The Chief Executive Officer of KFAO Corporates Limited, Kehinde Ayodeji-Finnih, speaks with JOSEPHINE OGUNDEJI on how the depreciation of the naira is affecting the real estate sector, among other issues
Studies have shown that residential and commercial buildings account for almost 40 per cent of global energy-related carbon emissions. What are the implications of this?
Housing is one of the most immediate basic human needs, along with food and clothing. The provision of residential and commercial buildings is responsible for over one-third of energy use and energy-related carbon emission, and the implication of this is evident in the climate. The climate is an important factor that influences the success of what we do. We cannot live without it, but things may change if the climate changes. How does climate change then? Climate changes in a variety of ways. However, we are paying attention to the fact that one of human’s basic needs, which is shelter (commercial and residential), contributes a whopping 40 per cent to the emission of carbon which is detrimental to our environment.
We are all aware of the fact that the climate is changing, but many of us do not know how to effectively communicate that to others. It is high time people around us understood the factors that are influencing climate change and how we can be sure that our actions will have an impact on the future of our planet.
There are many problems that climate change causes. For example, the increased intensity of storms and floods can damage infrastructure and homes. The increased heat can also make it harder for people to work outdoors and can cause health problems.
How is the availability of advanced technologies for energy and water efficiency driving the demand for environmentally-friendly features in buildings?
Energy and the whole infrastructure surrounding it are critical for the economic and social development of the world. At the most basic level, people need access to clean, safe water for drinking and cooking, and power for lighting and heating their homes. The infrastructure has been positioned by the World Bank Group as an essential agent of change and transformation to address the challenges of achieving sustainable economic development and the Sustainable Development Goals proposed by the United Nations.
However, providing the capacity of the energy infrastructure to meet the unmanaged growing demand is ultimately unsustainable, both in environmental and economic terms. For developing countries, this issue is becoming more urgent than before, due to the growth of population, due to the increase in urbanisation.
In line with the elements given above, the requirements for the economy, energy security, environmental friendliness, energy efficiency and adaptability of the energy infrastructure will be tightened.
It is argued that the next phase in designing is green buildings. How can this solve the challenge of the 28 million housing deficit in Nigeria?
Green building technology uses advanced technologies to develop buildings with minimal impact on the environment in all the lifecycle stages: from design, construction, operation, maintenance, and renovation, to demolition.
It has economic benefits. Several studies suggest green construction can result in significant economic savings by improving employee productivity, increasing benefits from improvements in health and safety, and providing savings from energy, maintenance, and operational costs.
The social benefits include improving occupant health and comfort. Research suggests that better indoor air quality (low concentrations of CO2 and pollutants and high ventilation rates) can lead to improvements in the performance of up to eight per cent.
Environmental benefits – green building may contribute to enriching water reserves, preserving natural resources, defending biodiversity and enhancing air and water quality. Green building also reduces your carbon footprint by producing less waste and decreasing the number of toxic gases set free into the air.
Nonetheless, the common challenges were and still are a lack of understanding and awareness about the economic benefits and opportunities of green buildings. Insufficient government support, inaccessible legislation, and the perception that green buildings are expensive are still great challenges. The earlier we tackle these challenges as a nation, the earlier we begin to enjoy the socio-economic and environmental benefits of green building.
How will Nigeria achieve energy efficiency in building and construction?
The Nigerian building sector in recent times has fallen in line with the rest of the world when it comes to achieving energy efficiency in building and construction. The main objective in achieving energy efficiency is to decrease the energy demand of buildings and, thereby, reduce the negative implications of urban development and poor energy infrastructure on people’s well-being. One of the key strategies being adopted for the substantial reduction of energy demand in the Building Energy Efficiency Guide for Nigeria is the bioclimatic architectural design approach. Hence, intelligent design of buildings, especially the building envelope, can considerably improve energy efficiency and help to achieve heating and cooling targets
The latest report by Fortune Business Insights on the global smart buildings market estimated that the global smart building market will grow from $80.62bn in 2022 to $328.62bn by 2029. How will a country like Nigeria take a cut from this?
For players in Nigeria’s real estate sector hit hard by the recession of 2016, which caused a 6.86 per cent decline in the sector compared with the growth of 2.11 per cent recorded in 2015, the post-recession fragile convalescing period was dealt a further blow by the COVID-19 pandemic. Post-Covid – the sector is confronting another monster in the free fall of the naira and the accompanying inflation. The rapid depreciation in the value of our naira has continued to have a telling impact in all sectors of Nigeria’s economy from aviation to manufacturing and everything in between – and honestly, real estate is not spared and it’s very traumatic.
The bulk of input materials in the sector are imported. In the last 12 months, the naira has gone from less than N400 to the dollar to N700 to the dollar at the parallel market. The rate at which the value of the naira is falling has translated to a spike in prices, which naturally means that the end product is increasingly being priced out of the reach of many potential buyers. The present forex scarcity has affected the cost of building materials as a spike has been recorded over the past few months due to the Nigerian construction industry being heavily dependent on importation of raw materials and equipment for construction. With the naira on a free fall, the cost of purchasing these raw materials and equipment has spiked, and so have property prices while wages have not increased and unemployment is rising
How beneficial will the naira redesign be to the Nigerian economy?
While periodic currency redesigns are normal and the naira does appear to be due for it since the naira notes have been redesigned for two decades, the timing of and short transition period for this demonetisation may have negative impacts on economic activity, in particular for the poorest households. At present, households and firms already face elevated financial pressures from prolonged high inflation recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing naira notes over a short time period may add to their challenges.
How will you describe the capacity of the real estate industry to underwrite major risks?
Underwriting is a key function in the financial world. It is used in various sectors, including lending, insurance, and investments. But it also has an important place in real estate. Real estate is versatile and everything involved in real estate investment is financed to an extent. The real estate industry can single-handedly carry out underwriting of major risks provided there is a provision for such a department and capable hands to handle such in the sphere where real estate operates.
The underwriter researches to ensure applicants represent themselves truthfully and to get a sense of the applicant’s finances. For real estate transactions, underwriters also determine whether the property’s sale price meets its appraised value. They also ensure there is no one else on the title, and whether there are dangers to the property due to natural disasters such as floods and the like.
When an individual or business entity seeks funding for a real estate project or purchase, the loan request is scrutinised by an underwriter to determine how much risk the lender is willing to accept. These types of underwriters are not to be confused with securities underwriters, who determine the offer price of financial instruments. Real estate underwriters take into consideration both the land and the borrower. To a reasonable extent, real estate has the capacity to underwrite major risks.
What kind of support should the government give to the housing sector to enable it to grow?
The revised government policy on housing was aimed at removing the impediments to the realisation of the housing goal of the country. The goal of the policy is to ensure that Nigerians own or have access to decent, safe and healthy housing accommodation at affordable cost. There is no way the housing deficit can be tackled without government policies being fully activated. In order to solve the 28 million housing deficits in Nigeria and achieve sustainable housing delivery in the country, the government and stakeholders should adopt the following basic measures such as reviewing and implementing the National Housing Policy, because the major aim of housing policy is to solve housing problems. And a majority of the Nigerian residents are low-income earners, which the policy supposedly deemed to address but cannot afford the house being produced under the programme. The National Housing Policy should be reviewed in line with the unique diversity of Nigeria’s cultural inhabitants as well as the financial, human and material strength. The policy when revised should be implemented totally.
Also, a viable mortgage system will strengthen home ownership. For example, a mortgage system where rent payment will lead to owning a house. This system will afford low-income earners the opportunity of owning an apartment after many years of paying rent to the mortgage institution. From being a tenant, they become a landlord. Government should, therefore, come in to provide the enabling environment by encouraging mortgages.
In addition, ease in registration is very essential because the process of building plan approval and issuance of a certificate of occupancy should be made faster and less cumbersome. The cumbersome property registration processes are major barriers to housing development and home ownership, leading to the country’s huge housing deficit.
What is your view on the clamours for the review of the extant Land Use Act?
The Land Use Act of 1978 putting all land under the management of the government is a major challenge. The decree was to be advantageous for the country and its citizens with regulations to protect the public interest, as well as create efficiency of land use all over the country, but it is not working in favour of the Nigerian citizens. Purchasing land in Nigeria today without acquiring a Certificate of Occupancy from the government puts you at a disadvantage since the land is not really yours. This prevents access to loans or funding to develop such property.