who can pay that on a mortgage? So, there is the crisis of a structured environment.
What about land titles? There are a myriad of challenges coming around the same time. There is no clear structure from end to end that enables people to deliver; a lot of gaps occur when you say you will deliver a project in 14 months and 90 per cent of the time, it extends to 24 or 32 months. Then, there is the legal system that doesn’t enforce rights quick enough. But I always tell people that as a business, you are bound to create value in the midst of challenges and our work is difficult but we are not afraid to deliver.
If you have the opportunity, what specific government policy in the housing sector will you want to change immediately?
The interest rate! It should be reduced significantly. If it is crashed and reduced to just three per cent, people can afford to do business. When I say interest rate, the CBN fixes the rates that are used to trade government’s financial instruments, they should crash them. Let there be clarity from the government on where we are going in the economy so that people can rally around it. The titles and approvals around real estate should also have clarity so that everybody can see that it is a fair and easy thing to do. Policies drive housing. Once you are clear on policies, people will adjust. Those are the key things that every government can do immediately to support key sectors and the housing sector in particular.
What growth prospects do you see in the sector?
I see a lot of it. Tough times never last as long as we can think. In the next eight years, we should be targeting to do one million houses. People need these houses, so we must find a way. When we say we want to do these houses, we are conscious that policies can change and we are getting ready every day. We see a huge potential, we see capital coming into the country in a different level for housing, and those who are prepared for that change will ride on another high that will come.
Everywhere around the world, people know that when housing takes off, the economy takes off and if you want to unlock an economy, you do so via housing, mostly in the urban centres where more people can buy and live in their houses and extract mortgage from their housing to send their children to school over 10, 20 or 30 years. So, I see a huge opportunity around the gap in the housing sector and I hope that as a business we can be part of that great growth that will come from it.