Nigeria Real Estate Guide Volume 1

2015 Edition

Eko Atlantic

CONTENTS
2 REAL ESTATE SECTOR OVERVIEW

9 NIGERIA’S EMERGING REIT MARKET –

OUTLOOK, PERFORMANCE AND OPPORTUNITIES

15 THE ROLE OF THE NIGERIA MORTGAGE REFINANCE COMPANY

PLC IN THE NATIONAL HOUSING FINANCE PROGRAMME
1. REAL ESTATE SECTOR OVERVIEW

The Nigerian Real Estate Sector has recorded steady and consistent growth over the last four years becoming one of the greatest contributors to the
Nation’s rebased GDP from the non-oil sector - having contributed 8.03% and 11% in 2013 and 2014 respectively. The market which is currently
valued at approximately N6.5 Trillion is estimated to grow at an average of 10% over the next few years. The major growth drivers in the sector
have been credited to: an increased inflow of foreign investment (especially from South Africa, MEA and the United States); increased institutional
investment from local companies including PFAs and Mutual Funds; the growing population of High Net worth Individuals; and the targeted inter-
vention of the Federal Government in the housing finance sector.

The Real Estate Guide 2015 provides a detailed and concise overview of Nigeria’s real estate sector including performance, opportunities, challenges
and outlook with the intention of assisting discerning investors navigate the market more effectively.

The (proposed) Jabi Lake Mall

Nigeria Real Estate Guide

A. NOTABLE PROJECTS boutique short stay apartments and a
2,100sqm of retail space. Estimated at an RAINBOW TOWN
COMMERCIAL approximate USD$43 Million, financed by Rivers State Government and Rainbow Town
Diamond Bank Plc, the project was expected Development Limited together, are approxi-
to have been completed at the end of 2014. mately 20 percent away from delivering the
WORLD TRADE CENTRE
N50 Billion, 23.24 hectare Rainbow Town.
The World Trade Centre is a N156 Billion 37-
MIXED DEVELOPMENTS This premium, mixed-use community com-
storey structure being developed by the
prises of 1,181 upscale residential apartments
Churchgate Group in the country’s capital,
and a 15 floor Iconic tower to host the com-
Abuja. The World Trade Centre is expected to EKO ATLANTIC CITY
mercial hub of offices, convention centre,
house the very best of luxury apartments, an The Eko Atlantic City is the most talked about movie theatres, shops and restaurants. Locat-
A-Grade Office Tower, the Capital Mall and a real estate project in Nigeria. The city is sited ed on the Trans Amadi business/ industrial
five star hotel. This project is billed for com- on 10 square miles of land reclaimed from the corridor of Port Harcourt, the project is slated
pletion in 2015. Atlantic Ocean on the Lagos Coast. Major de- for completion in 2015.
velopments in the City would include, high
THE WING TOWER rise condominiums, schools, commercial
properties, a centralized conference center, a JABI LAKE DEVELOPMENT
Oando Plc. and RMB Westport have concluded
U-shaped office tower and the ‘Great Wall of At 40% completion, the Jabi Lake Mall sits on
plans to commence the construction of a state
Lagos’ which will be a 7km long wall of bricks 5 hectares of land, as part of the 35 hectare
of the art office complex on the shores of La-
to shield the city, as well as Victoria Island, master-planned Jabi Lake Development in
gos. The building dubbed the “Wing Tower" is
from the waves of the Atlantic. The develop- Abuja. The development includes a hotel,
to be constructed within a 3-year timeframe
ment company, Chagoury Group, has indicat- residential apartments, and offices spaces.
and will be located on Ozumba Mbadiwe road,
ed that large portions of the land have already The USD$120 Million mall is a joint venture
a major artery of many multinational busi-
been sold, one being the proposed site of the between Actis West Africa and Duval Proper-
nesses costing approximately USD$180 Mil-
USD$50 Million, 24 storey condominium—the ties.
lion. Sources of funding for the project stems
from equity contributions by Oando Plc and Eko Pearl.
RMB Westport and debt financing by Stanbic HOSPITALITY
IBTC Ltd. WARRI INDUSTRIAL BUSINESS PARK
The Delta State Government has commenced STARWOOD’S 7-STAR SUITE
LANDMARK TOWERS the first phase of developing the Warri Indus- The Starwood Group, owners of Le Meridien
In Lagos, Landmark Africa is expected to trial Business Park. According to its promot- Mixed Resort and Apartments, located in
deliver its signature 10-floor Landmark Tow- ers, the park will host amongst others, a clus- Lagos, plans to upgrade its towers to a 7-star
ers with the construction carried out by Glob- ter of heavy industries, warehouses, office suite. This is part of the Company’s plan to
al Reality Services Ltd, a subsidiary of the complexes, commercial retail outlets, hotel, invest up to USD$500 Million in the Nigerian
Landmark Group. high-end residential apartments, light indus- hospitality subsector.
tries and factories across its 329 hectares. The
Park is expected to procure a Free-zone li-
The project , a “live-work–play” concept sits cense from NEPZA. This will deliver signifi-
on 17,945sqm of land - with six floors of grade cant tax benefits to businesses within the
A office space, a 3-storey leisure facility, 22 Park.

DETAIL COMMERCIAL SOLICITORS 2

REAL ESTATE SECTOR OVERVIEW

MARRIOT INTERNATIONAL MODEL MORTGAGE AND FORECLOSURE

Marriott International Corporations, U.S.A LAW AMCON’S VALUATION OF COLLATERALS OF
intends to extend its hospitality brand across The NMRC, Federal Ministry of Finance and UNDERPERFORMING BANKS
Africa, with plans of building over 50 hotels other stakeholders under the Housing Finance The Asset Management Corporation of Nigeria
across Africa to the tune of <USD$1.5 Billion. Programme have initiated the drafting of the (AMCON) has recently prequalified 50 estate
Its USD$200 Million acquisition of Protea Model Mortgage and Foreclosure Law - to survey firms to undertake independent valua-
Holdings made a definite impact on the hospi- deepen the mortgage sub-sector and tion of the collaterals backing the Non-
tality sub-sector. The Company is expected to strengthen the foreclosure processes. The law Performing Loans (NPLs) of the rescued
have a significant number of its hotels up and aims to, amongst others: banks. Following the valuation exercise
running by 2020. AMCON shall, under its inherent powers to
 Fast-track the process of creating legal maintain a portfolio of diversified assets in-
mortgages (including reducing the cost cluding real estate, appoint property/facility
FOUR POINTS BY SHERATON and time required to process consents managers to manage and optimize the value of
Starwoods Hotels and Resorts has expanded and registration); and returns from this pool of real estate assets.
its presence in Nigeria with the flag off of the
Four points by Sheraton in Ikot-Ekpene, Akwa  Create a platform for the timely resolu-
Ibom, Nigeria. The PPP project between the tion of disputes through contractual
Akwa Ibom State Government and Starwoods arbitration and creating an efficient INTRODUCTION OF THE SYSTEMATIC
is billed to be the one of the most remarkable foreclosure process. LAND TITLING REGISTRATION
sights in the hotel industry in southern Nige- As at October 2014, the Surveyor General of
The law also seeks to provide a framework for
ria. the Federation estimated that only about 3%
the recognition and registration of Strata
Titles. This is expected to boost the construc- of the country’s total land mass had registered
HILTON tion of condominiums and multi–storey struc- titles - unregistered land title increases the
Hilton Worldwide plans to develop two new tures - a prevalent feature in any modern difficulty of transfer and nurtures fraudulent
hotels in close proximity to Owerri and Abuja metropolis. practices as prospective buyers are unable to
airports, with an anticipated completion date verify the authenticity of the title of the seller
of Q3 2017 these hotels will serve the air NIGERIA MORTGAGE REFINANCE
travel passengers along these routes. or to determine if there are competing inter-
COMPANY PLC ests or existing encumbrances on such land.
The Nigeria Mortgage Refinance Company To address these issues, the Presidential Com-
RETAIL
(NMRC) is without a doubt, one of the most mittee on Land Reforms in 2013 produced the
laudable initiatives of the Federal Government Draft Land Use Regulation, which aims to
SHOPRITE’S PROPOSED EXPANSION in recent years. The NMRC, is expected to introduce the Systematic Land Titling Regis-
Shoprite, the South African retail giant, has

Nigeria Real Estate Guide

revolutionize our domestic housing finance tration (SLTR) system. The system is expected
announced that it intends to develop 15 new
market through the provision of cheaper long to utilize effective data capture system to
outlets in Southern Nigeria within the next 36
months. The Company is expected to become term funds to mortgage lenders which would number, measure, photograph and classify all
the largest single off-taker of retail space in enable them originate more mortgages at parcels of land (and buildings) within a State
Nigeria. lower interest rates and for longer tenors, as
under a central register which would also
is the case in other developed markets.
note the holder and nature of title held over
the land.
“The Nigerian Mortgage Re- UNIFORM UNDERWRITING STANDARDS
(UUS) FOR MORTGAGES
finance Company (NMRC) is On the heels of the establishment of the The system was pioneered in Kano and Ondo
States where an estimated 10,000 parcels of
without a doubt, one of the NMRC, the company together with other
land were captured and registered within 6
stakeholders and its Development Partners
most laudable initiatives of (specifically the IFC), have developed a set of months. If successful, the SLTR will provide
the framework for efficient land titling and
the Federal Government in standards for mortgages to be refinanced by
registration (especially in non–urban areas), it
the NMRC. The UUS is expected to change the
recent years” face of mortgage lending in Nigeria, standard- is also expected to effect a reduction in land
ize the process of mortgage origination and conflicts and improve the process of land title
minimize credit risks to mortgage lenders. verification especially in non–urban areas.
B. FINANCING AND
REGULATORY INTERVENTIONS Specifications are given especially with re-
spect to eligibility of borrowers who must be THE GROWTH AND EMPLOYMENT IN
natural persons i.e. civil servants, self- STATES (GEMS)
LAGOS HOME OWNERSHIP MORTGAGE The GEMS, a project funded by the World
SCHEME (HOMS) employed persons or salaried employees;
there is also the requirement for a borrower Bank and DFID in collaboration with the Fed-
The Lagos State Government has flagged off
to obtain a credit report from 2 independent eral Ministry of Trade and Investment has
the delivery of homes to successful partici-
credit bureau agencies licensed by the CBN. been established in Nigeria to enhance job
pants under the HOMS, with 540 housing
The minimum loan amount is slated at N5 creation in non–oil (high potential) sectors.
units in Sangotedo; 270 in Ogba 36 in Shita
Million whilst minimum maturity period GEMS-2, one of the three key areas of the
and 660 in Agbowa.
is fixed at 20 years. According to the NMRC, project, is focused on the Real Estate and
lending standards promote efficiency and Construction and is expected to improve the
Other areas with ongoing developments in-
mitigate the legal and operational risks inher- vocational skills of artisans and unskilled
clude: Ajara - 540 units, Ibeshe - 720 units,
ent in mortgage lending by ensuring quality workers who serve the industry; facilitate
Iponri - 144 units, Oyingbo - 48 units and Ijora
collateral, adequate property title, proper efficient partnership between the private
Badia - 1008 units.
registration and enforcement of mortgage sector and the Government; link skilled work-
liens and efficient loan servicing processes. ers to employers; build technical skills of

DETAIL COMMERCIAL SOLICITORS 3

REAL ESTATE SECTOR OVERVIEW

construction companies and improve the

quality of their construction output. This as-
pect of the project was concluded in July 2013.

The GEM3 programs also has some elements

which are related directly to the real estate
sector such as improving public access to
land records, through the installation of digi-
tal registries in all States and building capacity
of the States to deliver land registration to
50,000 households each year.

CERTIFICATES OF OCCUPANCY FOR

POWER DISTRIBUTION COMPANIES
Through the Ministry of Land, Housing and
Urban Development, the Federal Government
has commenced the process of issuing Certifi-
cates of Occupancy to power distribution
companies, with the intention of creating the
Cameroun. To address the incidental capital- the plastering of building only, and has ap-
opportunity to raise debt capital secured
against the title to their landed assets . flight, intervention from relevant stakeholders proved the following for the production of
has intensified, all with the intention of plug- cement:
DEPOSIT INSURANCE FOR PRIMARY ging the deficiency-gap.  CEM I 52.5R and 52.5N - for use in
MORTGAGE BANKS the construction of bridges; and
Julius Berger, in collaboration with the Na-
The Nigeria Deposit Insurance Corporation  CEM II 42.5R, 42.5N - for use in the
(NDIC) has proposed an upward review of the tional Office for Technology Acquisition and
casting of columns, beams, slabs and
extent of coverage it provided for deposits Promotion (NOTAP) is establishing a skill
block molding.
held by Primary Mortgage Banks (PMBs) and acquisition and artisan school in Abuja. The
consequently the adoption of a risk-based centre would be equipped with modern
Previously, the 32.5R grade cement accounted

Nigeria Real Estate Guide

approach in the premium assessment process equipment and machineries for artisans and for about 50% of the cement used in Nigeria,
to ensure that PMBs with higher credit expo- craftsmen to develop their skills, with the even when this grade of cement had been
sures pay more. It is expected that the credit intention of breeding a new crop of profes- since abandoned in other countries such as
profile of Mortgage Banks who originate effec- sionals that would substitute expatriates cur- the United States and India.
tive operations of the sector and minimize rently employed in the Nigerian construction
The four top cement manufacturers: BUA,
credit risk will improve. industry. Lafarge, Ibeto and Dangote have welcomed
the review and increased standard in their
LAND TITLE INSURANCE LOCALLY PRODUCED CONSTRUCTION cement grade. Dangote Cement has recently
The Nigeria Deposit Insurance Corporation MATERIALS launched its 42.5R cement grade brand for
(NDIC) has proposed a review of the insur- retail.
Nigeria has an adequate supply of raw materi-
ance coverage it provides for PMBs to ensure als for construction purposes including wood,
effective operations of the sector and mini-
granite, sand and to some extent cement.
mize credit risk.
Irrespective of these resources, over 90% of D. EMERGING ASSET CLASSES
construction materials - steel, glass, fibre-
concrete, fiber-wires, tiles, roofing sheets,
C. MANPOWER AND MATERIALS doors, plumbing/electrical fittings - and other
modern building materials are imported. The HOSPITALITY
problem lies in the lack of adequate pro- The Nigerian Hospitality sub sector has expe-
rienced exponential growth in recent times as
SKILLED MANPOWER AND cessing facilities required to convert the raw various boutique and luxurious brands have
RAW MATERIALS materials into their respective finished prod- established their presence round major cities
There has been an ever increasing dearth of ucts. The materials produced locally could be of the federation. Landmark developments
local manpower and raw materials in the better in quality and pricing in comparison to such as the upgrading of Starwood’s Le Me-
construction sector. Due to the declining state those sourced overseas. ridien Hotels into a 7-star suite, Marriott In-
ternational’s multi-million dollar proposed
of vocational training institutes in the Nation.
investment into the subsector, the entry of
It has been estimated that due to this lack of In an attempt to rival international standards Sheraton’s Four Points into Akwa Ibom State
domestic, skilled and semi-skilled labor, Nige- and improve the durability of construction and the incursion of Hilton into several other
ria loses an estimated N960m annually to materials generally, the Standard Organiza- major cities all serve as pointers to increased
artisans from other West African countries; tion of Nigeria has reviewed the grade investment in this sector over the past few
years.
the most common amongst which are neigh- strength of cement in Nigeria. The organiza-
boring Togo, Republic of Benin, Niger and tion has relegated the 32.5R grade cement to

“...Nigeria loses an estimated N960m annually to artisans from other West African
countries...”

DETAIL COMMERCIAL SOLICITORS 4

REAL ESTATE SECTOR OVERVIEW

MALL LETTABLE LOCATION OPERATIONS STAKEHOLDERS

REAL ESTATE INVESTMENT TRUST
AREA COMMENCE-
SCHEMES (SQM) MENT DATE
UPDC REIT, Skye Shelter Fund and Union
Palms shop- 19,520 Lagos 2005 Persianas Group
Homes Savings & Loans, have created more
ping mall (Nigeria)
options for investors looking to invest in the
real estate market indirectly. Also, the advent Palms shop- 40,000 Lagos Under Persianas Group
of new instruments like the HMK REIT, which ping Mall Ex- Construction (Nigeria)
made a bullish entry into the market in Q4, tension
2014, echoes the growth strides the Real Jabi Lake Mall 26,478 Abuja Under Actis/Duval(UK/
Estate Market is currently experiencing. Construction Nigeria)
Ado 23,000 Kano 2014 Alpine Investment
REAL ESTATE BACKED BONDS Bayeromall (Nigeria)
The Federal Mortgage Bank of Nigeria rec- Capital mall 21,500 Abuja Under Churchgate Group
orded the first mortgage backed bond trans- Construction (Nigeria)
action in sub Saharan Africa in 2007, with the Ikeja City Mall 22,000 Lagos 2011 Gruppo Investment
floatation of its N26 Billion mortgage backed (Nigeria)
bonds issue. The funds raised from the issue LekkiPen- 22,000 Lagos Under Novare Private Part-
was used in the refinancing of civil servants nisula mall Construction ners
acquisition of Government residential houses Ibadan Mall 18,500 Ibadan 2014 Persianas Group and
sold in the Federal Capital Territory. In 2012, Oyo state (PPP)
the bank issued its 2nd tranche of a N6 Bil- Port Harcourt 16,000 Port Under Artee Group (Nigeria)
lion mortgage backed bond. The market is Mall Harcourt Construction
also anticipating the floatation of the 1st Delta City Mall 13,980 Effurun Under Resilient Africa (South
tranche of NMRC Bonds Issue on the heels of Construction Africa)
its 1st Mortgage Refinancing billed to happen
Benin City Mall 13,980 Benin Under Resilient Africa (South
in Q1 2015.
Construction Africa)
RETAIL Festival Mall 10,900 Lagos Under UAC Property Nigeria
Construction
The retail sub-sector has seen considerable
Onitsha Mall 12,100 Onitsha Under African capital Alliance
improvement in the year 2014, following the
Construction (Nigeria)
increase in lettable retail space from
5,2520sqm in 2009 to the current Kwara Mall 12,000 Illorin 2012 Persianas Group and
17,1070sqm. It is also notable that the popu- Kwara State (PPP)
lar South African franchise – Shoprite an- Osapa Conven- 10,539 Lagos Under RMB Westport (South
nounced during the 3rd quarter of 2014, that ience Centre Construction Africa)

Nigeria Real Estate Guide

it intends to develop 15 new malls in south- Ceddi Plaza 10,000 Abuja 2004 Ceddi Corporation
ern Nigeria within the next 36 months. (Nigeria)
Polo Park Mall 22,530 Enugu 2011 Persianas Group and
Enugu State (PPP)
Silverbird 23,000 Abuja 2009 Silverbird Group
Entertainment
Centre
Total lettable retail space available in Nigeria’s Real Estate Sector

E. INDUSTRY PARTICIPATION –
CAPITAL MARKET INVESTMENT
INDEX

In May 2014, the Candy GPS Report identified

Lagos as one of 12 future world cities for real
estate investment. The report produced by
Candy & Candy, Savills World Research, and
Deutsche Asset & Wealth Management - high-
lights Nigeria’s megacity as a rising star, with
the potential to show sustained and strong
growth in residential property price, as global
FOREIGN DIRECT investors look to alternative locations for
INVESTMENT
investment. (Source: Lamudi) The table below
shows the trend of Real Estate Foreign Direct
Investments between the years 2007-2012.

S/N YEAR MILLIONS USD$

1 2007 USD$4.214
2 2008 USD$36.134
3 2009 USD$7.978
4 2010 USD$14.080
5 2011 USD$4.543
6 2012 USD$4.142

DETAIL COMMERCIAL SOLICITORS 5

REAL ESTATE SECTOR OVERVIEW

TOTAL MARKET CAPITALIZATION OF REAL

ESTATE INVESTMENT TRUSTS (REITS)
The total market capitalization of real estate
investment trusts (REITs) is N42.5 Billion -
Skye Shelter REIT represent 5% of this
amount whilst UPDC REITS and Union Homes
REITS are 66% and 29% respectively. Consid-
ering the success of the Initial Public Offer for
the UPDC REIT, it is expected that more REITs
would enter the market in the nearest future.

FOREIGN PORTFOLIO INVESTMENT

Foreign Portfolio Investment in Real Estate
in 2011 stood at N2.07 Billion, this dropped
in 2012 to 1.99 Billion. Other inward foreign
capital flows in 2012 to the construction
sector were estimated to be at N360 Million
which also dropped from the N410 Million
in 2011. [Source: Survey of Foreign Assets &
Liabilities in Nigeria 2011 Report - CBN Jour- Total Market Capitalization of Real Estate Investment Trusts
nal of Applied Statistics, Volume 3, Page 156]

The NSE has begun to implement the follow-

ing procedures to encourage Nigerian Busi-
REAL ESTATE CAPITALIZATION
nesses to access funds from the Capital Mar-
The Nigeria Stock Exchange (NSE) in its June ket:
REAL ESTATE INVESTMENT RATES IN THE
2014 report quoted that Real Estate capitali-
 Recent review of the listing rules to ac- CAPITAL MARKET

Nigeria Real Estate Guide

zation at N229.45 Billion, representing 1.2%
commodate and attract more companies;
of the entire market capitalization. This was a Capital Market participation sways mostly in
noticeable increase from 2013, where the  Providing robust capital market infra- favor of equities and fixed income securities
same capitalization stood at N171.14 Billion, structure and trading platforms; and rather than real estate funds or securities. The
being 1.006% of the entire market capitaliza- Canary Growth Fund, managed by Alternative
tion. The Real Estate Sector capitalization in  Ensuring an orderly, fair and equitable Capital Partners Limited, is one of the few
market by protecting the integrity of the
2014 recorded a very marginal increase. diversified Private Equity Funds that maintain
market and real estate investors from
market manipulation. an aggressive real estate investment portfolio.

By the 1st half of 2014, Infinity Trust Mortgage

Bank led other real estate firms on the Nigeria The NSE has repeatedly stated that it is com-
Stock Exchange. Infinity led with a net margin mitted to reducing the housing deficit of 17
of 38.65%, while its base line performance million units in the country by bolstering
showed a 77% growth and a revenue spike of Capital Market involvement for Real Estate
Investors.
57%. Abbey Building Bank Plc’s revenue
dropped by 61% in the review period, while
profits fell by 60% due to its inability to over- Infinity Trust Mortgage
THE ALTERNATIVE SECURITIES MARKET
come environment challenges it faced. Union
ASeM is the specialized board of the NSE Bank led other real estate
Homes was unable to control costs that spi-
raled out of control as operating expense
targeted at small and medium sized compa- firms on the Nigeria Stock
nies giving them an opportunity to raise long
reached a staggering 105%, thus bleeding
term funds from the capital market. Similar to
Exchange. Infinity led with
profits. The ripple effects resulted in a loss of
approximately N773.78 Million.
the UK AIM, a number of small real estate a net margin of 38.65%,
firms are now listed on the floors of ASeM -
the most recent being the listing of McNichols
while its base line
LISTING OF REAL ESTATE FIRMS ON THE
Consolidated Plc. ASeM has made the require- performance showed a
FLOORS OF THE NSE ments for listing on its floors less stringent,
with the application fee for listing being
77% growth and a revenue
Both the NSE and the Alternative Securities
Market (ASeM) (for smaller companies) pro- brought down to as low as N300,000 for new spike of 57%.
jected a rise in the listings of Real Estate by applicants. It is anticipated that the number
the end of 2014. This projection came after of Real Estate companies accessing the market
the listing of UPDC REITs on the floor of the via the ASEM will increase significantly in
NSE.
2015.

DETAIL COMMERCIAL SOLICITORS 6

REAL ESTATE SECTOR OVERVIEW

REAL ESTATE AND COLLECTIVE

INVESTMENT SCHEMES
The Securities and Exchange Commission
(SEC) intends to bolster the role of Collective
Investment Schemes (CIS) in growing Ni-
geria’s Real Estate Sector. To achieve this,
there is an on-going sensitization programme
by top officials of SEC showing the advantages
of investing in Collective Schemes; chief
amongst them being the avoidance of any
risks of investing directly in the major market.
SEC also promises that the International Fi-
nancial Reporting Standards will be used in
regulating the scheme and further promises to
increase the number of training programmes
for CIS participants to ensure a high level of
professionalism. It is the intention that these
plans, when implemented, result in a boost in
investor confidence in the sector.

Allocation of assets - Canary Growth Fund

INCREASED PARTICIPATION OF
INVESTMENT COMPANIES
Shelter Afrique, a pan–African development
In addition, AIQ Capital a Private Equity firm as at 2014. This is however a meagre 5.25% of
finance institution focused on housing and
seeks USD$105 Million from investors for its the total N4.3 Trillion of total pension assets
real estate and currently doing business in 44
Real Estate & Hospitality Fund. It is its inten- in the country. Stakeholders expect a surge in
countries in West Africa has provided funding
tion to utilize the fund in 2 tranches – the 1st the involvement of Pension Funds in the sec-

Nigeria Real Estate Guide

for a number of private developers on the
targeting the construction of 15 to 20 mid- tor .
supply side and expanded the number of cred-
range hotels in Nigeria; and the 2nd to build
it to primary mortgage banks such as Aso
neighbourhood mini-malls with international-
Savings and Loans and Abbey Building Socie-
ly branded anchor stores like Shoprite.
ty. Its Board recently approved an investment
of USD$3 Million in NMRC. Currently, Shelter
Afrique’s investment in the real estate market PENSION FUNDS INVESTMENT IN REAL
is approximately USD$200 Million. ESTATE

Statistics obtained from the National Pension

Commission reveals that Nigerian PFAs in-
vested a total of N228.3 Billion in real estate

Pension Funds Investment in Real Estate

DETAIL COMMERCIAL SOLICITORS 7

REAL ESTATE SECTOR OVERVIEW

F. KEY INDUSTRY MILESTONES

THE REAL ESTATE SECTOR AND GDP operate on a Federal level. 15 mortgage firms
GROWTH down-scaled to become microfinance institu-
The Real Estate Sector contributed 8.01% to tions while 26 former PMB’s no longer oper-
the Nigeria’s GDP - equivalent to N6.43 Tril- ate as mortgage institutions as they failed to
lion (USD$40.9 Billion) of the total rebased meet CBN’s re-capitalization milestones.
GDP estimate of N80.22 Trillion (USD$510
Billion). According to the National Bureau of
Statistics the sector grew by 4.95% in 2014.

RISE IN VALUE OF PROPERTY

Real Estate properties prices in Victoria Island
have crossed USD$2,000 per square metre
mark, with values currently averaging
USD$2,049 per square metre. Banana Island
values are similar to prices at Eko Atlantic,
which have appreciated in value by approxi-
mately 17% since 2011. On the other end of
the pond, Ikoyi properties cost an average of
USD$1,700 per metre square.

REFINANCING EXISTING MORTGAGES

The establishment of the NMRC by the Federal
Government is another important milestone in
the real estate sector. With a capital base of

Nigeria Real Estate Guide

N20 Billion, the NMRC’s key objective is to
refinance mortgages originated by mortgage
lenders and selling them as securities on the
secondary market. The Company is projected
to set in motion a growth process that will
deliver 75,000 houses annually and create job
opportunities for at least 800,000 people.

REAL ESTATE SECTOR TRANSPARENCY

RATINGS
Jones Lang LaSalle’s 2014 Transparency Index,
which covers 102 markets worldwide tracking
their progress in the transparency of commer-
cial real estate ranked Nigeria the number 4
on its Top Improvers List. The top improvers in
each survey are based on the level foreign
direct investment and corporate occupier
activity. The high activity of investors in any
market accelerates transparency reforms as it
serves as a catalyst for more investment.

RE-CAPITALIZATION OF MORTGAGE
INSTITUTIONS
The restructuring of the mortgage sub-sector
by the Central Bank of Nigeria (“CBN”) prom-
ises to re-shape the real estate sector begin-
ning with its recent re-capitalization of prima-
ry mortgage institutions in the country. To this
effect, 36 mortgage institutions have been
granted licenses to operate in Nigeria. 26
institutions have been granted licenses to run
within States; while 10 out of the 36 are to

DETAIL COMMERCIAL SOLICITORS 8

2. NIGERIA’S EMERGING REIT MARKET – OUTLOOK, PERFORMANCE AND OPPORTUNITIES

A. INTRODUCTION - REAL ESTATE

INVESTMENT TRUST

Investment in real estate has been one of the

oldest and most common forms of investment
dating back to the beginning of human civili-
zation, evolving into a more sophisticated
market having its own real estate backed
securities, which could be issued privately or
on the domestic/international capital market.
The desire to pool resources from multiple
investors to acquire prime real estate, which
would otherwise be out of the financial reach
of any single investor, birthed the concept of
Real Estate Investment Trust (REITs)
schemes. While this has been in use in the
United States as far back as the early 1960s, it
was first pioneered in Nigeria by Skye Shelter
Fund when it floated its 1st Tranche of the N5
Billion Hybrid REIT in January 2008.

Real Estate is generally considered to be an

indicator of the economic performance of any
Nation. Over the last decade, especially follow-
ing the end of global economic crisis and the
failing equities market; the global real estate
market experienced a boom having been per-
ceived as a safe haven by investors. Conse-
quently the once volatile global market saw
countries like the United Kingdom, Australia,
South Africa, USA, Singapore, Malaysia, Mexico
and Hong Kong growing their real estate mar-
ket into an enviable Global REIT market. OPEN-ENDED CLOSE-ENDED

Nigeria Real Estate Guide

Does not have a fixed investment size Fixed fund size and the number of investible
REITs are a form of collective investment units from inception which cannot be
scheme, which involves the pooling of capital increased during the life of the Scheme
by a group of investors and utilising same in
the acquisition of a select portfolio of income It is able to admit new investors at any time New investors cannot be admitted once the
generating real estate; mortgage loans; or a offer for subscription closes
combination of both. The portfolio of underly-
The REIT is obliged to pay out any investor Usually has its units listed on a stock ex-
ing assets is placed under professional man-
seeking to exit/liquidate its investment - change or capital trade point and the
agement to maximise returns to the investors;
making the Net Asset Value of such fund investment can exit by an investor sell-
each holding an indivisible interest in the
very fluid and having a higher liquidity ing out the units held on the exchange
underlying assets of the REIT proportionate to
demand without recourse to the REIT.
its investment. These schemes which are con-
stituted under a Trust Deed wholly acquire Forms of REITS
and hold title to investment grade, income
producing real estate properties or related
assets. A REIT may be classified according to
the nature of its underlying assets.

B. NIGERIA’S EMERGING REIT MARKET Real Estate sector; support the drive for real lized very creative credit enhancement mod-
estate infrastructure development & diversifi- els such as a Bank Guarantee to hedge credit
cation from concentration of investments in losses, over-collaterization and the introduc-
traditional equities; and other fixed income tion of a market maker to stimulate liquidity
Since 2007, when the Securities and Exchange instruments. for its units.
Commission (SEC) introduced the framework
for the establishment of REITs, the Nigerian From inception to date, the market has wit- Whilst the Nigerian market may not be as
investing public has been given an opportuni- nessed the establishment of 5 REIT Schemes, developed as other frontier markets such as
ty to invest in a diversified portfolio of choice 4 pure equity REIT schemes and 1 Hybrid Mexico, India and Ireland (on account of its
real estate assets. The market regulators SEC, scheme. A new entrant into the market is the inherent challenges), this asset class has defi-
the Nigerian Stock Exchange (NSE), the Feder- Haldene McCall REIT which is currently open nitely come to stay and is expected that the
al Inland Revenue Service (FIRS) and the for subscription and anticipated to be listed wholesale reform of the Real Estate sector
Federal Government of Nigeria (FGN) have on the main Board of the NSE before the end being undertaken by the FGN and its develop-
also continued to seek new ways in creating of January 2015. It is notable that industry ment partners will have a positive impact on
an enabling environment for this asset class to experts are getting a better grasp of this previ- this segment of the market.
thrive - while bearing in mind its capacity to ously unpopular asset class, evidenced from
deliver stable long term value investment; the creativity and significant improvement in
meet Nigeria’s rising housing demand; attract the structure of each subsequent REIT
foreign portfolio investment into the Nigerian Scheme. The HMK REIT is seen to have uti-

DETAIL COMMERCIAL SOLICITORS 9

NIGERIA’S EMERGING REIT MARKET – OUTLOOK, PERFORMANCE AND OPPORTUNITIES

C. LEGAL AND REGULATORY

FRAMEWORK
“...One of SEC’s most ingen- will be required for submission.

The SEC is the primary regulator of REITs in

ious interventions was the 7. Borrowing Limits
The trustees to a REIT may on the advice of
Nigeria. The Investment and Securities Act introduction of Rule 509 the fund manager, borrow in the ordinary
2007 empowers SEC to regulate the establish- course of the REITs business up to 15% of its
ment and management of Collective Invest- which permits the use of a Net Asset Value. This presupposes that the
ment Schemes and sets out the guidelines for
the constitution of REITs.
deed of declaration of trust extent of the REITs exposure at any point in
time cannot exceed 15% of its asset base

THE INVESTMENT AND SECURITIES ACT

to transfer property. This thereby mandating a minimal gearing ratio.
This limitation acts as a deterrent to managers
(ISA) intervention has eased the with a high risk appetite from over-leveraging
on any REIT assets to the detriment of the
The ISA provides the powers and functions
exercisable by SEC in relation to Collective
difficulty of transferring investors.
Investment Schemes. Under the ISA, REITs are
classified as a type of Collective Investment
taxes payable by REITs at 8. Cost
Scheme to be administered by an incorporated the point of acquiring its The SEC rules provide that the initial ex-
pense/issue cost of the REIT which includes
entity that has been duly registered as a fund
manager by SEC. Prior to the establishment of underlying portfolio which expenses such as advisers’ fees, statutory
payments, printing and advertisement costs
a REIT, the scheme and the units to be issued
must be registered with and approved by SEC.
is typically in the range of shall be borne by unit holders and deductible

SEC is empowered to make regulations in

13 – 32% of the cost of the from the issue proceeds. The Commission
however mandates that the total issue cost
respect of the management and constitution of transferred property…” shall not exceed 3% of the total expected
returns from the Issue. This restriction helps
REITs and in addition, the SEC has from time
to time introduced new regulations to encour- to preserve the Net Asset Value of the REIT.
age the establishment of REITs as well as to Furthermore, the annual administrative cost
out a minimum of 25% of its annual income. of the scheme shall not exceed 5% of the
deepen the market. One of SEC’s most ingen- The threshold is included to balance the need
ious interventions was the introduction of REITs open value. The statutory cost re-
for liquidity by the REIT manager and the strictions are enforced by the commission to
Rule 509 which states that “a real estate in- expectations of investors.
vestment scheme shall wholly acquire and discourage frivolous spending by the Manager
hold legal title to property or chose to hold and to preserve the profitability of the
equitable and beneficial title to such proper- Scheme.
3. Investment in Development

Nigeria Real Estate Guide

ty vide a deed of trust or such other struc- A REIT is restricted from investing more than
ture as may be acceptable to the Commis- 20% of its funds in development activity
sion”, thus permitting the use of a deed of THE PENCOM GUIDELINES ON
which is considered high risk and may affect
declaration of trust or other such structures to the returns to investors. INVESTMENT OF PENSION FUND ASSETS
transfer property. This intervention has eased Pension Funds are undoubtedly the biggest
the difficulty of transfer charges payable by 4. Minimum Subscription institutional investors in the Nigerian Capital
REITs at the point of acquiring its underlying Prior to the clearance by SEC for the allotment Market, holding an enviable N4.3 Trillion of
portfolio which is typically in the range of 13 – of units under a REIT scheme, a minimum of investible long term funds. The National Pen-
32% (depending on the state) of the cost of 50% of the units must have been subscribed. sion Commission (“PENCOM”) in December
the transferred property. The REIT suffers an Where this minimum subscription threshold 2012 introduced a set of revised investment
erosion of its Net Asset Value due to the high is not achieved the issue will be deemed to guidelines in response to the changing dynam-
transfer costs incurred prior to the REIT com- have failed and the issuing houses will be ics of the financial sector. The Guidelines,
mencing operations. required to refund all subscribers’ monies. amongst others, sought to expand the scope of
allowable investments to include instruments
5. Underwriting such as Exchange Traded Funds, Infrastruc-
SEC RULES AND REGULATIONS, 2013 Underwriting is a contractual obligation be- ture Funds, Global Depository Receipts and
The SEC Rules and Regulation contains gen- tween an issuer of securities and an under- Eurobonds. It also relaxed the qualifying re-
eral and specific provisions governing Collec- writer (usually one or more investment quirements for other existing instruments to
tive Investment Schemes in Nigeria. In relation banks) who agrees to either take up all unsub- enable Pension Funds Administrators (PFAs)
to REITs, the focus of the regulations has been scribed units in an issue or an agreed propor- invest more in certain asset classes such as
the enforcement of good corporate govern- tion, where not fully subscribed by the public the REIT and other forms of closed or open
ance practices, effective asset administration, of the securities, in return for an underwrit- ended investment funds.
value investment decisions, risk management ing commission. With respect to a REIT issue,
and most importantly, investor protection. underwriting is optional and at the discretion Real Estate is recognized as one of the au-
Below are some of the key features of the of the issuer, however, in instances where the thorized investment outlets for Nigerian Pen-
regulations: issue is underwritten, all underwriting and sion Fund Assets. Clause 4 of the Guidelines
sub-underwriting agreements are required to outline the list of permitted investments
1. Sponsor involvement be submitted to SEC for clearance along with which PFA’s may invest, specifically mention-
It is expected that the sponsor of any scheme other transaction documents. ing that pension funds may be invested in
will subscribe to a minimum of 5% of the “Funds” whose underlying assets are tangible
registered units of the REIT for the lifetime of 6. Insurance physical assets, such as real estate (Sub-
the scheme, the rationale behind having the As an additional safeguard, all the underlying section 4.7). Whilst there is no definition for
sponsor hold some “skin in the game” is to assets of the REIT are required to be insured REITs, the Guidelines specifically state that
ensure that it is motivated to structure an against all known risks. Where the properties PFAs cannot invest directly in physical real
efficient scheme aimed primarily at maximis- are to be acquired post issue which is usually estate assets. They are however permitted to
ing returns to the investors. the case, evidence of the existing insurance invest in securities whose underlying assets
policies (where available) or a letter from a
2. Non-Discretionary Distribution reputable insurance company undertaking to
The rules also require that each scheme pays provide insurance coverage to the properties

DETAIL COMMERCIAL SOLICITORS 10

NIGERIA’S EMERGING REIT MARKET – OUTLOOK, PERFORMANCE AND OPPORTUNITIES

are physical real estate (“real estate backed at their discretion whether or not such quired to assess the risks associated with each
securities”) such as REITs. schemes are closed or open ended. investment.

6. Promoter’s Equity Interest

PFA’S CRITERIA FOR ALLOWABLE INVEST- PFA’S CRITERIA FOR REITS INVESTMENTS The promoter of the REIT must at all times
MENTS hold a minimum of 5% of the fund.
1. Fund Manager Rating
There are a number of general principles The Fund Manager must be rated by a SEC Generally, the investment guidelines for Pen-
which apply to all asset classes, which deter- registered rating agency with a minimum sion Funds are stringent and quite conservative
mine if any category of investment qualifies rating of BBB. in a bid to avoid erosion in the value of the
as a permissible investment under the pen- funds held and managed by PFAs. As at July
sion guidelines: 2. Principal Officer Qualification 2014, the PFAs in Nigeria were reported to
The CEO and CIO of the fund manager must have invested a total of N228.3 Billion in the
1. Rating have a minimum of 10 years investment real estate sector, being 5.2% of their total
All allowable instruments must meet and management experience, 5 of which must investible fund. Given the nature of the Asset
maintain a minimum investment grade rating have been spent at senior management lev- Class promising steady and continuous yield
‘BBB’ from a SEC registered or recognized els. and a hedge against inflation, one would expect
rating agency throughout the tenor of the that PFAs would hold a more robust portfolio in
investment. PFAs may also invest a maximum 3. Minimum Issue Size real estate backed securities (specifically
of 20% of their cumulative funds in other The Issue size must be a minimum of 1 Billion REITs). PFAs have however consistently
allowable instruments that have a minimum Naira. shunned this form of investment because of its
of “BBB” rating from a SEC registered rating incapacity to match the yield from other instru-
agency. 4. Listing ments such as Government Bonds and Treasury
Post issue, the Securities of the REIT must be Bills.
2. SEC Registration listed on a recognized securities exchange.
Pension Funds can only be invested in allow-
able instruments which are registered and 5. Disclosure obligations
regulated by the SEC. Fund Manager must make full disclosure of
all relevant information regarding the fund to
3. Definite Exit window investors including its corporate governance
Pension Funds can only be invested in instru- standards, 3 annual valuation report of the
ments that have a clear exit window, which underlying assets, all other information re-
will allow the PFAs realize their investments

Nigeria Real Estate Guide

DETAIL COMMERCIAL SOLICITORS 11

NIGERIA’S EMERGING REIT MARKET – OUTLOOK, PERFORMANCE AND OPPORTUNITIES

D. TAXATION preserve the right and interests of unit hold- more sophisticated construction technology,
ers in the REIT. The UPDC REIT became the quality fittings and finish and more profes-
first scheme to utilize the Deed of Trust struc- sional property management systems to ena-
ture. DETAIL was privileged to act Transac- ble them qualify for acquisition by REITs.
Globally, REIT schemes enjoy preferential tax tion Counsel on this deal.
treatment to enhance profitability and returns
to investors. To that extent, there is only one ENCOURAGEMENT OF SMALL SCALE
leg of taxation at the investor level. The VALUE ADDED TAX AND STAMP DUTY (RETAIL INVESTMENTS) IN THE REAL
scheme would typically be exempt from in- WAIVERS ESTATE SECTOR
come tax once a minimum of 90% of its in- In October 2014, FGN commenced the imple-
come are distributed to investors. The tax REITs have given many small scale retail in-
mentation of the exemption of Value Added vestors the opportunity to invest in real estate
treatment for REITs in Nigeria is not as fa- Tax on all capital market transactions. This
vourable as that in other climates and this has without necessarily incurring the cost of ac-
came 2 years after the announcement of the quiring a physical property or other incidental
occasioned a major setback in the develop- waiver by the Honourable Minister of Finance;
ment of this otherwise attractive asset class. cost of managing the Property.
the delay having been caused by the failure to
gazette the Presidential approval. The exemp-
tion, which is for a period of 5 years, applies HEDGE AGAINST INFLATION
INCOME TAX to: (1) Commissions earned on traded value of
In Nigeria, REITs are treated as a company for Real Estate investments are generally known
securities; and (2) Commissions payable to
the purpose of taxation and thus, are subject to be a hedge against inflation as the rate of
the NSE SEC and the Central Securities and
to 30% income tax under the Companies In- capital appreciation is usually very predicta-
Clearing System (CSCS), which incentive is
come Tax Act (CITA) in the same manner as a ble and more rapid than the rate of inflation.
intended to bolster activities on the market.
company. This is an anomaly given that REITs Many discerning investors have therefore
are usually administered as a pass-through utilized the form of investment to cushion the
The Government is however yet to commence
vehicle where all of its net income is paid out impacts of inflation.
the implementation of the proposed Stamp
to investors as distribution - in which case Duty waiver on Capital Markets transactions,
taxation should only apply (withholding tax) which was announced alongside the VAT
to distributions in the hand of investors. PREDICTABLE CASH FLOW/RATE OF
waiver in 2012.
RETURNS
In 2010, the Debt Management Office an- Investors enjoy predictable cash flow from
nounced the exemption of all categories of rental receivables, proceeds of property sale
asset backed securities from Income Tax, Val- E. BENEFIT TO THE NIGERIAN and returns from any investments made with
ue Added Tax and Capital Gains Tax. Whilst REAL ESTATE SECTOR the REIT liquid assets.
some schools of thought have argued that this

Nigeria Real Estate Guide

exemption would extend to REITs as they
qualify as asset backed securities; this position The Nigerian REIT Market can be classified as PROFESSIONAL ASSET MANAGEMENT
may be perceived as an unrealistic stretch still in its infancy and bears a lot of potential REITs are mandated to have both a profes-
given that the term “Asset Backed Securities” for our local real estate sector and the nation sional fund manager and a professional prop-
usually connotes forms of debt securities at large. As we anticipate more entrants into erty manager who manages the property. This
backed by a pool of financial assets/ the market in 2015, it is expected that the Real requirement has deepened the level of exper-
receivables and clearly the intent of the FGN Estate Sector can benefit from the immense tise and quality of service offered by our local
and the Debt Management Office is to incentiv- value that this asset class has the capacity to property managers. It has also opened doors
ise investors in the Debt Capital Market. Quite deliver. Some of the key benefits are: for other international property management
unfortunately the FIRS is yet to take a definite brands such as Broll to make an entry into the
position on the matter leaving the market in a Nigerian market.
haze of uncertainty. DEEPENING OF THE CAPITAL MARKET
REITs as a new asset class trading on the Ni-
gerian Stock Exchange is gaining popularity
LAND TRANSFER TAXES and many institutional investors have, over
One of the biggest disincentives to the estab- the last 8 years, made investments in the
lishment of a REIT has always been the taxes listed schemes for the purpose of portfolio
incidental to the transfer of property in Nige- diversification.
ria (cost of Governors Consent, Registration,
Capital Gains Tax and Stamp Duty), which
varies at between 13 – 32% of the value of the EXIT OPTION FOR HOLDERS OF LARGE
property to be transferred depending on the PROPERTY PORTFOLIO
State the property is located. Outside of these, Many individuals and corporations who have
the Purchaser is often made to bear any out- a sizeable portfolio of investment grade assets
standing liability in respect of the property. may utilize the REIT as an exit window for
The ISA had previously mandated that legal unlocking capital from such investments. For
title in all underlying assets of the REIT be example UPDC Plc realized 60% of the value
vested in the Trustee thereby, exposing the of the investment in the underlying assets of
REIT to the land transfer tax liability and re- the UPDC REITs to fund some of its new pro-
sulting in the significant depletion of its Net jects
Asset Value, before commencement of opera-
tions. In February 2013, the Commission re-
vised its rules on REITs to permit the use of a SOPHISTICATION OF THE LOCAL
Deed of Trust to effect the transfer of proper- PROPERTY MARKET
ties acquired by it. In this case beneficial inter- Given the requirement for underlying proper-
est in the property is transferred whilst the ties of any REIT to meet a minimal investment
legal title is held on behalf of the REIT by the grade criteria, it is expected that many more
Vendor with several legal safeguards that developers and property owners will embrace

DETAIL COMMERCIAL SOLICITORS 12

NIGERIA’S EMERGING REIT MARKET – OUTLOOK, PERFORMANCE AND OPPORTUNITIES

F. OVERVIEW OF EXISTING REITs IN THE

NIGERIAN REAL ESTATE MARKET

REIT DETAILS PERFORMANCE

UNION HOMES Issuer Market
Union Homes Savings and Loans Plc Union Homes REIT recorded a dip in its unit price of
N45.22 as at 31st December 2014, N6.28 lower than its
Offer initial offer price. There was only a record of trading
Between August 2008 and September 2008, Union activity in November 2014 of 205,000 units.
Homes REIT offered 970,873,787 (Nine Hundred and
Seventy Million, Eight Hundred and Seventy Three Distributions
Thousand, Seven Hundred and Eighty Seven) Units of The company last paid distributions April, 2014 at a
N51.50 each. Only 25.75 % of the issue was subscribed. rate of N2.41 per unit.

Assets
The Union Homes REIT holds a portfolio of high-quality
real estate and mortgage assets which include commer-
cial and residential properties in choice locations across
the Country and a well serviced pool of mortgage loans.

SKYE SHELTER Sponsor Market

Skye Bank Plc Skye Shelter Fund closed at N100 as at 31st December
2014 also recording a dip from its unit price of N112.9
Offer in December 2013.
Between July 2007 and August 2007, Skye Shelter Fund
offered 20,000,000 Units of N100.00 each being the 1st Distributions
Tranche of the N5 Billion Skye Shelter Fund of the issue Skye Shelter Fund announced a distribution of N4.04
was over-subscribed. The registration and authoriza- per unit for its shareholders for the financial year end-
tion of 300,000,000 units of N10.00 each being the 2nd ed December 31, 2011; this was a drop from N9.00 per
Tranche was stalled in 2011 due to the transfer of man- unit paid out in the 2010 financial year. For the first 6
agement of the fund resulting from CBN policy revers- months of 2014, Skye Shelter Fund’s revenue increased
ing the Universal Banking Model. by 7 percent to N90.24 Billion from N84.23 Billion in
the same period in 2013 based on a surge in prices in

Nigeria Real Estate Guide

the real estate sector.

UPDC Sponsor Market

UACN Property Development Company Plc (UPDC) UPDC REIT closed at N10.40 as at 31st December 2014
recording a slight margin above its N10 initial offer
Offer price. A total of 20,787,387 units were traded in 2014.
In the first quarter of 2013, UPDC promoted a N30 Bil-
lion closed ended publicly traded REIT with an offer of Distributions
3,000,000,000 Units of N10.00 each about 80% of the The fund managers stated that the investors will be
issue was reported to have been subscribed. rewarded with N1.4 Billion interim distribution for the
period ended June 30, 2014 and in December 2014 with
Assets a distribution of 56 kobo per unit. The pay-out will
The UPDC REIT has a diversified portfolio of residential represent 90% of the distributable income for the stat-
and commercial properties in choice locations in Lagos, ed period.
Abuja and Aba.

SUNTRUST Sponsor
SunTrust Savings and Loans Limited

Offer
Between March 2012 and April 2012, SunTrust REITS
promoted 400,000,000 Units of N50.00 each.

Assets
SunTrust REITS have a portfolio of real estate assets
comprised of residential and commercial real estates.

HALDANE MCCALL REIT

The Haldane McCall REIT made its entry in to the market towards the end of 2014 and it is an equity REIT constituted under a Trust Deed as a
close-ended publicly traded scheme. The Haldane McCall REIT is offering 2,600,000,000 Units of N5.15 each with the intention of investing in
commercial (hospitality) and residential properties.

Haldane McCall REIT has projected revenue of N1, 479 Million and N1, 586 Million for the year ending 30 September 2015 and 2016 respec-
tively. The projected distributions for the same periods are at N995 Million and N1, 091 Million respectively. The Scheme is managed by
FSDH Asset Management Limited.

DETAIL COMMERCIAL SOLICITORS 13

NIGERIA’S EMERGING REIT MARKET – OUTLOOK, PERFORMANCE AND OPPORTUNITIES

Nigeria Real Estate Guide

G. MARKET PARTICIPATION INDEX

The Chart depicts the percentage participa-

tion of each investor group in the REIT Mar-
ket. Other Institutional Investors (OII) leads
with a total market share of about 64%; fol-
lowed by Pension Funds (PFAs) holding
about 34% and thereafter Retail Investors
holding the remaining 2% . In comparison to
their portfolio of investible funds one would
reasonably expect the PFAs to be the biggest
players in the sector.

DETAIL COMMERCIAL SOLICITORS 14

3. THE ROLEEMERGING
NIGERIA’S OF THE NIGERIA
REITMORTGAGE
MARKET –REFINANCE
OUTLOOK,COMPANY PLC IN THE
PERFORMANCE ANDNATIONAL HOUSING FINANCE PROGRAMME
OPPORTUNITIES

A. THE NATIONAL HOUSING FINANCE

PROGRAMME (“NHFP”)

Housing reform is a critical element of the 7

point agenda of the Federal Government of
Nigeria (“FGN”); this priority status is reflec-
tive of the near comatose state of the sector.
Over 80% of Nigerians lack decent accommo-
dation principally because there is a barrier
to accessing finance for home acquisition.
Developers too are unable to access long term
finance for development/construction. They
are therefore compelled to take on short term
loans at double digit interest rates which
typically are passed on to home buyers. This
leads to a mismatch in the cost of housing and
which is taken out of the reach of the average
Nigerian.

In November 2012, the President of the Fed-

eral Republic of Nigeria launched the NHFP to
address the issue of access to finance which
plagued the demand and supply sides of the
housing sector and consequently the housing Main components of the NHFP
deficit (currently estimated at about 20
(twenty) million units) which was at the time
recognized as a national emergency. The
NHFP is principally driven by the Federal
Ministry of Finance (“FMF”) and its mandate To realize its objectives, the FGN has identified and partnered with: the Central Bank of Nigeria
is to promote availability and affordability of (“CBN”); Securities and Exchange Commission (“SEC”); the World Bank; the International Finance
housing to Nigerians irrespective of their Corporation (“IFC”); Deutsche Gesellschaft fur Internationale Zusammenarbeit GmbH; and the De-
socio–economic status. partment for International Development (“DFID”). The programme is expected to deliver a mini-
mum of 75,000 new homes per annum and generate approximately 700,000 jobs in the formal and

Nigeria Real Estate Guide

informal sectors of the housing market within the next 5 (five) years.
B. THE NIGERIA MORTGAGE
REFINANCE COMPANY (“NMRC”)
inherent powers to make regulations in rela- Improving efficiency and transparency in the
INTRODUCTION tion to the operation and control of institu- mortgage market and minimizing credit risks
NMRC or (“the Company”) is an offshoot and a tions under its supervision. The MRC Regula- through the standardization of underwriting
key component of the NHFP; poised to deliver tions, 2012 provides for the licensing and practices for MLs;
access to affordable housing finance and sup- establishment of MRCs as specialized second-
port policy and regulatory reforms that would tier mortgage institutions which would pro-
galvanize the housing sector generally. Alt- vide short term liquidity and long term fund- Kick-starting the secondary mortgage mar-
ing to mortgage originators and housing fi- ket through the issuance of debt securities
hough the Company is driven by the Private
nance lenders. (backed by a homogenous pool of qualifying
Sector, it is an initiative of the FMF (supported
mortgage assets) in our domestic capital mar-
by the CBN, the Federal Ministry of Lands and
The NMRC is also subject to the provisions of ket that is attracting Institutional Investors
Housing (“FMLH”) and the IFC. The Govern-
the CBN Act, 2007; the Banks and Other Fi- (specifically Pension Fund Associations) in
ment’s commitment to the ongoing housing
nancial Institutions Act, 2004and the Compa- preparation for a more sophisticated mort-
finance sector reforms has informed the enor-
nies and Allied Matters Act which regulates gage securitization market; and
mous public sector support that the NMRC has
enjoyed from its inception. generally the corporate and constitutive af-
fairs of all corporations registered in Nigeria.  Supporting the housing finance sector
The Company was established as a public Finally, being a public company that interfaces through advocacy and regulatory interven-
limited liability company registered with the with the investing it must also comply with tions.
Corporate Affairs Commission on the 24th the Investment and Securities Act, 2007 and
June, 2013. Following the procurement of an the SEC Rules and Regulation passed pursuant OWNERSHIP STRUCTURE
approval-in-principle granted by the CBN to the Act. NMRC was conceived as a public-private part-
under its Regulatory and Supervisory Frame- nership where the private sector will run the
work for the operation of Mortgage Refinance BUSINESS OBJECTIVES affairs of the Company to actualize its objects
Companies (“MRC Regulations”) 2012. Hav- The key objective for which the NMRC was and maximize returns to investors, while
ing met all the regulatory requirements, the established includes: Government will maintain a minimal stake
Company is expected to procure its Final Li- and continue to provide the necessary policy
cense and commence core operations during  Improving Mortgage Lender’s (“MLs”) ac- and regulatory support required to achieve
the first quarter of 2015. cess to cheaper/long term funds; the commercial and developmental objectives
of the institution.

REGULATORY FRAMEWORK Providing continuous liquidity to MLs in a

bid to stimulate the volume of mortgage origi-
The MRC Regulations are the principal regula-
nation and increase home buyers’ access to
tions which govern the affairs of the NMRC .
finance;
They were promulgated by the CBN under its

DETAIL COMMERCIAL SOLICITORS 15

THE ROLE OF
NIGERIA’S THE NIGERIA
EMERGING MORTGAGE
REIT MARKETREFINANCE COMPANY
– OUTLOOK, PLC IN THE
PERFORMANCE NATIONAL
AND HOUSING FINANCE PROGRAMME
OPPORTUNITIES

NMRC to date has a shareholder mix comprising of mainly 3 (three) classes of inves-
tors. The Company’s shareholding is expected to extend to other Institutional Inves-
tor groups and Development Finance Institutions as the Company progresses into its
second and subsequent phases of its capital raise.

C. CAPITALIZATION STRUCTURE AND interest in a pool of mortgages which have end, it is expected that in the Company’s first
REFINANCING OPERATIONS been pre-qualified for refinancing having 5 (five) years of operation, all bonds issued by
conformed to the NMRC’s Uniform Underwrit- it would be backed by the full faith and credit
ing Standards (“UUS”). of the FGN thereby totally de-risking the
bonds and qualifying the Issue for an “AAA”
CAPITALIZATION STRUCTURE The structure of the refinancing by NMRC credit rating as is typically assigned to FGN
NMRC raised a total of N7.05 Billion under its differs slightly from the typical securitization guaranteed instruments. Each tranche of
first tranche capital raise. This is expected to in that instead of an outright purchase (true bonds issued will also be secured against
make up its Tier 1 capital (the amount ex- sale) of the receivables from the qualifying NMRC’s interest over the underlying pool of
ceeds the N5 Billion minimum capital re- mortgage portfolio of the participating ML’s; mortgages to be refinanced with the proceeds
quirement for MRCs). The Company is also a NMRC will be assigned security interest over of the bond. NMRC will create a security inter-
beneficiary of a USD250 Million subordinated the receivables. Therefore, NMRC holds only a est over the receivables (including the princi-
debt under the USD300 Million International beneficial interest over the receivables while pal sum and interest repayments from the
Development Association (“IDA”) facility the credit risk is retained by the ML with

Nigeria Real Estate Guide

underlying mortgage loans) with FGN being
provided by the World Bank to facilitate the NMRC having full recourse to it where there is the senior secured creditor - having guaran-
execution of the National Housing Finance a failure of the security. teed the bonds to the full extent of the issue;
Programme. The loan attracts a 40 (forty) investors would have a direct recourse to FGN
year moratorium and 0% interest rate. While NMRC will on-lend such amount as is propor- whilst FGN first right of recourse to the pool
the value of the IDA Loan is expected to be tionate to the book value (less unearned inter- of mortgage receivables.
reserved on its balance sheet (not to be uti- ests and subject to a 25% over-collaterization
lized as working capital), the Company’s Tier margin) of each participating ML’s pool of After the initial 5 (five) years, it is expected
2 capitalization will be (further) strengthened qualifying mortgage assets. that the mortgage asset class would have
with the proceeds of the bonds Issuance ex- seasoned (the market would have enough
pected to be undertaken by the Company. Being a new company, the NMRC cannot on information with which to independently
the strength of its balance sheet access the assess its performance), investors would have
The USD$250 Million of the IDA Loan will be capital market to raise funds. Furthermore the a better understanding of the mortgage mar-
disbursed in 6 (six) tranches based on pre- investing public has little knowledge and ket and NMRC would also be able to access the
agreed performance indicators. In June 2014, understanding of the mortgage asset class – capital market on the strength of its balance
NMRC received the 1st disbursement). It is which is the crux of NMRC’s business and its sheet without support from FGN.
expected that the loan will strengthen the primary repayment source. Given the time
Company’s balance sheet significantly by required for the asset class to mature, the
improving its credit rating and its capacity to structure of NMRC’s bonds issue would re- RISK MITIGATION AND INSURANCE
raise debt finance in the capital market. quire a considerable amount of credit and To mitigate against credit risk, NMRC’s refi-
structural enhancement to boost its ratings nancing model has been structured as an on-
REFINANCING OPERATIONS and make it attractive to investors. To this
The core business objective of the NMRC is to
create an avenue for MLs to refinance their
eligible loan portfolios, and receive immedi-
ate liquidity prior to maturity of the loans) to
enhance their capacity to continue loan origi-
nations without overdrawing their working
capital.

The NMRC serves as a financial intermedia-

tion vehicle. With the strength of its capital
base and credit support from the Federal
Government; it is able to access a steady flow
of long term funds from the capital market
through the issuance of bonds or other forms
of debt instruments. The Company in its
ordinary course of business will lend these
funds to participating ML’s in the form of
loans backed by an assignment of security

DETAIL COMMERCIAL SOLICITORS 16

THE ROLE OF
NIGERIA’S THE NIGERIA
EMERGING MORTGAGE
REIT MARKETREFINANCE COMPANY
– OUTLOOK, PLC IN THE
PERFORMANCE NATIONAL
AND HOUSING FINANCE PROGRAMME
OPPORTUNITIES

lend facility to MLs, the pool of mortgages to the process of drafting a Model Mortgage and
be refinanced will remain on the balance Foreclosure Law in consultation with key E. BENEFITS AND OPPORTUNITIES
sheet of the MLs. NMRC will only acquire a industry stakeholders such as the Ministries
beneficial interest over the receivables from of Justice in all States of the Federation, the
the refinanced mortgage while retaining the Mortgage Bankers Association of Nigeria, top NMRC’s role is very crucial to the success of
right of full recourse in the case of delinquent real estate lawyers, the FMLH and the CBN. the NHFP; being the key driver and chief im-
mortgages. plementer of majority of its strategies, its
The Model Law amongst others is expected to continued drive will deliver benefits to the
This precludes the NMRC from the responsi- address the key issues which have plagued the housing value chain as a whole. We expect
bility for servicing the loans or having to con- Mortgage Sector over the last 4 (four) dec- that within the first few years of its existence;
duct due diligence on the borrowers. Further, ades. The key objectives of the Model Law the NMRC would have delivered to the Nigeri-
all refinancing undertakings will be collater- include to: an populace the following benefits and oppor-
ized to the tune of 125% allowing for the 25% tunities:
over-collaterized margin to be used to absorb
 Fast-track the process for creating and
any potential losses.

In a bid to preserve the underlying collateral

backing each refinancing transaction; NMRC is
currently engaging with the Nigeria Deposit
Insurance Corporation to acknowledge that
NMRC will rank above other creditors of par-
ticipating MLs in the event of winding up.
This priority status is expected to minimize
any possible repayment risk should the MLs
go into insolvency as well as to keep the re-
ceivables from the hands of other creditors or
depositors as it were. Also noteworthy is the
requirement in the UUS document mandating
all qualifying mortgage loans to be insured
against repayment risk.

Nigeria Real Estate Guide

D. POLICIES, REGULATIONS
AND TRAINING
registering legal mortgages;
Outside of its core function; the NMRC contin-  Ensure timely and efficient resolution of
ues to support the Mortgage industry by driv- mortgage disputes; INTEREST RATE REDUCTION
ing policy formulation and advocacy in all  Reduce the cost of obtaining Governor’s Given its financial intermediation role, NMRC
areas related to land, housing and urban de- consents and other taxes incidental to would become the primary source of funding
velopment. The role of the Company in deep- mortgage transactions; for ML’s giving them access to cheaper and
ening the housing finance sector and stand- longer tenured funds. Once the cost of funds is
 Create an efficient foreclosure and enforce-
reduced a converse reduction in interest rates
ardization of mortgage practices is not just
ment process for mortgage securities; and
commendable but also enviable. is expected.
 Promote the uniformity in the implementa-
tion of foreclosure processes in all States of EMPLOYMENT
UNIFORM UNDERWRITING STANDARDS the Federation. One of the social values that the NMRC has the
NMRC has championed the standardization of capacity to deliver is mass employment. Other
It is expected that the Model Law once final- than the direct employment opportunities
mortgage practices and also prepared the
ized will be adopted and passed into law in all that would open up within the Company, rate
Country for the effective take off of an effi-
the States of the Federation. of origination of mortgages would expand
cient secondary market through the introduc-
tion of the UUS. along with manpower required within the
TRAININGS mortgage sector. Furthermore, as the supply
The UUS seeks to standardize mortgage lend- In its bid to support all three components of side seeks to increase production output to
ing processes. It sets the criteria for the origi- the National Housing Finance Programme, the meet the rising demand, a lot of job opportu-
nation of mortgages that will qualify to be NMRC has continued to engage with and edu- nities will open up for professionals and arti-
refinanced by the NMRC. It balances the need cate stakeholders down the value chain sans who serve the construction industry.
for responsible lending with the Lenders with (including ML’s, housing developers, Govern-
the need to secure loan repayment and mini- ment Departments and Agencies, artisans and
mize losses. Though only persuasive in its other professionals within the housing finance INCREASE IN MORTGAGE ORIGINATION
application (given that MLs may still originate sector) on the different aspects of the Pro- AND HOME ACQUISITION
non–conforming mortgages), the UUS now gramme and the specific role NMRC plays in In response to the increased origination ca-
sets the industry standard, making the mort- delivering quality and affordable housing to pacity of ML’s many more Nigerians across
gage banking landscape more competitive. Nigerians and provides capacity building for the social strata will have access to cheaper,
other stakeholders to effectively participate in long term mortgages.
the on-going reform
MODEL MORTGAGE AND FORECLOSURE
LAW INCREASED HOUSING CONSTRUCTION
In recognition of the lack of an efficient legal OUTPUT
framework for foreclosure which remains one As the demand for housing grows, the supply
of the biggest growth inhibitors in the Nigeri- side of the housing value chain will be posi-
an Mortgage Market, the NMRC kick started tioned to increase its delivery capacity. Cur-

DETAIL COMMERCIAL SOLICITORS 17

THE ROLE OF
NIGERIA’S THE NIGERIA
EMERGING MORTGAGE
REIT MARKETREFINANCE COMPANY
– OUTLOOK, PLC IN THE
PERFORMANCE NATIONAL
AND HOUSING FINANCE PROGRAMME
OPPORTUNITIES

rently over 66,000 Nigerians have applied for is expected that this will enhance efficiency ECONOMIC DEVELOPMENT
mortgages under the NHFP first 10,000 af- and transparency within the sector. It also Whilst the NMRC has an extensive social im-
fordable housing programme. The FGN has puts the NMRC in a position to act as a plat- pact its economic impact is even more far
therefore tasked local developers to deliver form of data and information collection for the reaching. It is expected that the housing re-
the sufficient housing stock to meet the de- sector, this being a critical element for build- forms will stimulate aggressive economic
mand of the existing pipeline of applicants. ing a successful secondary market. growth across the land, housing, finance and
related sectors. It is expected that the total
contribution of the Real Estate Sector to the
RESTORING INTEGRITY IN THE SOCIAL INCLUSIVENESS Nation’s GDP will increase in geometric pro-
MORTGAGE/HOUSING FINANCE SECTOR In the implementation of its intervention gression over the next 5 (five) years.
The introduction of the UUS and other regula- within the housing sector, the NMRC has been
tory interventions of the NMRC help to mini- mindful to cater to the needs of Nigerians
mize unconscionable practices amongst MLs, across different social strata. The UUS recog- F. CONCLUSION
thereby restoring integrity in the sector. nizes and has provided separate underwriting
regimes for salaried employees, civil servants
and self-employed borrowers. Mortgage origi- The years ahead are very exciting times for the
ENHANCE TECHNOLOGY INFRASTRUCTURE nation is also expected to cut across all States Nigerian Housing Sector. The NMRC being a
AND DATA COLLECTION of the Federation. principal catalyst has the capacity to deliver on
The advent of the NMRC and the need for the social, developmental and economic bene-
technology integration with participating ML’s fits which the NHFP of the current administra-
has resulted in a total upgrade of the technol- tion has pledged to deliver.
ogy infrastructure for the mortgage sector. It

 Regulatory and policy interventions

 Refinancing of ML’s current mortgage portfolio to
enhance liquidity
 Improved market efficiency


Nigeria Real Estate Guide

Standardization of documentation under UUS
NMRC  More efficient foreclosure processes
Benefits &
 Increased access to liquidity and cheaper long term
Opportunities finance
 Reduction of overall cost of funds for residential
housing acquisition
 Employment generation
 Large scale housing developments in both urban
and rural areas
 Improved quality of construction materials

“...It also puts the NMRC in a position to act as a platform of data and information collection for
the sector, this being a critical element for building a successful secondary market.”

Nigeria Real Estate Guide is a publication of Detail Commer- Detail Commercial Solicitors
cial Solicitors, a commercial law firm based in Lagos, Nigeria. DCS Place, 8 DCS Street
DETAIL has an active Real Estate and Construction Practice Off Remi Olowude Way
known for providing bespoke legal solutions on diverse Lekki Phase 1
transactions including finance; construction and projects; Lagos
portfolio investment; mortgages and hypothecations; trusts Nigeria
Email: realestateguide@detailsolicitors.com
and estate planning; regulatory compliance amongst others.
Tel: +234-1-277-1400-5

DETAIL COMMERCIAL SOLICITORS 18