Nigeria’s huge shortfall in housing and massive state spending on infrastructure is causing robust growth in this sector.
Although the construction industry is a relatively small player in terms of Nigeria's gross domestic product, it is a very active sector that is sure to also benefit from double-digit growth in the tourism, retail and manufacturing sectors.
Four factors are contributing to an unprecedented boom in the construction and property sectors: massive demand for buildings across all sectors of the economy; the focus on infrastructural development by state and federal governments; the adoption of privatisation and commercialisation as instruments of federal government policy; and the tightening of regulations relating to how business is done in Nigeria.
Strong steps to stamp out corruption, previously rife in the construction industry, have already been undertaken. Stricter building and land-use development rules have helped to boost investor confidence.
Other constraints in the construction sector include a shortage of skilled manual labour, the relatively high cost of hiring staff at managerial level, the shortage of building materials like cement and the unstable political situation in the Niger Delta region.
Despite these inhibiting factors, there has been decent growth in the sector with some projections anticipating average expansion by 15% to 17% by 2012. Although this would make the construction industry worth more than $60 billion, it would still barely register in terms of its overall contribution to Nigeria's GDP.
Nigeria has a housing-stock shortage of approximately 16 million units. Only 10% of the population are homeowners and millions of citizens live in substandard accommodation with little access to basic services.
Acquiring land in Nigeria can be a complicated exercise, with unscrupulous 'developers' not averse to 'selling' land that is in fact state land already earmarked for a highway. The crucial Certificate of Occupancy was previously difficult to obtain, with state governors playing a big role in disbursement. Potential investors had to wait for long periods to have it issued.
But with the recent reforms in the sector, the document, now with unique security features, can be issued in as little as two weeks. The Kwara State government has also successfully installed a computerised land record system with survey digital equipment through the Kwara Geographic Information System (KWAGIS). This has made the documentation process very efficient and accurate. The reforms have been replicated in States across the country, effectively capturing and storing comprehensive information on all land transactions.
These enabling measures have greatly encouraged private developers to partner with the Kwara State administration in property development. As part of efforts to further stimulate investment, an embargo on the issuance of Certificate of Temporary Occupancy has been lifted.
The housing shortage has created a rental market that beggars belief. Tenants can pay up to five years rental in advance to secure an apartment. In upmarket areas, like Victoria Island in Lagos, annual rental for a three-bedroomed apartment can run up to $500 000.
For people in poorer communities, state-led housing projects represent their best chance through the revitalised Federal Housing Authority. In 2008, the Federal Mortgage Bank released $521 million for estate development, where the price to the customer may not exceed $43 000.
The government of Kwara State is attaching particular importance to public-private partnerships, and is actively looking for private investors to partner with, especially in the area of housing delivery. The administration realises that government lacks expertise when it comes to business and therefore wants to tap the private sector's skills and experience.
Several private companies have commenced work providing housing in public-private partnerships. These companies include International Business Bureau (Royal Valley Estate, Kulende), Delnot (Harmony Estate, Akeerebiata), TY Bamidele (Amoyo) and Greenaco (Airport Road).
Available investment opportunities in the State include the provision of housing in the new Government Residential Area located at Budo Osho in the state capital Ilorin.
In Nigeria's commercial property there is likewise a shortage, and when good-quality properties are developed (for a warehousing or retail operations), 100% occupancy rates are routinely achieved well before the completion of the building.
The federal government's ambitious economic goals will continue to bolster this sector. Investment has historically been state-led and, with vast plans to transform the infrastructural landscape, this is likely to remain the case. However, private investments in retail, manufacturing and tourism have also stimulated the construction industry.
Although there are hundreds of construction companies in Nigeria, few have the capacity to cope with really large projects. State governments have been active in the construction sector: CAT Construction won a $497 million contract to build a stadium for Ebonyi while HALCON Nigeria built the accompanying road network and parking facilities.
The latest 10-year forecast from Global Construction Perspectives and Oxford Economics says growth in Nigeria’s construction industry would be the fastest in emerging markets. The sector has gained new impetus from the expansion of cement companies, as they up capacity to cope with the country’s critical infrastructure and housing needs.
According to the forecast, infrastructure will help drive growth as emerging countries upgrade their transport systems, utilities and buildings.