Nigerian Real Estate Professionals are not Doing Enough – US Expert

Mr. Ejike Okpa, is a native Nigerian but a naturalized US citizen, he Principal Partner of Okpa & Co. His experience spans commercial appraisals, land development, zoning, brokerage, property tax and consultancy. His company is one of the groups of companies that delivered the first Public Private Partnership Project (City of Dallas and Spectrum LTD) in the City of Dallas – an 18 storey edifice of 182 units with 25, 000 square metres of retail space and 350, 000 sf of parking space.

Before going into private practice, Mr. Okpa in less than 4 years of coming to US was the Regional Appraisal Manager for FDIC in charge of appraisal functions of failed bank assets over 8 states. Prior, he was a FSLIC Asset Manager over failed assets of El Reno Federal Savings and Loan, El Reno, Oklahoma.

As a 26-year old resident of City of Dallas, he currently serves on Dallas Development Fund Board; a new market tax credit board and Texas Bank for Economic Development - Texas Products and Business Fund, appointed by Governor Perry.

In this chat with Olusesan Ogunyooye of 3Invest Intelligence, Mr. OKpa, passionate about his home country opens up on basic issues bedevilling the Nigerian Real Estate Sector, which according to him is a function of the qualities of professionals in the industry and how the system is ready to embrace change.

What is your Assessment of the Nigerian Real Estate compared to what we have in other climes such as the U.S?

For me, we must ask ourselves; what are the problems? If we know the problems, are we willing for the solution? The solution might not be permanent, but at least for now. Leadership and the needs of people are dynamic. They change. And so those changes either call for a review of policy or a review of programmes. You can’t say for instance, that the way we have been doing things in the 70s is still the same way we want to continue. Nobody, I don’t know anything in life, except from the way we have babies the same biological way, that doesn’t change. Most countries are not doing things the way they did forty years ago. There are changes because people come with different expectations and that is what forces leadership to changes.

For example, when I went to America in 1985, Green card was no big deal. If you marry an American, the next minute, you have your Green card as soon as you mail your marriage licence. Few years after they changed the rule to where you and your wife have to leave together and then Green card started having expiration date on it. That is change!

But when you come to Nigeria, people say this is how we have been doing it, we can’t change it. So first, our real estate has to change. The way we buy land, the ways we do investment have to change because these are different times. But I don’t see that, I don’t see it in the law Federal Government make, I don’t see that in the policies of the professional groups. The professional groups themselves are limited. They don’t have lobbies group. I am a certified appraiser, I hold a real estate licence, I’m a property tax consultant in the US; when we pay our dues, part of the dues we pay are used to lobby state legislature and national congress on certain policies because the laws changes almost every two years, so our professional groups hire and pay people in Washington D.C who monitors legislations that comes up before congress. Do Nigerian Institution of Estate Surveyors and Valuers (NIESV) have anyone in Abuja they pay to do that? Does Nigerian Society of Engineers have a lobbying group? What laws have they written to suggest to the Federal Government and say ‘this is what needs to happen’? When was the last time any professional body in the industry invited a member of the legislature and make suggestions on legislations that concerns the industry? The same goes to the bankers; why are we paying 20% interest rate on borrowed money? How can the industry survive?

So that is my assessment, the industry is not going to the government to articulate their needs.

Looking at the situations the way you have enumerated them; what in your own view are the steps that should be taken, at least in the immediate?

In the immediate, we should talk about land. When we are talking about real estate, it is actually the land and the building. When talking about real property, the difference between real estate and real property is that real property talks about the rights to real estate. So the real property talks about the tenancy agreement, the lease agreement, free hold to land – in case of Nigeria; so if you are selling a piece of land, you are selling the right to the land.

But in the case of Nigeria, if I come in and say I want to buy an hectare of land, and you show me, often times, I may not have the clear understanding of who the agent is, who the owner is: if I pay you for what for what you are asking me what are the chances that as soon as I gave my papers, that someone will not show up and say that land belongs to him or her. Or I have to go and see the Oba or one community leader before I take possession. I should not be.

Nowhere in the world, except Nigeria, does that happen. If you fly to Dallas today, and you see a for sale sign on a piece of real estate and you call on that number that you are interested in that land; they will give you all the details about the land – the size, the title, how much and so on. You don’t need to see the Mayor of Dallas or Governor or Texas, you don’t need to appease anybody.

And when they tell you how much and you are comfortable, you go to a title company – a title company is run mostly by lawyers. So you put in a deposit called ‘Honest Money’. The Honest Money is not a percentage of the total sell money; it could be $5, 000 or $10, 000, which will be a credit to you when you finally do the closing. So the title company is doing is that they are guaranteeing you that the title you are going to get is free. If there is any problem in the title they will not do the transaction; and the buyer and the seller don’t need to meet.

Do you see this kind of process in Nigeria? If the first basic process of buying real estate takes this long, cumbersome process as in the case of Nigeria, how are you going to be able to do real estate? When you are not sure what you are getting? or you are not sure somebody will not show up tomorrow and claim you land. And if you must go to court, it will take you four to five years to resolve that issue. So if you are an investor whose money is counting, and you want to invest in real estate and you know you might have to stay in court for four or five years, who want to that?

So we have to eliminate that; we have to make title marketable, easy to transfer, we have to eliminate the concept of having to see the governor, the oba, chief, traditional ruler, etc; we have to get those things out of the way. Nigerians don’t get 48 hours a day, they get 24 hours like everybody, so if you have to go through all these, what time do you have to anything productive?

So those are the challenges, and we are not ready for the solution.

Looking the challenges bedevilling the sector, what in your view is the place of the industry professionals and the government in all?

The professionals are as good as the policy makers. You see nobody was born a president or minister. Before they become public office holders; they were part of the system. The challenge is that it is the same people on this side today complaining bitterly, that gets to the other side tomorrow, and do something else.

So when it comes to the professionals in Nigeria, the thing is they are many times when they are complaining, they are complaining not because they are want a change, they are complaining because they are not getting their turn. Come to think of it, there is no longevity on public offices, and most things in the real estate sector are long term. That is why it is called a capital investment: it will take five to ten years to build a good road, it will take five to ten years to also acquire the land, so if you have a ‘right now’ mentality, you are not looking down the road, so the professionals have to first of all, let us admit that this ‘right now’ culture must change.

Now the Land Use Decree was introduced in 1978 by the Olusegun Obasanjo Military Regime, and he exercised that choice because that is when he acquired Ota farm. He saw an opportunity and he made the country buy into it. By now, we should have looked into that decree and say ‘it is no longer fitting the purpose of this country’. Why must the Governor hold the title to the land in an entire state on behalf of the people? You are talking about corruption; that is just legitimizing corruption. So if the governor allocates land to you, it’s like he has done you a favour.

The government should just be limited to acquire pieces of land that are specifically for public purpose. Every other thing; they should just go to the market and buy like everybody else.

In all these, what should the professionals be doing that they are not doing?

First of all what is the content of the professionals? Before you can agitate; you ask yourself, what is their knowledge base, what is their scope? I studied Estate Management in Nigeria; there is nothing in their subjects. They talk about Valuation; what is that? When you look the curriculum they go through in four or five years to get their degrees; what is in it? A lot in that curriculum has remained what it was since that course was introduced in this country. It hasn’t changed, they haven’t introduced new ways because, there is nothing to be introduced. So when they are handed that paper, what confidence have they earned or gained from the training, from the education to say ‘hey, let’s go further and make a difference here’.

A lot of people just through the four years and they come out and they say they are college-educated and ready to go. But there is no collateral content in what they learnt. And the same thing can be said of the lawyers, the engineers, and so on.

So, the professionals we call them is it because they just went through the time window. The education has to be relevant. Remember, Nigeria is a big country: the way the people in the north do real estate is different to the way it is done in the south or the east. So the education has to be relevant to the geography of the people. It can’t be a universal education. I think we are a victim of that British education system, when they were training us to be labourers in our economy.

For instance in America, law schools are by the states, so when you are trained as a lawyer in Texas you don’t practice in Oklahoma. As an appraiser in Texas, I don’t practice in Oklahoma. If I want to go and practice in Oklahoma, I have to get an Oklahoma licence. There is no National Bar Association in America that says you can practice everywhere. This is because they want to recognise what the local needs are and they train their professionals to deal with the needs. So why will someone who trained in Zaria go and practice in Aba?

They recognise that the whole professional practice is about the human being – how to relate to them in their locale in terms of their real estate needs. So how can you say after four years you have learnt to deal with Nigeria’s 160 million people?

Now, practice and regulation is another issue, in Texas, for you to sale real estate, if you are the owner, you don’t have to have a licence. But if you are not an owner, if you are representing a buyer and a seller, you have to have a licence, and there are two types of licence, there is the sales agent’s and there is the broker’s. The sales agent does not effect transaction; he has to work with a broker. But in Nigeria, everybody is an agent, broker, valuer, lawyer, etc.

Of the major problems in the industry today in the areas of land, policies, regulations, finance, and so on: finance is a big one in all of these – the interest on borrowing is strangulating, the environment is not equity funds-friendly, the pension fund is moribund and a host of other issues; for you, what is the issue with finance here and how can it be resolved?

Let’s say we wake up tomorrow and the issues with land are resolved and land is reasonably available. And then we move to the next challenge – finance.

Let’s say it is going to cost N5 million to build either your home or a small retail business or office building, and you walk into a Nigerian bank and you show the bank your plan and demand N5 million. The bank will say ‘good. We will lend you N5 million, but for three years and at 22% and you have to go and see oga for house ooo!’. Two basic ways money is borrowed is either by interest only – so if I’m lending you N5 million at 20% per annum, I could lend it to you at interest only that means you just pay interest on that principal for three or I Hamotize it, which means principal and interest, so by the end of three years you are free to go.

If you run an analysis on both types, that means for N1 million for example, you are paying 200, 000 and N5 million, you are paying N1 million. That is interest only on a dept of N5 million. Here is how money works, if I have agreed to pay you 20% that means I have to make at least, three times what my interest in order to pay the interest. So what kind of business will give 60% return? So you can afford to say you are borrowing at 20%, so the cost of money in Nigeria is very expensive and the terms are strangulating.

In America you can borrow $1 at 3%. And then they differentiate, consumer borrowing and real estate.

So the cost of borrowing is why people in Nigeria can charge two years advance rent. It puts the tenant in pressure, if you are walking for government, you are going to try to steal for the government to pay or you are going to go borrowing. In America, when I signed a five year lease on a commercial building, I pay a deposit only and a deposit is just a month rent.

What can the Practitioners do?

The real estate professionals have to go and in and let the government say anyone borrowing money to do real estate development, the interest rate is 5%; period! The naira belongs to the people of Nigeria and the naira has to the relevant to their needs. Again the problem is with the Central Bank of Nigeria, when the CBN is lending bank inter rate at 12%, the banks have to build up on that. So the CBN should drop their interest rate to 2%.

Will the recapitalization of the Mortgage finance Institutions impact on the sector?

Again, it is the wrong approach. Even if the rest of the world wire their revenue into Nigeria, it would not still solve the problem. The truth is that the problem is not about the money, it is about the structure and the legal right to the money.

I still have to talk about America, because that is where it works! When you break this down, N5 billion mortgage recapitalization is just $30 million. So what can that do? But if a secondary market is created for the mortgage industry. Somebody in Nigeria should be able to live in a house that is worth N5 million. And it should be a functional 3 bed room house. That is what anybody in life wants.

Nigerians get carried away with monumental building which in the long run has no functionality. But if you can get most Nigerians to live in a house of an average of $50, 000, because that is relative to their income earning capacity; you will free this economy to where the volume of activity will surpass what we are gaining from oil. How do you do that? It is the mortgage. So what to do is to create this mortgage and the underwriting has to be good. And that is where the professionals – valuers, come in.