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NIGERIA- With a new policy aimed at prohibiting the use of foreign currency for local transactions, there are worries that the proposed legislation could deter foreign direct investments and lead to an increase in ‘black market’ dealings within the real estate sector.
Professionals in the field are concerned that the National Assembly's decision to ban foreign currency for local transactions may exacerbate the challenges faced by investors in the real estate market.
The bill, titled: “A Bill for an Act to Alter the Central Bank of Nigeria Act, 2007, No. 7 to prohibit the Use of Foreign Currencies for Remuneration and for Other Related Matters,” recently passed its first reading in the Senate.
Its goal is to ensure that all payments, including salaries and transactions, are made in naira, eliminate discriminatory practices, and bolster confidence in the local currency.
The bill sponsored by Chairman of the Senate Committee on Reparations and Repatriation, Senator Ned Nwoko, the bill mandates that exports and workers, including expatriates, be compensated in naira.
Nwoko emphasized that the prevalent use of foreign currencies in Nigeria's financial system undermines the naira's value and exacerbates economic difficulties.
He argued that using the dollar, Pound Sterling, and other foreign currencies for domestic transactions is a remnant of colonialism that continues to impede Nigeria’s economic autonomy.
The bill also suggests that “crude oil and other exports be sold exclusively in naira, compelling international buyers to acquire the currency to drive demand and value.”
Nwoko further contended that the legislation will “establish the Naira as the primary currency for all financial transactions, reinforce its prominence in the economy, and eliminate informal currency markets that weaken the formal economy and promote unethical practices such as round-tripping by banks. Should the bill be approved, the policy will introduce various dynamics in the sector, which is in need of enhanced foreign direct investments, having contributed just over 5 percent to Nigeria’s Gross Domestic Product (GDP) in 2024.
The policies of the Bola Tinubu administration have continued to devalue the naira, with the exchange rate to the dollar currently ranging between N1,550 and N1,700 to $1.
Experts have indicated that the proposed policy may compel property developers to incorporate special clauses in transaction agreements. Over recent years, Nigeria has been heavily reliant on dollars for transactions, including the importation of building materials, school fees, home rentals, land, and property purchases, a situation that has posed challenges for the Central Bank of Nigeria (CBN) in maintaining monetary stability.
Presently, some luxury apartment developers market their properties for sale or lease in foreign currencies, particularly in U.S. dollars. For example, in Lagos, areas like Banana Island and Victoria Island, known as some of the most expensive and exclusive neighborhoods in Africa, predominantly list properties in dollars.
The average price for a three-bedroom apartment can reach as high as $161,000, while a plot of land on Lagos Island may exceed $7 million or $6 million. Developers prefer to price their properties in dollars due to its stability and advantages. With the dollarization of these transactions, the naira has reportedly faced significant risks as Nigerians expend a large volume of local currency to acquire a limited number of goods.
Experts explained that only developers who accept payments in dollars can initiate new project developments, as they are insulated from the naira's devaluation; any fluctuations in the foreign exchange market devalue the currency, leading to overall price increases and abandoned projects.
The former Head of the Department of Estate Management and Valuation at the Federal University of Technology Minna, Prof. Olurotimi Kemiki, argued that the law would complicate the attraction of new foreign investors.
However, he also predicted that the market might experience frequent adjustments in rents or leases to align with the prevailing exchange rate.
He anticipated the emergence of a ‘black market’ for affected properties, explaining that there could be an increase in clandestine transactions for those unwilling to vacate their current accommodations, whether residential or commercial.
Kemiki informed The Guardian that, in the long run, potential investors might become more cautious in property investments, conduct thorough calculations, and include specific clauses in agreements to safeguard their investments in Nigeria.
He stated that investors in the property sector who currently utilize dollars for their transactions, whether for leases or sales, should not be criticized, as they view USD as a stable currency, unlike the Naira, which fluctuates almost constantly.
Confronted with such circumstances, he noted that investors in Nigeria, particularly foreign direct investors, primarily obtain their credit facilities in United States dollars and prefer a scenario where their earnings are also in USD to ensure a stable forecast for their business.
However, he acknowledged that this situation has not been beneficial for naira stability, as the currency is perpetually chasing dollars to purchase or lease properties in Nigeria.
President of the International Real Estate Federation (FIABCI) Nigeria Chapter, Akin Opatola, conceded that most high-end properties are priced in U.S. dollars due to inflation in the economy.
Nevertheless, he remarked that practitioners who do so are perceived as unprofessional. He stated: “I oppose the dollarization of the economy. If we do not support our currency and continue to use foreign currencies like the Euro, Pounds, or dollars, the country cannot improve.”
He pointed out that an operator in the sector who uses the local currency and is aware of the naira's depreciation may not maintain the same asking price for a property, even if a customer approaches for the property in two or four months.
“We also recognize that the CBN disapproves of the dollarization of property, in addition to the recent initiative by the National Assembly to halt this trend. That’s why when prices are quoted in naira, there are explicit instructions stating that the quoted price is only valid for a specific period.
For instance, a developer may need to include a clause indicating that the price will increase after seven days, depending on inflation at that time. The National Assembly's move is a step in the right direction, but it will be challenging if the bill is enacted,” Opatola emphasized.
In efforts to attract foreign direct investments into Nigeria, he stated that money will always follow value, even though it is simpler to quote prices in dollars for foreign investors interested in prime locations like Eko Atlantic, Banana Island, or Victoria Island, as they can easily compare prices for similar properties in Kenya, Accra-Ghana, or parts of Europe.
Former Chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV) Kano chapter, Abdulaziz Abdulatif, expressed optimism about the positive effects if the bill is passed. Specifically, Abdulatif stated that the ban would enhance property supply and stabilize the market.
“If the country can achieve that, it will increase supply in the local market because our current situation resembles having two distinct markets: one governed by dollars and another for naira transactions.
“It will also help strengthen the currency. For a developing nation like Nigeria, there is no justification for pricing our property market in dollars. Most of the materials we purchase to construct buildings are valued in naira,” he remarked.
He added that this move will normalize rent and property prices. For example, “if someone is paying rent in dollars, like $1,000, you can assert that you are not raising the price over time, but in the naira component, your rent can increase annually.”
Abdulatif stated: “I have a property that has been on the market for sale; the owner has held onto it because they have some foreign nationals as directors. Every three months, they keep adjusting the asking price based on currency market instability. I had to caution them that this approach would not yield any benefits because Nigeria has its own currency.”
He noted that properties priced in dollars are effectively excluded from the market, as only a limited number of high-net-worth individuals can access that segment.
The former chairman further stated: “We have a country, regardless of whether it is an inflationary economy or not, the legal tender is the naira, and property owners are not the only participants in the market.
We must confront the economic reality together and cease putting pressure on the currency, as those seeking to purchase property often resort to the parallel market to obtain dollars.”
