March 17, 2014

Nigerian Sovereign Investment Authority To Invest In Local Real Estate

Dolapo Omidire

The Nigerian real estate sector is set to receive a share of the country’s abundant oil revenue through the recently established Nigerian Sovereign Investment Authority (NSIA). Before the fund was approved in 2011, it was still the Excess Crude Account (ECA) initially created to act as a stabilisation fund, closing budget deficits that are a product of oil price volatility. Similar to the ECA, the NSIA was predictably criticised and depicted as a new instrument colluded by the government to steal and share money among themselves. However, the $1bn fund which is managed by the Nigerian Sovereign Investment Authority, is seemingly working hard to distinguish itself as a dynamic and transparent entity geared towards achieving measurable goals focused on the country’s future development.

Nigerian Sovereign Investment Authority

Investment in Real Estate

The influx of capital into the real estate sector will be received from the Nigerian Infrastructure Fund and invested in Affordable Housing and the Nigerian Mortgage Refinance Company. The Nigerian Infrastructure Fund, one of three funds created by the NSIA aims to invest in infrastructure projects in Nigeria that meet targeted financial returns and contribute to the development of essential infrastructure in Nigeria. It is the only fund with the mandate to invest domestically.

Affordable Housing – The fund is currently is in negotiation for several pieces of land that will allow them to build much needed affordable housing.  The Nigerian Sovereign Investment Authority has identified the chronic under supply of affordable housing in Nigeria and plan to service this deficit with millions of units while achieving a reasonable return.

High construction costs and land prices in Nigeria have continually put developers off affordable housing and pushed them towards the  more lucrative luxury/high end residential sector. This often act as a barrier to the construction of affordable housing all over the country. But high volumes along with strategic planning from the Nigerian Infrastructure Fund could help change that whilst producing a reasonable rate of return.

Nigerian Mortgage Refinance Company – The Nigerian Infrastructure Fund is one of the lead investors in the Nigeria Mortgage Refinance Company. It has been reported that the investment will be $10m. Though the equity call has not started yet, a commitment that is based on initial equity call, could allow for up to 20%.

The Nigerian Mortgage Refinance Company was established to bridge the funding cost of residential mortgages and promote the availability as well as the affordability of good housing to Nigerians by providing increased liquidity in the mortgage market through the mortgage and commercial banks. It will sell bonds on capital markets and provide long-term financing to lenders that will help them extend more home loans. The company will help extend maturities for Nigerian home-buyers to as much as 20 years, encouraging the building of 75,000 new homes a year and creating at least 300,000 jobs.

The 3 funds which were created by the NSIA have the shared goal of building a savings base for the Nigerian people, enhancing the development of Nigerian infrastructure and providing stabilisation support in times of economic stress. The allocation of capital is split 40%, 40% and 20% across the Nigerian Infrastructure Fund, Stabilisation Fund and Future Development Fund respectively.

NSIA Allocations

• Stabilisation Fund – The objective of the Stabilisation Fund (SF) is to provide stabilisation support to the Federation revenue in times of economic stress. Management of the Stabilisation Fund will be outsourced with investments in a diversified portfolio of liquid, low risk products such as Treasury bills and liquid short term investment grade bonds.
• Future Generations (Savings) Fund – The objective of the Future Generation Fund (FGF) is to invest in a diversified portfolio of appropriate growth investments in order to provide future generation of Nigerians a solid savings base for such a time as the hydrocarbon reserves in Nigeria are exhausted. Other capital is said to be invested in a social fund.

Global Sovereign Wealth funds Investing in Real Estate

Other SWFs across the globe are also following the real estate investment trend. Sovereign wealth funds around the world allocate more than $180bn to the asset class, and therefore represent a significant source of potential capital for private real estate fund managers. The world’s largest SWF, Norway’s Government Pension Fund Global (GPFG) -which notably owns 1.3% of the world’s listed companies and invests in 8000 companies in 82 countries (including Nigeria!)- has also been given permission to invest in real estate. It was reported that it will continue to build its North American direct property portfolio as it slowly works towards its 5% target allocation. Though Norway’s $810bn oil fund is permitted to hold up to 5% of its assets in property, currently it only counts as 0.9% ($7bn) of the entire portfolio.

Source: 2014 Preqin Sovereign Wealth Fund Review
Source: 2014 Preqin Sovereign Wealth Fund Review

Find out what a Sovereign Wealth Fund is in our other post – Sovereign Wealth Funds – What are they?

The Nigerian Sovereign Investment Authority release their 2013 Annual Report in June this year. Read our round up on the real estate aspects.

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