“…a lot of developers and builders get away with low quality construction because of the lack of anything better.”
Ayo Denton meets Obi, Ejimofo, Managing Director of Nigeria’s most comprehensive online real estate marketplace.
By Ayo Denton
Ayo Denton: I know you have always been in the technology industry, but why fuse technology and real estate?
Obi Ejimofo: I have always played a large role in technology, information and data. I believe so much in the power of data, I spent six years in Thompson and Reuters, the financial information firm, working with the news and seeing the power of how good data can change investment policies and change the nature by which people do business or make decisions.
So what attracted me to Lamudi was the combination of not just that this is technology within a space where there it is lacking but also the potential one can get out of the data that could come out from running such a platform.
A.D: So Lamudi is not just a site for buying and selling property, you are now bringing technology into real estate through data collection. Why is this important and what do you aim to do with the data in the long run.
O.E: This year we decided once we clocked a 100,000 searches per month on the site we decided we are going to start using that data to provide insights into the real estate industry. So for the first quarter of this year we brought out a report where we were able to tell the average sale and rental prices per bedroom for every single local government area in Lagos state. We were able to give an indication about the demand and demand characteristics right down to a granular level. We want to be able to provide both developers and house searchers an idea or benchmark of prices within all areas. We at Lamudi also want to help developers make better decisions on where they need to focus their resources before entering into construction. We also want to give them an idea on certain construction costs to get certain levels of profit, hopefully this will bring prices down and improve quality of property.
We want to demonstrate to developers how disconnected their supply is currently to the demand, for example in a place like Lagos where you look at the numbers of what people are looking for, you will notice that over 70% of people looking for property are looking for something to rent while just 30% are looking for something to buy. But on our platform over 60% of the property advertised is for sale and just 40% is for rent, so there is a major disconnect. We want to go into more detail and ask what are the demand characteristics versus the supply characteristics in Lekki, Yaba, Surulere, Shomolu, and Ikorodu. So that a developer who has some hectares of land in Ikorodu can make a decision on what to build. He will be able to make a better decision by looking at our platform which informs him on what people are currently looking for within that area. If they make use of this data, they will build and sell faster and have a faster turnaround and hopefully bring a reduction in price of property.
A.D: Nigeria has the highest GDP in Africa. High GDP anywhere else in the world usually translates into fair/good living conditions and access to housing and infrastructure. Is this reflected in Nigeria?
O.E: Very good question. Nigeria should have had the highest GDP in Africa a long time ago. High GDP does not necessarily translate into great living standards. In fact because it does not necessarily translate that way is why a lot of economies can use GDP as a leading factor to look at for example growth, but they do not use it as a basis for determining quality of life.
When looking at the quality of life, it’s not the overall GDP, it’s the GDP per capita (per person) that should be looked at. Take Nigeria and South Africa for example, Nigeria has a population I think six times the population of South Africa. So when you divide Nigeria’s overall GDP and say what is the GDP per person of Nigeria versus South Africa, of course South Africa’s GDP per capita will come out much higher than Nigeria’s. This therefore reflect in higher living standards, higher levels of education etc. Like in any major city, in South Africa there are still complaints of poor education, high criminal rates etc. In South Africa these outcomes are not driven by GDP but by government policy, and as an outcomes of the apartheid era.
United States as another example that has one of the highest GDP’s in the world yet a huge gap between the rich and the poor – some people have to go to food banks while some have more money than they could spend in a thousand life times.
Quality of life is driven by government policy and government investment. And Nigeria has not been very strategic on how it has invested into the economy and its infrastructure to help the growing populace. Policies need to change to improve that and also lower the gap between the haves and haves not.
A.D: Even though oil prices have crashed and there is a tumbling exchange rate, the price of property in Nigeria remains the same. What keeps or contributes to this?
O.E: Yes, We have had the crash in oil price, massive devaluation of the naira and I love the point you are raising about how come these price mechanisms have no effect on the price of property.
Put diplomatically, I would say normal market forces do not drive the sales market in Nigeria. Normally, the invisible hand is at work – if demand is high and supply is low then prices should rise, and inversely if demand is low and supply is high then prices should fall. However, we do not see that happening in Nigeria. If you want to understand why ‘follow the money’. The money used to invest in the property on the market is not driven by the need for profit and therefore the invisible hand that causes prices to come up or go down has no part to play. That’s my very diplomatic answer.
Now what can change? What needs to change is the nature of investment into the housing market. We at Lamudi speak to a lot of property developers, and when we talk to them about their source of funding they either have a high net worth benefactor or they go to the banks to seek funding. The problem with going to the banks is that their interest rates are quite high (25%) and terms or duration for repayment are quite short (four years) but housing is a long term investment. Instead, there should be a minimum of ten years in regards to return on investment. Banks’ lending policies currently deter or reduce the amount of investment expected to come from the banking sector and ensures that the majority of funding for housing comes from private individuals.
Secondly our mortgage market is still extremely immature. Ideally, the money that comes from those relying on mortgages to finance housing should become the bucket from which developers use to invest in more property. No provision of mortgages means there is no funding bucket for developers. Till that happens property will continue to be funded by high net worth individuals.
Finally, there has been a lot of interest from foreign investors who are looking at the macroeconomics, the dynamics and looking at demographics of the country and thinking this should be a fantastic place for them to invest in and these are people very keen on taking equity stakes/ mezzanine debts in property development in the country. So I think that this is an area which will hopefully improve, but is somehow being slowed down by the uncertainty surrounding the monetary policy. With the devaluation of the naira, no one knows where we are, will it drop further or eventually rise? Without that knowledge, foreign investors will fold their arms and hold back their money.
A.D: Moving around Lagos I have noticed a lot of housing developments are quite disappointing; poorly maintained and badly designed and built. Are developers to be blamed or is it because of the cost of construction, materials and land?
Collapsed building in Lagos, 2014
O.E: There is a market for everything. Everyone needs to make a decision based on quality and price, thus striking a balance between what quality they are satisfied with given the price. So a lot of developers and builders get away with low quality construction because of the lack of anything better. I believe that we have developers capable of building robust, nicely constructed, well-built and finished property similar to the more high end buildings you see.
Medici Terraces, constructed by Sujimoto
Now the question is are these developers building at a lower cost and then selling at a higher price? Or highly unlikely, building at higher cost and selling at a lower price? They are selling at a higher price because they know there is demand for quality but no concern about cost.
If someone were to come into the market and build quality buildings at low prices he will mop up the market, he will make sales, he will expand and force the rest of the market to either improve their quality or reduce their prices. So we just have to wait and see which players will decide to do that.
A.D: Do you believe in the viability of building ‘new cities’ at such a grand scale like Century City Abuja, Eko Atlantic or the Lekki Free Trade Zone? Will they be good places to invest in?
Drawing of the proposed Century City, Abuja
O.E: Lamudi would definitely love to do business in all the places mentioned. I think time will tell, it’s an open question on whether the pricing for these new developments is at the right place at the moment.
These new high end developments will have an impact on the demographics on the surrounding area. For instance if Eko Atlantic gets it right in terms of the quality of buildings and price point, you might see a substantial shift of higher end residents from areas like Victoria Island, ikoyi and Lekki to Eko Atlantic, who want to a better quality of life. If this happens that will have a corresponding effect on areas like Victoria Island, Ikoyi and Lekki. They will change from what we call high end areas to upper middle class areas. But all this still depends on how the developers will price and position these new developments in the market.
One of the great things about Nigeria is that we are not a credit based society, we are not too keen on buying without seeing the final product. I think we need to wait to see much further down the line how these how these developments develop, we need to see the roads, the towers, the infrastructure. We need to see it to believe it.
A.D: If this shift/exodus happens and with our poor maintenance culture, should alternative measures be taken to preserve the existing areas like Victoria Islands and Ikoyi?
Drawing of Eko Atlantic, Lagos
O.E. I do not think preservation is an issue, firstly the responsibility for maintenance in these new developments is very much private driven
Secondly, as we have found out over the last ten years of civilian rule and even the military regime the quality of infrastructure maintenance and infrastructure investment is driven by the personality and character of the chief executive of the state. So as long as Lagos State keeps producing great governors I do not expect to see a deterioration in infrastructure anywhere within the state.
A.D: There isn’t a lot of residential property for low-income earners and with the population there is definitely a need. As a result Lagos Home Ownership Mortgage Scheme (HOMS) came about. Do you think Lagos HOMS will be successful and is there space for more?
O.E: It’s been up and running for quite a while, but success means different things to different people. But I think Lagos HOMS could be scaled up, so that the greater number of property could be available to a wider reach of people. At the moment it seems there has been a restriction on whom has access to these homes.
Completed Lagos HOMS apartments at Surulere, Lagos
A.D: What is your opinion on the recent Badia Evictions? Should the government assist victims and prevent further displacement?
O.E: I do not know the details behind the evictions, or the history of the situation. Sometimes when you hear a story there is a background and perspective to why it’s happened the way it has, so am not going to comment on whether the government should displace people or whether they are within their rights to or not. But I will only say everyone is entitled to housing, it’s a basic human right, everyone should have shelter in one form or the other. No matter what policy is being implemented, every government should take into consideration the shelter needs of its people.
Whether the government is right to evict or not, I cannot say in this case
A.D: How do you unwind and spend your free time?
O.E: {Laughs} Do I unwind should be the question. I do not think I unwind enough, and when I do get the opportunity it always has to do with music, I am a jazz fan, I love Jazz music, jazz fusion, jazz hip hop fusion. It’s all about the music, and there is nothing I love more than some jazz music, a big fat book and some quiet.
A.D: I read you plan with what is within your reach, so what is next for you and Lamudi in the next?
O.E: {Laughs} Next week if everything goes well we actually plan on bringing out the next edition of our data report on the Lagos market, the Q2 report. It’s a bit late and hopefully a month after that we hope to bring out the Q3 report. We are hoping to not just show in detail what’s happening on a granular level but release reports on a quarterly basis showing the trends; where things are trending, price trends, supply, demand etc.
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Obi Ejimofo is Managing Director of Lamudi Nigeria. Prior to joining Africa Internet Holding, Obi worked in global strategic product and technology roles for Philips Electronics and Thomson Reuters before focusing on business development and market entry strategies in Sub-Saharan Africa as an independent consultant. He started his career in start-up ventures with Open Interactive – the Interactive TV venture that is now Sky Interactive, BSkyB.
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