The founding Managing Partner and Deputy CEO at Purple Real Estate Company, Mr Obinna Onunkwo, has said that the multifaceted challenges and opportunities within the real estate sector call for strategic policy interventions, innovative financial products, and technological adoption to harness its full potential.
He noted this during Nairametrics’ recently held Real Estate Outlook event themed: “How to Succeed in Nigeria’s Real Estate in 2024 – Challenges and Opportunities in a High-Cost Environment”.
Onunkwo stressed how the significance of the real estate sector in economic dynamics and policy considerations, indicating that when combined with construction, it stands as the fourth-largest sector.
Speaking, he highlighted the importance of this sector which was evident when Dubai’s real estate market collapse necessitated a bailout from Abu Dhabi, and similarly, China’s intervention in its real estate sector to prevent economic downturns.
According to him, this underscores the global acknowledgement of real estate as a primary repository for wealth, emphasizing its long-term investment nature compared to more liquid assets like currency.
He highlighted the following points:
Discrepancy between investment timelines in real estate
Onunkwo indicated that the real estate sector faces a critical challenge with the mismatch between short-term financial instruments and the long-term capital needs of substantial projects like mall construction, leading to inefficiencies.
Addressing this requires shifting towards long-term investors like pension funds and recalibrating bank policies to support extended investment commitments.
- “Many banks are more interested in facilitating short-term transactions, typically lasting 90 days to a year, which is problematic for real estate development, particularly for projects as large as building a mall.
- “These projects take much longer, often extending to 18 months or more, creating a fundamental mismatch because the bank’s financing terms are for 90 days. If this discrepancy isn’t addressed, there will be a significant gap. The solution should focus on entities meant for long-term investment, like pension funds.
- “Currently, less than 2% of pension fund assets are allocated to real estate, with the remaining 98% invested in other assets not traditionally associated with pension fund investments….so there’s a need to reconsider and realign investments towards the long-term perspective, particularly in real estate.”
The role of policy and infrastructure in shaping the real estate
On the policy front, examples from various regions illustrate the transformative impact of effective land policy and infrastructure development. Cities like Lagos and Abuja have shown more robust real estate market growth due to more conducive policy environments, unlike others where bureaucratic hurdles persist.
Moreover, the discussion extends to the need for a comprehensive approach, recognizing real estate’s critical role in supporting sectors like agriculture, entertainment, and telecom, through tailored infrastructure and policy frameworks.
According to Onunkwo,
- “The reason places like Lagos and Abuja are doing better work compared to others is simple: it’s the policy you put in place around the land, how you get the documents, and how you set it up. It’s not about the government pouring more money into it but about how you structure policy.
- “It’s not about asking the government to pour money into houses but to put the policy framework in place, and people will bring their money to that.
- “Then, on the infrastructure side, the government has a lot of work to do. Nigeria needs to invest $150 billion annually over the next 10 years to upgrade our infrastructure…The policy you put in place can attract the capital you need to do it.”
Innovative home ownership scheme
The narrative extends into financial innovations like the “Help to Own” program, blending funds from different sources to mitigate the high costs and accessibility barriers in real estate financing.
This initiative exemplifies the strategic use of financial products to facilitate home ownership, illustrating a proactive stance towards making real estate investment more accessible and sustainable.
- “In the last three months, Family Homes Funds, similar to NMRC, introduced ‘Help to Own,’ a product blending affordable financing from the African Development Bank and NMRC, reducing interest rates significantly.
- “This product allows an individual to buy a house with a combined low-interest rate from both sources, introducing an interest moratorium for the first five years.
- “This initiative is aimed at making homeownership more accessible, especially in the affordable segment, with a cap to ensure it benefits the right demographic”, Onunkwo said.
Leveraging technological advancements in real estate
Onunkwi further advised real estate developers to leverage the impact of technology for transformative prospects on real estate operations and investment models.
He noted that the shift towards digital platforms and virtual reality can redefine traditional real estate interactions, offering immersive experiences and operational efficiencies. These innovations not only cater to changing consumer preferences but also open avenues for sustainable and rapid development in the sector.
- “Now with technology, you don’t need to be in Lagos to get new ideas or innovation; you can set up a self-sustaining city even in the outskirts of Kaduna because everybody has access to the internet.
- “Real estate developers need to adopt modern governance structures, akin to building a commercial bank, to last in this space.
- “We must also cater to the younger generation’s radical thinking and innovate our products accordingly.
- “Beyond traditional brick and mortar, we should explore other materials and digital realms, like virtual reality, to enhance the real estate experience and respond to the evolving market demands and financial strategies.”
