Abdul: Appropriate Financing Structure Will Solve Housing Deficit

Adekunle Abdul

The Managing Director, Metro and Castles Homes, Adekunle Abdul, speaks on how government’s support for the real estate industry can solve the problem of deficit in housing. Raheem Akingbolu presents the excerpts:

With the importance of the real estate industry to the economic diversification drive of the federal government, what do you think government can do to further grow the sector?
One of the things I think government has done in recent times is the fact that it gave the Central Bank of Nigeria the mandate to make it possible for people in various industries to access credit, and this I believe will boost the economy. For the components in a house, real estate players deal with over 50 contractors, from door to light, window and tiles. Subsequently, if we get people who buy the houses, it means we’ll have purchasing power to do more and when we’re able to do that, the money circulates and the economy will continue to expand.

No business will be stalling, which means we don’t have inventory. We won’t be building houses that nobody is buying. To this end, I think purchasing power in Nigeria is the biggest problem not just in real estate, but other sectors which is what I feel they are trying to solve with CBN giving loans to individuals.

For instance, in the U.S, as soon as I graduated, I had three letters from three different banks begging me basically to buy a house, because I had a good credit rating. It is not a cash cow economy like that. They move money around a lot so their economy will grow. It is normal, so that everyone in business will sell, no business will stall, a light man will sell his product, same as the furniture person and the rest on the property chain and money moves round better.
The moment there is no money moving to people who want to buy, then you will start having a situation where people are producing but will not be selling.

What are the key challenges you have had to deal with as a developer?

First of all, I think the real estate industry is filled with businessmen, not construction professionals. As a result of this, if you have money, you can gather engineers together and put up a project and say they are going into real estate development and that is why we are having so many failed buildings and constructions because they are not construction people, rather businessmen just trying to make money.

There are things I will see when I get to my site that a business man might not see. His own is that engineer should deliver 20 units of housing. There are things we look out for internally. Because a building looks fine on the outside may not necessarily mean the building is alright. What is holding the building on the inside is the real deal. That is what really matters and that is why when you see a company that does off plan and tells you to visit his site during construction, they are open, that is what it means because you can walk in with a professional and do your survey.

By the way, we are always open to that, our clients are free to come by the site anytime as long as they inform us and book a schedule so we can have someone take them round their units and they can bring in an external person to also check.
In a nutshell, the challenges in providing affordable properties are not much because we produce most of the products we use. This is due to the fact that we don’t want to tell people our units are expensive.
The same way we build luxury housing is the same way we build low cost housing; the difference is that there are more rooms in the luxury than the lost-cost.

Having to keep up with artisans is another challenge, when you have 200 people is different from when you have 10 people. Because of this, keeping up with them and employing more brains to section them is another thing and there isn’t much challenge.

What attracted you to the industry despite the challenges?
Prior to my permanent relocation to Nigeria, I was already into real estate businesses in Nigeria- I had built for one or two people. On my arrival, we came up with the idea of Metro and Castle, which is basically to bridge the housing gap in the country while also meeting the needs of the people. I had to deliver good quality yet affordable housing to Nigerians
Since we started off in 2015, the company has been engaged in a total of 18 different projects- ranging from blocks of flats to regular semidetached apartments.

Last year, we slowed down in doing high-end housing- houses that are expensive, N80million to N100 million kind of property. That that was our core specialization before now- that is luxury houses.
Having been in the market for some years now, we understand the industry; we realized that a lot of people need houses, it is a need and not a want, and we know that a lot of people cannot aff0rd it unlike back there in the United States. There it is pretty easy. If you have good credit rating, you can get a house in few hours. But here, the process is something else.

After this, we came up with the scheme where people can be paying in instalments, which is an idea of encouraging people to pay in parts over a period of time to enable them own the house, say from 24 months to 36 months. This is our first approach, and luckily for us, we already sold out on our phase I.

We have also gone further to engage the banking industry and the only bank so far that is working with us with some lucrative offer is SunTrust Bank. As a foreign brand, I know the bank understands the language we are speaking and can relate with our idea. Of course, to be able to get a house from us through paying in installments, you would have to meet some certain criteria, like have a steady source of income, and the rest and SunTrust has indicated an offer to support people, up to 60 percent of the values of the houses.

Having that on ground, coupled with my background as a cost engineer, we are able to narrow down on the houses but still deliver top-grade houses. We practically make all our raw materials by ourselves, having engaged over 200 artisans on a daily basis and all kinds of contractors. We produce our blocks, fabricate our windows; everything is produced here except the ones that we need to buy, like tiles and the rest of them but whatever we can produce here, we ensure we do it ourselves, to enable us cut the cost down significantly.

We have so far been able to achieve our goal. We also try to provide basic needs, and you can hardly see any estate in this area that has swimming pool and a gym. This is not luxury; it is a normal thing in a good community.
Early last year we decided to move from the luxury homes to providing for the low-income earners. To that effect we moved to this Abraham Adesanya area on Lekki Gardens phase IV Road, where we think the lands are less-expensive compared to the major sub-areas.

The cost of building a house is the same, whether you are building in V.I or Ikoyi, but it is the land value that drives the cost of properties high. We knew that we couldn’t provide affordable housing in areas where lands are very expensive. We can only do it in areas where land is affordable.
Also, SunTrust Bank has promised to help people, because that is the biggest concern. When you are earning a salary of N100,000 to N300,000 how can you afford a house? That is the question. So, the bank understands that and the interest rate is what we are really looking at, because the support is one thing but the interest rate is another thing.
You don’t want to use ten years to pay for a house and you end up paying twice or two and half the actual value of the house, so we have an indicative offer from them which is good, but we are still negotiating interest with them.
I am sure that anytime from August 2019, we’ll start marketing the phase II to people, and then providing finance to them as the case may be.

Do you have plans to offer affordable housing for the low income population in the country?

Yes, we are going to do that. Our phase II, for example has lower version of what we are actually trying to do now. Like I said initially everything depends on the price of land. Ideally because we don’t have control over the price of land, we buy what we see and think is good.
But because I am looking for cheap land doesn’t mean I should go and buy by the water side where the soil test will fail the building, so I still have to look for where good land is and buy it.

However even with the good land we are still trying to say: what is the need of this market? While trying to sell the phase I, we did a lot of survey, and we found out that people were looking for even two-bedroom apartments, and we didn’t have that at the time, which informed why we are still learning as we develop. Having known that people want this kind of property, we factored that into our phase II plan and now we have properties that are below N20 million.
I believe that people that couldn’t get what they could afford in the first one will see something they can afford in this second one.

What is required for your company to deliver quality and affordable housing?

Finance is the key strategy to everything. The reason why the prices of properties are high is because the funding comes at a cost, and all those costs are buried into cost of construction.

Maybe what we are selling for N40 million might be as low as m N25 million to build the property but by the time we bury in the interest rate, we’ll probably add another say 5 million to cover for the finance before we start having other government agency costs, cost of survey and the likes.

I think if we have a guaranteed market that the bank is ready to finance it will be a different ball game, even if I make 3 million from one house, I won’t mind as long as it bought as soon as it is ready. But in a situation when we don’t know when the house will leave the market, we have to make provision and factor the long time into the price. I have consistently maintained that with appropriate financing structure, housing deficit will be solved in this country.