Channels Television Nigeria interviewed the principal partner of Ismail and Partners, May 2020. Below are the transcript and the video clip. You can share your thoughts on the comment box.
Interviewer: Now as a practitioner in the real estate sector how would you assess the impact of COVID-19 on real estate.
Mr. Gbenga Ismail: Thank you, in Nigeria, the impact is not directly obvious. We would not feel it immediately unlike the other parts of the world. Why do I say this? if you look at the interaction in real estate in Nigeria and compared to the other parts of, I mean the developed part of the world.
Basically, if we look at the UK, the US even some parts of Africa where mortgages work, where your involvement is a percentage of the amount of money you’re going to do, the first structural thing you even look at, in terms of tenancy in Nigeria, we pay one year in advance, two years in advance so you don’t have a quarter by a quarter situation that they are filling out there, so right now what happened is that from the period of the lockdown you don’t get to feel anything but from the third and fourth quarter, maybe you can start seeing how this has affected the real estate sector in Nigeria.
You’ve mentioned about job losses job cuts, disposable income, now these things will start trickling into the economy, people won’t be able to pay their rent, all the plans to buy a house or to put deposits down all rethinking will be done effectively.
We are still not sure where the monetary issues are going to go to be able to see if lending will continue in whatever sense to this particular sector so we’re yet to see some of these things going on and even the inventory meaning that the developers that have put buildings out there, who’s going to take it? who’s gonna rent some of this space? Are spaces going to be still in demand in the same manner it was prior? we have wait periods of leasing and selling, six months, this was before COVID, waiting six months to get someone to come and make a decision now we’re thinking, is it going to be 12 months? is it going to be longer than this? so the immediate impact will soon start revealing itself.
Unlike the global sector where you see the company saying our quarter rent has not been 84%, is 90%, is 20%, next quarter we want to see whether it’s improving or decreasing and people are asking for a moratorium in payments of rents globally as we’ve heard so those are the sort of things we are…
Interviewer: Are they going to apply that to perhaps here in Nigeria because if you have to pay alright then…
Mr. Gbenga Ismail: when you talk about structure that we pay yearly in advance, of two years in advance, effectively it’s only those whose rents are coming due in this particular quarter and next quarter maybe having those discussions because businesses may have been affected and also humans resources, I mean staff also may have been affected so those decisions will be taken.
Interviewer: Now there are other people who have must have actually taken a mortgage, you know, to get their houses perhaps to build or to you know buy a house are they likely to also get a moratorium?
Mr. Gbenga Ismail: Yeah, let’s get this clear, the mortgage debt in Nigeria it’s not anywhere so fantastic to have effected a lot of things but for those who have mortgages and who probably are in the risk area of losing their jobs definitely they will have discussions with their lenders, so what to do if that happens and I think that those mortgage lenders have to actually listen to this plea when it does come, they would have to think about it, that what did they do in terms of, because the COVID situation is a force majeure, nobody expected it, nobody thought about it and people are being forced to make decisions that they did not plan to make.
Interviewer: Now, I mean during this period there’s a lot of conversations around palliatives, you know incentives for various sectors; agriculture, health care, and nothing was mentioned in the real sector. Is it because perhaps you’re looking at the fact that, okay, the effect is not being felt for now or something?
Mr. Gbenga Ismail: No, no, no, interestingly, you see real estate is being taken for granted by everybody, so think you can forget it because you live in the house but you just take it for granted, that the house is always going to be there. The warehouses for storage, for manufacturing, the buildings for offices, even the isolation center is a building so to speak but you forget the role it plays, so the government actually doesn’t realize that, what do we do for this sector?
All the inputs to put the buildings in place require materials, so when the government is thinking about sorting out different sectors, they need to look at areas of, where your building materials are coming from to the developers. The interests that have been given to certain developers and certain contractors who are going into this area, what do we do effectively? because they will be affected. They will not be able to deliver on those promises if they get affected by any of those variables that have been affected because of the shutdown, lockdown, and the effect of having a situation where nobody can interact anymore.
So, I think the government should look at it. If you look at the stakeholder situation and real estate value chain, from acquisition to design construction, to all the areas that are connected, there must be a way government, from taxes to concession to levy, suspension to everything, the government need to look at it not directly giving money into somebody’s hands but the things that add into cost must be looked at.
Interviewer: I’m sure you’re following the inflation trajectory. We saw the April inflation 12.3% and of course, obviously a lot of people believe that inflation will continue to climb. How do you see that impacting the real estate sector?
Mr. Gbenga Ismail: Well, that has a direct impact, I just mentioned about the building materials, if the inflationary pressure goes into the building materials inputs side, of course, any product is the cost of housing it’s gonna go up. The landlord is directly affected, he’s gonna increase his rent because he has to go to the market area and purchase goods and would transfer it to his rent, rents might go up, so all of those things are interrelated.
Once, inflation index is going up and the way we do rent reviews is based on CPI’s and all of those, the retail price index, inflation index, all of those things are looked at. So, once that starts going up, it’s going to pull up all these like rents, and…
Interviewer: Alright, we’ll just have to be forward-looking, COVID-19 of course has come and it will go. So, what is the outlook for a sector in the short, you know to medium term is there a light at the end of a tunnel?
Gbenga Ismail: Well, you know I’m always optimistic about real estate. I strongly believe real estate will always overcome every pressure thrown at it. If you remember, 2008 where the crisis in the global world, was real estate driven but it turned around in three to four years, and now it just a store of wealth for most people.
So, just like that, COVID it’s a temporary situation, it’s a health crisis but because of what I have now termed, which I borrowed the word CORONOMICS which effectively means that because of coronavirus we gonna have an economic impact in the short term, asset values may drop, so for any investor, this is the time probably to go in, when the prices are dipping in because when it comes out, it’s going to come out rapidly and effectively return the value that may have lost in that time, so nobody is in panic, nobody’s to run away and think, Oh! things are going crazy we cannot make a decision.
But, stay focused, invest in your real estate continuously, as you plan to do it and all would be well.
Interviewer: What if it’s a new entrant into this investment?
Mr. Gbenga Ismail: Oh! Go into the deep end, don’t go cash, keep enough cash that can take you day by day but invest in an asset that will give you value tomorrow.
Interviewer: I’m sure you have an association, how do you come together to actually drive the government to actually support this sector and of course encourage perhaps new people that would want to invest in this sector?
Mr. Gbenga Ismail: well, yes of course, through the LCCI which is one of the associations that’s strong in advocacy. The various stakeholder forums, stakeholder discussions, always identify the areas where the government should intervene, and we all know in terms of real estate in Nigeria where those issues are.
One of the major issues, in terms of regulatory issues: So it is the impacts on, first-time I come in to buy property even someone like me, you and every other person, we have to make sure that where we are going to invest in secure, alright? so those are areas with regulatory, statutory because of untitled, that’s one.
Finance: access to the mortgage, the real estate loans, areas whereby the government should assist to make sure that we have these funds available at the same time.
Interest rates: the interest rate is not a government issue, it’s a dynamic of supply and demand of available funds, so deepening the sector and making it more structured to effectively protect the funds of those who are providing such a long term and short-term funds.
Those are areas we keep speaking to the government to make sure that the enabling environment is created.
Interviewer: Alright, thank you very much for your time. Mr. Gbenga Ismail is a real estate practitioner and the Vice President, Lagos Chamber of Commerce, and Industry.