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Real estate sector yet to recover from recession –Akomolede

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Real estate sector yet to recover from recession –Akomolede

Chief Kola Akomolede, Principal Partner, Kola Akomolede and Co., recently celebrated his 70th birthday with a book launch on housing related matters. In this interview with DAYO AYEYEMI, he speaks on various issues ranging from effects of the recent economic recession on the real estate sector, the reasons for the presence of huge vacant houses in choice locations of Ikoyi, Victoria Island in Lagos and Maitama/Asokoro districts of Abuja, among others

 

 

Do you support government direct involvement in housing provision?

 

There is nothing wrong in government providing housing but it must give the management to the private sector. Government should invest in property. As far back as the 1960s, Cocoa House was built, Western House also was built. They are providing accommodation for people; the only thing is that government is not a good manager of assets. It should firm them out to private companies to manage.

 

Nigeria is out of recession, but the real estate sector is still down. What is responsible for this?

 

You are right, there have not been any serious changes, whenever there is recession, the property market is slow to react and when the recession ends, the same way the property sector responds slowly to economic growth. For example, when you look at the law of demand and supply, unlike the production of beer, clothes or book, production of houses takes time. So when there is high demand you cannot quickly produce more houses and if there is slow demand you cannot quickly reduce supply of houses. This takes time. For example, let us use the recession that we had last year, during the recession, many ongoing housing projects were stalled, many people lost their jobs, while many could not afford to pay rents and moved out. Now that the economy is a little bit out of recession, not everyone that lost his job have got their jobs back, and not all the housing projects that were stopped have got funding to resume. Even the facilities developers were using, most banks cut off the credit line. So it takes time for the economy to recover as far as housing sector is concerned. The demand and supply of housing is inelastic. Any product that the demand and supply is inelastic is slow in reactive situation to economy either in recovery or inflation. So you will still see many houses vacant especially in those areas where people are paying high rents.

 

 

Can you say that the administration of high rents by landlords and realtors was responsible for the large number of vacant houses in Ikoyi, Lekki and Maitaima among others?

 

Again this is another problem we had, over the years during the boom years; we were living in artificial economy. The rents people were paying were just unreasonable. The high rents were not determined by market forces. For example, people are paying as much as $100,000 on a 3-bedroom flat in Ikoyi. I don’t know anywhere, even in America where people pay $100,000 as rent for a 3-bedroom flat; talk less of Ikoyi in Lagos? The rent was artificial. So with the boom coming to an end, some of the owners found it difficult to see the reality when rents started falling and people were asking them to take $50,000 and $40,000.

 

Initially they were saying no because the reality did not done on them on time. Some of them are still vacant till today because of the owner are not yet aware that the situation that created that artificial rent is no longer there. There still have those artificial rents especially in Lagos and Abuja. But the truth is that nobody that works honestly will be able to be paying $100,000 as rent.

Again, when you look at the exchange value, that is N36milion, this is not reasonable. That is why some of these houses are still vacant. You will not see these vacancies in the low-income areas. If you are looking for a room and parlour in Agege, it will take you time to get, but come to Ikoyi, VI , Lekki, there are many vacant flats, duplexes and detached houses.

 

They are vacant because the owners are used to the artificial rents, which is no longer available. Those houses which their owners are not yet realistic to accept what the market is saying will remain vacant.

 

But companies still hire houses for their staff in those enclaves?

 

By and large, there is recovery. The companies that were taking those properties then have closed down and many are not doing fine. So they have to device means. Instead of renting property for their staff, they give the staff money to rent houses on their own. If you give the staff $100,000, instead of using it to rent a house, he buys a house in the Mainland. He buys a bungalow in Surulere.

 

Even the $50,000 those apartments are being rented today, is still on the high side. It is still artificial. There are no longer good roads in Ikoyi or any other place in the country for that matter. Those houses will remain vacant for as long their landlords are not realistic. We have had course to advice them, but they are not ready to listen. You see some properties; the signboards are changing from one agent to another.

 

 

Do you support the argument that government should tax owners of these vacant houses?

 

I don’t believe it is right because landlords are supposed to get income from the property to be taxed. So if they are not getting income from them, what do you tax? Do you want them to borrow money to pay? Invariable, they won’t be able to pay unless they have other sources of income. So it does not make sense to tax vacant properties. I understand that under the new Land Use Charge, you have to pay land use charge on vacant property. This is going to create a problem because many people will default. Imagine a retired man that has two houses, who is living in one and rent out the other. And for some time now he cannot get a tenant for the rental apartment not to talk of feeding and enjoying life, and you are taxing him for unoccupied building. The other argument is that maybe this will discourage people from keeping their property vacant for long. There is a point in that, but I still believe it is not right to tax vacant properties because you are invariable sending their owners to early grave. So taxes must have human face.

 

 

Let’s look at your private life. How do you unwind?

 

I am a socialite, in my school days; I was the social prefect of the school. In the university I belonged to many social clubs. Right now I am a member of Ikoyi Club, Island Club and Rotary Club. I was President of Rotary Club between 2000 and 2001, a director of the club and later assistant government of Rotary Club in 2005 in District 9110. I have attended many conferences; like this year I attended one in Canada.

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