Nigeria's real estate sector holds considerable amounts of latent wealth

Nigeria suffers from a substantial dead capital problem, a large portion of which is contributed by the residential and agricultural real estate markets, according to Big Four accounting and advisory firm PwC. The firm reports that real estate in Nigeria holds as much as $300 billion in dead capital.

Much has been made of Nigeria’s role in driving economic growth in Africa, and the obstacles that still hinder the country’s progress. The heavy reliance on the oil sector is one commonly highlighted issue, as is the overall income inequality level, as well as structural inefficiencies.

PwC’s new report states that the largest economy in Africa draws as much as 65% of its GDP from the informal sector, indicating the need to grow and reform the organised segment of the economy. A number of other issues exist as well, including the rapid rate of population growth, which is currently exceeding GDP growth.

As a result, the per capital income levels across the country are set to decline further in the near future, and many have sought to offer solutions. Digitalisation has been the go to solution, as investment in technology could reduce inefficiencies and make the market even more attractive to foreign investors.

However, PwC has found another area where reform could unlock substantial amounts of wealth. The firm reports that Nigeria is home to large repositories of dead capital, which refers to assets that cannot be utilised to extract economic value.

“Presently, a large proportion of Nigeria's population operate in the informal sector by living in informal dwellings and/or working in the informal sector. For many, the cost accrued in the formal sector outweigh the benefits. However, this creates a large stock of dormant assets,” explained the firm.

“Capital is scarce in societies with large stock of dormant assets. Ideally, a standard description of assets lowers the costs of economic transactions, as it provides security for parties involved by making transactions legitimate and legally binding. However, a lack of description makes transaction costs too high to be economically beneficial for both parties. The poor are therefore unable to leverage their assets and possessions for economic gain,” it added.

According to PwC, a majority of Nigeria’s dead capital lies in its real estate sector, and technology could offer the answer to unlock this wealth. Using blockchain to organise the country’s land registry, according to the firm, could untangle large discrepancies in the real estate sector.