In the aftermath of the recent happenings in Nigeria’s real estate and short-let rentals sector, one of Nigeria’s home-grown daredevils and major disruptor in Nigeria’s real estate sector, Keji Giwa of Digital Landlords and Shortlethomes in a recent commentary admonished the approach by property developers that is turning more landlords (property owners) to tenants.
As the pioneer of short-let apartment rental with 5-star hotel-like experiences in Lagos, landlords must experience profitable and healthy growth in their rental income from local rental to high yield vacation rental income where landlords with properties in Lekki Phase 1, Ikoyi, Victoria Island have experienced a 500% increase yearly rental income. This has taken their ROI on a property from 2.5% a year in local rental income to 22% a year in high-yield rental income.
Commenting, Keji Giwa said; “For the first time in the history of Nigeria, average Nigerians could potentially get back the return on a property in 5 – 7 years and this led to an accelerated explosion of real estate investments, creating new opportunities for real estate developers to sell to Nigerians in Diaspora who were keen to capitalize on this new goldmine.
“The new sales pitch became: ‘When you buy our homes at N75m, Shortlethomes will get you between N15- N25m per year in short let rental income and if you post it on Airbnb or booking.com you can even earn in dollars or pounds. For the first time in the history of Nigeria, diasporas no longer needed to worry about the inevitable & consistent dollar to naira devaluation on their investment while earning a 2.5% yearly on their property which does not cover the 10%-15% currency depreciation per year, wiping away any possible capital gains. “
He continued, “A slowed down and struggling real estate market quickly picked up towards the end of Covid 19 between 2019 - 2021 and we suddenly started to see a real estate boom with an influx of diasporas collectively investing millions of dollars in properties.”
According to a World Bank Data, the Nigerian Diaspora population remitted $65.34bn in three years to boost economic activities in the country. Looking into the data itself, in 2018, the Nigerian Diaspora remittance was $24.31bn; in 2019, it dropped to $23.81bn; and in 2020, it fell to $17.21bn. Remittance inflow made up four percent of Nigeria’s Gross Domestic Product in 2020. Also, the United Nations Department of Economic and Social Affairs in a research data stated that Nigeria had a Diaspora population of 1.7 million as of 2020. This puts the average remittance per Nigerian abroad (based on 2020 Diaspora population) at $38,428.15 across the three years.
A pretty insightful article by B Joseph written in 2018 reads that; “Nigerian Americans is estimated to earn $52,000 per year according to Migration Policy Institute, USA, slightly higher than the average $50,000 in the US. They are also more likely to be counted in the higher income brackets as 35% of Nigerian-American households earn US $90,000 per year. Albeit they represent a minutia portion of the U.S. population, 37 percent of them hold a bachelors degree and 17 percent a masters. 29 percent of Nigerian-Americans aged 25 and plus, have a graduate degree, compared to 11 percent of the US population. Nigerian accounts for less than 1 percent of the black population in the United States, yet they make up nearly 25 percent of all Black students at Harvard Business School.”
In a nutshell, Nigerians in Diaspora are not just high-income earners, but significantly contribute a whopping 5% to Nigeria’s GDP.
While addressing why Nigerians in the diaspora are shying away from investing in Nigeria’s real estate, Keji Giwa attributed this firstly to the constant and repeated depreciation of the naira to dollar value.
He talked about a friend who bought a house in Lekki in 2015 and although the house has almost doubled in value today, he has lost 60% of its value if he was to sell it and convert it to GDP (pounds).
He noted that another friend spent a total of N60m on an apartment in Chevron for short let only to realize the cost of running (power and service charge) wiped away all his gains and on top of that, due to the low maintenance culture of the estate, if he was to sell it, he wouldn’t get N30m for the apartment.
“While the diaspora market clearly presents a huge opportunity to fund the Nigerian real estate, there is little attraction for investors to want to invest today. Out of the funds remitted to Nigeria each year from the diaspora market, Unsurprisingly, 70% of remittances are spent on household & personal uses like education, large purchases, and education while the outstanding 30% goes towards Building or buying a house at home.
“The bad news, investments into real estate have started to dwindle as more people start to realize it is better to invest in dollars or pounds rather than in Naira however, the sentimental value of owning a home in Nigeria is still very strong,” he said.
Furthermore, Mr. Giwa said; “The only profitable route for most investors in real estate when it comes to Nigeria is buying off plan and selling within a 12-month period where they can experience up to 40% capital gain, however selling is now becoming a huge challenge as we begin to experience fewer buyers due to the dollar to naira devaluation at an alarming rate. As of Jan 2022, dollars was at $1 to $590 in the black market. Today it’s $1 to N720 and is expected to hit $1 to N1000 by December.
“The hope for high yield rental income from short let revenue has now been wiped out by the uncontrollable increase in diesel prices which leads to extortionate electricity bills by service management companies which are in most cases owned by the same property developers who sold the property to them.”
A great deal of property developers came to the realization a few years ago that they could easily turn Landlords into tenants by charging up to 400% premium on electricity bills and close to 100% profit margins on service charges. While a landlord may generate N1.3m from a short-let property as rental income, N1m of that money goes towards paying electricity bills. When you consider the cost of maintaining a short-let home, cleaning, facility management, and replacing damaged items, it’s no longer profitable.
On how we can stop the naira to dollar devaluation and how can we get back to making 22% or more from high yield rental income, Keji Giwa said the solution lies with property developers. He also proposed a master plan that will boost Nigeria’s real estate investment from Nigerians in Diaspora.
According to him, “Property developers should see buyers / Landlords as partners rather than cash cows. If you are a developer building in Lekki Phase 1, Victoria Island, Ikoyi, Oniru, Ikate, or Osapa London, you should be focused on selling value. Approximately 5m people travel to Nigeria each year with Lagos State, Lagos Island to be precise, accounting for the majority of that number. High population density areas with mixed use of recreational, business, and residential properties account for 95% of the short-let market, that’s a 10-mile radius from Lekki Phase 1. If developers can choose to work on a 30% margin on electricity bills and service charges combined, rather than a 400% plus margin wiping away every possible gain a landlord can make, Landlords can maximize up to 22% ROI on their properties each year from short let rental income and beat the dollar to naira devaluation. If they refuse to do this, they will inevitably lose the Nigerians in the Diaspora market which is worth at least $7bn yearly.
“While 70% of vacation bookings are local bookings, the daily rates charged are up to 40% higher than the rates of international bookings from Airbnb and booking.com which accounts for 30% of bookings. Property owners can capitalize on this high yield income while only losing 10% - 15% a year in naira to dollar depreciation.
“If I can buy a 2-bed apartment for N80m in Lekki Phase 1 and make N15m yearly after cost in short-let rental income, that’s an 18.75% ROI on my property. In 5.3yrs, I have made my money back. If I earn 30% of it in pounds/dollars and convert the remaining 70% of it from naira to dollars or pounds monthly, I may only lose 5% - 10%, allowing me to average close to 10% in dollars or pounds on my property each year. My capital appreciation is now a bonus to me.
“At this point, it’s far more profitable than investing in UK or the US because I am experiencing a 10% yearly 10% revenue to capital investment. Developers hold the key to making real estate in Nigeria attractive to Nigerians in the diaspora.
“Meanwhile, Nigeria is fast becoming the destination hub for indigenous tourists every easter, summer, and what is now called dirty December. Property developers should focus on recreational real investment to attract tourism and recreational activities. This will boost the recreational short let market which can generate a 30% ROI for investors.
“This is what we are doing with Giwa Garden City, 570 vacation homes right next to Giwa Gardens Water Park in Sangotedo, the largest water park in Africa which will attract 1.4m people a year generating over N35bn in revenue and attracting major investments to Sangotedo. We are also capitalizing on the Gold rush of ocean view apartments and beaches on the Oniru axis. The Carnelian, 21 storey luxury apartments with recreational activities, Ocean view & private beach where each apartment has already experienced a 163% appreciation in value since the purchase of the land and expected to appreciate by a further 158% on completion.”
He stressed that; “Attracting the international community using recreational and tourism based initiatives (diaspora, expatriates and tourists) will attract revenue in dollars and pounds, overcoming the dollar to naira depreciation issue buyers/investors/landlords are now faced with today. The key is to sell recurring value and no longer just selling properties to turn landlords into tenants through extortionate electricity bills.”
He concluded that property developers who can capitalize on this initiative will gain a huge competitive advantage and dominate the diaspora market over the years to come.