Kola-Balogun: Pension Fund Can Be Used to Develop Housing Sector


    Owolabi Kola-Balogun is the Chief Executive Officer of OKB and Associates, a construction and real estate firm. In this interview with Oluchi Chibuzor, he spoke on issues affecting the sector

    What are the major challenges that make the real estate business an important part of the Nigerian economy?

    We came up with this idea of development and our emphasis has been on the fact that we can do the minimum standard of development, then we went into partnership with Sterling Bank Plc. The essence of the partnership was to prove that we can deliver this project within a particular time frame. We have been able to deliver a 130 units apartment which is known as the Sterling Court Project.

    It was to prove that we do a project with zero variation which will be a profitable and affordable housing. Those are examples because there is so much talk in this society not backed by action. So, we were able to tell investors that if they partner with us, we can deliver low cost, durable and sustainable housing for societal good. One of the main challenges facing the sector is the bill of quantity padding. The challenges we have with development is that it starts from your bill of quantity. The higher your bill of quantity, the more expensive the house becomes and the more unaffordable it becomes to the buyer.

    What is the driving force behind your development business?
    Designing smart, simplify it and build it smart. As a developer, you must design an apartment to be smart. It must have the ventilation space where everybody can interact. If you have adult children in a large house you may not be able to communicate with them because you will hardly see them due to the large space and distance. When you build it, you simplify the building; don’t put unnecessary designs that increases the cost of building.

    For instance, if the cost of two windows is more expensive than having a sliding door that gives you better ventilation than two windows, then get the sliding door. Building it smart means that you have to be efficient with the buying of products. At our quarries today, you find a lot of middlemen that will build 10 per cent in multiple folds which will increase your cost. So, when you are doing it from the quarry, you must make sure that you build smartly. When building, you don’t leave a massive space in the living room which makes it difficult for residents to interact, while a smaller space makes more interactive.

    What is the relationship between the sector you operate in and the financial industry that is expected to support your industry with the required capital for project development?
    I cannot blame the banks for not investing in real estate anymore. There is a sort of drawback from them because they have been swindled by developers. This is why we came up with our zero-variation policy. In August 2016, we signed the contract with Sterling Bank, inflation in the country has grown by into two digits between 2016 and now. We have not requested for a price increment from Sterling Bank to say we need more money to do this. The second point is that the banks don’t have the requisite knowledge in real estate, therefore they don’t want to invest in it.

    How are you bridging the gap between the growing demand for housing as a basic human need and affordability of decent housing without compromising on excellence and best industry standards?

    Whichever way you look at it, housing as a basic human need and affordability are all together. The government has able to decide to use pension fund to drive this need. But the money in the pension fund is owned by individuals and because of the fear that a developer is going to swindle the financier, the government became reluctant to use pension fund to drive this aspect of the economy.

    But there will still be a need for housing if they are affordable, and if it is accessible. Also, developers must see housing not as luxury, but they must see it as an off the shelf product to be used or discarded. You can’t build a house for N5million and say you want to sell the house for N20 million. If you build a house for N10 million and you put a margin of 32 per cent there, it makes it N13.2 million and you tell a particular off taker to pay you this repayment back in six or seven years at affordable price, he surely do.

    People need houses because every man wants to be a king in his own castle. Therefore, we can only drive this if investors have confidence in developers. If developers will respect the trust of parties that involved in their transactions.

    What are your prospects for the real estate business in the next five to 10 years?
    It is for us to diversify into social housing so that we build and encourage people to rent it and own it over certain duration of time. They do this social housing initiative in the UK and tell you to pay 400 or 500 pounds sterling monthly as rent, before you can own it. They might spread it for 25 years. if the person dies, his contribution can be liquated, or forfeited depending on the situation of the family. If they can pay up, they will not eject the family from there. The idea of social housing is that the product has to be mass to make it interesting to the financial institution.

    For instance, it has to be like 1,000 units and if you have 1,000 units, and you have 1,000 people paying you an average of 750 yearly, the banks is interested in that volume. Usually, it is government that drives such investments because of the huge capital involved. Also, because it helps the masses, the low-income earners to have affordable housing. I think developers should partner with companies such as Dangote Groups to assist in this issue of social housing. Dangote cement is one of the biggest cement industries in the world, and whether you buy or don’t, they produce this massive cement which is an integral content in development. I believe that we should maximise Aliko Dangote’s position in our economy to bring about affordable housing because already it gives credit to construction in the industry.