USD 900 Bn Dead Capital Locked Away In Nigeria’s Cold Real Estate – Fixing This Can Grow The Economy To A Thousand Billion!

By  |  July 10, 2019

The Nigerian real estate sector is dominated by informal property holdings valued at nearly one trillion dollars. Harnessing the untapped potential could give the economy a major boost.

It reads something like this; “Nigeria holds no less than USD 300 Bn and as much as USD 900 Bn worth of ‘dead capital’ in residential and agricultural real estate alone.”

That was the conclusion drawn up by world-renowned consulting and advisory firm, PricewaterhouseCoopers (PwC) after their deep dive into the neglected parts of Nigeria’s real estate sector.

It was a startling revelation and it easily got tongues wagging both for and against the numbers submitted by the firm.

But even as it’d actually be quite a stretch to think they could ever get the figure spot on, the general feeling is that they are not that far from the truth — between Ikorodu in Lagos and Isihor in Edo, you would find so many undeveloped landed-assets that would’ve been enough to get one some major bank loans if only the banks were crazy about landed-assets that lack verifiable ownership proof.

Well, that’s pretty much the problem — so many landed-assets and so little economic value attached to it because the owners of the assets are just not able to see the gains of having their property duly titled. The result of this is a stockpile of dormant assets with very little to offer in terms of economic relevance.

The mere thought of how much value could be added by harnessing this dead capital in the Nigerian real estate sector is enough to get anyone’s motor running. Ideally, it should be providing the country with the required capital resources needed to boost growth and create wealth for its 200 million-strong population.

And it can’t come at a better time given that the International Monetary Fund (IMF) recently prophesied doom by suggesting in its latest report on Nigeria that income per head will decline in the near term as economic growth continues to be outpaced by a faster population rise. Unlocking the potential in dead assets might be the antidote that could reverse the unavoidable lunge for perdition.

To make things clear, dead capital or dead assets is an economic term used to refer to properties that are informally-held, and so not legally-recognised. It is this uncertainty of ownership that takes away from the true value of the asset and the ability to lend or borrow against it.

Such possessions are not well-recorded. Because of this, they can hardly be converted to capital and cannot be exchanged for something profitable outside very niche local circles where people know and trust one another. Also, such properties cannot be used as collateral for a loan or as share against investment.

More commonly, we are talking about things like those country homes Nigerians refer to when they talk about “going to the village” — something they rarely do given that festive periods and funerals are the only time they actually get to do such. And even at that, they spend only a few days there. Most of the time, such properties just collect dirt and rot over the years without any formal title and, hence, zero economic value.

PwC based their findings on a population figure of 180 million, and 36 million households of which 95 percent have no title on their assets. Taking a cue from that, unlocking USD 900 Bn worth of currently dormant real estate assets will expand the size of the economy from USD 445 Bn (according to IMF) to USD 1,345 Bn! And that’s not all. As a by-product, such an effort would also fix the country’s debilitating housing shortage of over 17 million units.

The bulk of the houses in Nigeria have no title or contestable title and are basically useless as collateral when trying to finance economic activities. In effect, billions of capital are left idling about as such capital remains under-utilized or not utilized at all.

By putting together a framework that makes it possible for owners of such assets to use their property as collateral to access credit without much fuss could go a long way towards unlocking dead capital in Nigeria.

Nigerian financial institutions mostly accept verified real estate before dishing out loans. Because of this, the advantage is only with owners of properties that are well accounted for. And this means that owners of properties whose asset have no title basically have nothing as they can hardly access credit or make their property work for them in some way.

Private homes and other forms of landed assets represents one of the major sources of capital for businesses in more advanced climes. Developed countries have given themselves a head start by getting the hang of transforming their assets into wealth, and this they have done by representing assets with undisputable titles.

Citing the United States as an example, all private and state-owned assets are titled and put in the record at the time of creation. They are also quantified such that they can be used as collateral to raise funds in times of need from, first, the primary market and then a mortgage instrument which allows it to be sold and resold in the secondary market. There’s a lot of money involved when all that is put together.

Nigeria’s current Land Use Act of 1978, which is built on ownership rights, has not done much to unify land ownership across all parts of the country. The bulk of property owners, especially in the rural areas, are either oblivious of the law which demands them to have titles on their landed assets. or are just completely indifferent about it.

More so, the law demands the consent of State governors before a land with a customary or statutory right of occupancy can be mortgaged, subleased or transferred. This, amongst other bottlenecks, gives the locals a mountain to climb, making it rather difficult to effectively transform dormant assets to tangible wealth. And to think of all the good that can come through if we could find a way to get out of this straitjacket.

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