Nigeria Housing Shortage Rising With Slum Demolition: Mortgages

Badia East Slum
A caterpillar is seen where residents were evicted at Badia East slums in Lagos. Photographer: Pius Utomi Ekpei/AFP via Getty Images

Esther Macully used all of her five-foot frame to face down a bulldozer and save her freezer from being destroyed as a wrecking crew guarded by armed security forces razed her home in Nigeria’s Badia East slum.

While she salvaged the cooler, the 40-year-old is still waiting for the Lagos state government to fulfill a pledge to help replace the home she used as a store to sell beverages and food. The wooden shack was flattened last February along with the dwellings of thousands of others that authorities said were moved for a housing project that’s yet to get off the ground.

“We can’t be living in this kind of condition forever,” Macully said as she prepared to move back home about 100 miles east of Lagos. “We’re citizens of Nigeria. Let them have mercy on us.”

The demolition is making way for more than 1,000 one-to two-bedroom apartments that will be beyond the means of Nigerians like Macully. Lagos, sub-Saharan Africa’s most populated city, is trying to narrow a national housing shortage that the World Bank estimates at 17 million. While Nigeria is Africa’s most populous nation with about 170 million residents, the real estate market is hobbled by a dearth of home loans, interest rates about six times those in the U.S., poverty, and the continent’s second-most expensive real estate market.

Property investors in Africa’s largest oil producing nation are aiming to lease the apartments to foreigners and the wealthy of Lagos. In the city of about 21 million people, landlords typically demand one to two years’ rent upfront due to the cost of land, the continent’s most expensive after Angola’s, according to Knight Frank LLP, a London-based property broker.

Lagos Oil

“The management of land resources is considered to be the oil of Lagos,” said Felix Morka, the executive director of the Social and Economic Rights Action Center, which provides legal assistance to evicted slum residents.

Lagos State Governor Babatunde Fashola, whose second term expires after elections next year, is attempting to create a workable city out of one that’s currently best known for crime, gridlocked traffic and daily power outages. Lagos is the smallest inland area, yet most densely packed of the West African nation’s 36 states. Seventy percent of Lagosians live in slums, according to Amnesty International. The state government says Lagos needs 4 million extra homes to close the gap.

Companies including Johannesburg-based FirstRand Ltd., Africa’s second-largest bank, Resilient Property Income Fund and Actis LLP, a London-based private-equity firm, are funding construction of office blocks and shopping malls rather than rushing into residential mortgages, which are offered by some local lenders such as FBN Holdings Plc and Zenith Bank Plc.

Addressing Shortfall

The government last month started Nigeria Mortgage Refinance Co. to tackle the deficit. It will fund lenders to help encourage the building of 75,000 homes a year for low- to middle-income earners. The country doesn’t publish house-price data, according to Global Property Guide, and real estate transparency is the worst of 97 markets after Sudan, according to a 2012 index published by Jones Lang LaSalle Inc.

The World Bank estimates there were 44,000 mortgages with an average size of 5 million naira ($31,472) each from 2004 to 2010. The ratio of home loans to gross domestic product of Africa’s second-largest economy was 0.6 percent at the end of 2011, even after the market surged fourfold from 2006. That compares with 31 percent in South Africa and a European average of 50 percent, according to the Washington-based lender.

While GDP per capita more than trebled to $1,725 in the decade through 2013, according to International Monetary Fund estimates, inequality has worsened with 68 percent of Nigerians living on less than $1.25 a day, compared with 63 percent in 2004, World Bank estimates show.

Buyers Beware

Nigeria’s oil wealth over the decades has come at the expense and mismanagement of other industries, resulting in a lack of formal jobs with crude revenues being siphoned off by corruption without benefiting the majority of the population. Property scams run rife with buildings often painted with warnings such as “This House is Not for Sale” to avoid conmen selling homes to unsuspecting buyers or “Beware of 419,” referring to the Nigerian fraud code. The nation ranks 144th among 177 countries in Transparency International’s Corruption Perceptions Index.

Even in Lagos’s most affluent districts of Victoria Island and Ikoyi, trash builds up on pavements and in open drainage gutters, while derelict and poorly maintained buildings decay in the tropical heat. Knight Frank estimates office rents in those areas can typically amount to about $1,000 per square meter each year, while residential rents can cost $10,000 a month.

‘Quickly Deteriorate’

“Buildings quickly deteriorate,” Peter Welborn, head of Africa at Knight Frank, said by phone. “After five, seven, maximum 10 years a building in Lagos will probably look like a building in Europe that’s 20 to 25 years old.”

Less than seven miles from Badia East, a local construction company is pumping sand out from the sea, reclaiming eroded coastline to turn the desolate stretch of land into a section that will resemble Nigeria’s equivalent of New York’s Fifth Avenue, said David Frame, the managing director of South Energyx Nigeria Ltd., which is leading the development.

The district, known as Eko Atlantic, probably will become home to 250,000 residents, while 150,000 will be commuting there every day, Frame said in a December interview. A 15-story commercial building is set to be the first completed development by March 2015 with the land reclamation and sea wall due in 2017.

Ocean View

Residential and office plots on the first phase of the marina overlooking the ocean will sell at $2,500 per square meter, while those away from the waterfront will go for $1,250 to $1,500, he said. Manhattan’s Fifth Avenue, home to retailers Saks Fifth Avenue and Tiffany & Co., had the world’s second-highest retail rent per square foot at $2,500, behind only Hong Kong’s Causeway Bay, according to a November report by global real estate services firm Cushman & Wakefield.

The location will have its own power, sewage, drainage and garbage disposal services, while developers have expressed interest in building a shopping mall and an international-standard hospital and school, Frame said. The appeal of reducing the often three- to four-hour gridlocked commute from Lagos’s mainland to the island’s business districts will be a big draw, he said.

The housing market can expand more than 10-fold in the short term, Finance Minister Ngozi Okonjo-Iweala said in a Bloomberg TV interview last month, while the creation of Nigeria Mortgage Refinance will help bring interest rates on mortgages to around 10 percent.

Ecosystem Broken

Interest charges on home loans run 18 percent to 25 percent, Michael Chu’di Ejekam, a director at London-based Actis, said in an interview in Lagos. The Central Bank of Nigeria has kept its benchmark rate at a record 12 percent to keep the naira stable and curb inflation before elections next year.

“The ecosystem for residential investment development still remains relatively broken,” said Ejekam. “The lack of affordable mortgages is a major challenge, a major deterrent, a major hindrance to the development of residential properties in this market.”

There’s little incentive or money for private developers to provide low-cost housing, Knight Frank’s Welborn said.

“The cost of the land, the cost of what an average individual expects to have in terms of square footage in a number of rooms, none of it makes commercial sense,” he said.

Plans by Lagos to develop 5,000 affordable homes is a “drop in the ocean” of what is needed and private investors are needed to help end the shortage, Bosun Jeje, the state’s housing commissioner, said in a Jan. 10 interview.

Poor Paying

The state is using a 284.4 million-naira loan to compensate 1,933 tenants and 319 landlords affected by the Badia East clean-up, Lagos State Attorney General Ade Ipaye said in an interview Jan. 14. Estimates by Amnesty International that the shanty homes of 9,000 people were destroyed are exaggerated, he said.

The government must ensure people erect legal structures so it can formalize housing and clamp down on crime to make the city more attractive, he said. “If we cannot relax because all of the parks are now market places or places where people have put up shanties, then we don’t have a city,” Ipaye said.

Lagos state’s efforts to clean up its act is of little help to Macully, who used to pay 15,000 naira a month for the two-bedroom shack she shared with her three children.

“They want to improve the city, but they don’t want to take the steps responsible governments are required to take to achieve that goal, steps that make sure the poor are not paying disproportionately,” the Social and Economic Rights Action Center’s Morka said.

Macully’s children are now scattered with various relatives as she seeks another means of surviving, willing to take what she can get from the government.

“Whatever they say they want to give us,” she said. “Let them give it to us, so we can cope.”