3 Reasons why Houses are too Expensive in Nigeria
A while back, Jason Njoku wrote hereabout how ridiculous Lagos real estate prices were compared to similar cities in South Africa. The summary of his grouse was that, while $1m could buy you a palace in JoBurg or Cape Town, all it will fetch you in Ikoyi is a poorly built house totally lacking in ambience.
These images he shared back paint the sad reality that too often, Nigerians do not get value for money when they purchase real estate.
The obvious question is why this huge disparity in the value that you can get for about the same amount of money? Here are 3 of some of the more important reasons.
We were looking at some property in Yaba this past week that we are considering to CoBuild on (learn more about cobuilding here), and the prices we were seeing were just not realistic. For a lot on Herbert Macaulay, the pricing would put unit cost for land on a block of town houses at about N30m. With town houses selling circa N60m in the neighbourhood, it means land represents around 50% of unit cost. That is simply too high. Land in far better neighbourhoods within gated communities in Sandton, South Africa can still be gotten around N10m.
Land, especially where you have decent infrastructure is simply priced too high.
2. Procurement Inefficiencies
The building technologies and procurement processes we typically use are generally not efficient. On one hand, our procurement value chains are too long which creates several layers of middle men who take profits and increase costs. On the other hand, the outcomes in terms of what is delivered is often so bad that buyers have to spend upwards of 10% of the purchase price to redo badly done work.
3. Finance Cost
Nigerians get a terrible deal when it comes to financing both the supply and demand sides of housing transactions. When compared to MINTS (adding South Africa), Countries, developers and home buyers in Nigeria borrow at rates that are simply unworkable for the majority of people. The impact of these is glaring in the chart below which maps compares finance and home ownership across these countries.
Clearly, anyone serious about wanting to improve the green bar for Nigeria has to look at these 3 issues critically and find ways to lower land costs, make procurement more efficient and lower interest rates.
The CoBuildIT business model and our growth plan is designed around these solutions. i.e. 1. Leverage economies of scale by getting people to team up and make it easier to buy land for development in neighbourhoods they ordinarily couldn't afford alone; 2. Improve procurement efficiency by eliminating layers in the value chain and making the process more open (by arranging bids on our site which reduces information asymmetry) thereby ensuring cobuilders get better value for money; 3.... we can't tell you what we are doing to cancel out number 3 just yet :).