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Cablegate: Nigeria: U.S. Housing Company Tracks Developments In

VZCZCXRO2893
RR RUEHMA RUEHPA
DE RUEHOS #0401/01 2840632
ZNR UUUUU ZZH
R 100632Z OCT 08
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 0221
INFO RUEHUJA/AMEMBASSY ABUJA 9869
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC

UNCLAS SECTION 01 OF 02 LAGOS 000401

SENSITIVE
SIPDIS

STATE PASS OPIC FOR DERB, ZHAN, MSTUCKART, JEDWARDS
STATE PASS TDA FOR LFITTS, PMARIN
STATE PASS USAID FOR NFREEMAN, GBERTOLIN, GWEYNAND, SLAWAETZ
STATE PASS EXIM FOR JRICHTER
DOC FOR 3317/ITA/OA/KBURRESS
DOC FOR 3310/USFC/OIO/ANESA/DHARRIS
DOC FOR USPTO-PAUL SALMON
TREASURY FOR DFIELDS, AIERONIMO, RHALL, DPETERS
TRANSPORTATION FOR KSAMPLE

E.O. 12958: N/A
TAGS: ECON EFIN EAID NI

SUBJECT: NIGERIA: U.S. HOUSING COMPANY TRACKS DEVELOPMENTS IN
HOUSING

Ref: A) Lagos 353
B) Lagos 255
C) Lagos 254

1. (SBU) Summary: According to a U.S. Company working in Nigeria's
housing sector, the recent downturn in the Nigerian capital market
has funneled money into land in Lagos, where land prices in key
areas doubled between April and August. Nigerian banks are unable
to handle mortgage loans; most offer only three to five year
construction loans at 25 percent interest; and delinquencies can be
as high as 11 percent. Securitization and non judicial foreclosure
bills are stalled in the National Assembly. This U.S. company is
trying to securitize banks' mortgage loans and sell them to
international investors, at best a difficult strategy in today's
market. End Summary.

Stock Market Decline Inflate Real Estate Bubble
--------------------------------------------- --

2. (SBU) Mike Williams, Chairman of TransAtlantic, a U.S. company
that specializes in development, construction, and financing of
large scale residential housing projects, told CommercialCouns and
EconOff September 11 that the recent stock market downturn and
increasing demand for housing had further fueled the real estate
bubble in Lagos (Ref A). According to Williams, the adoption of
anti-money laundering legislation had resulted in "funny money"
being channeled away from banks and into the stock and real estate
markets, leading to the explosion of share prices and the real
estate boom observed in recent years. Given the 30 percent loss in
market capitalization since March, more money had been flooding out
of investments in stocks and into real estate, resulting in a
doubling of Lagos property values within a six month period. A 100
hectare property on the Lekki Peninsula (the booming residential and
commercial suburb of Victoria Island) valued at Naira 700 to 900
million (USD 6 to 7.5 million) in April had doubled in price by
August, Williams said. In addition to offering land owners twice
the value of their land, local developers are offering them a 30 to
40 percent equity stake in the development project, deals that U.S.
companies like TransAtlantic cannot match. To offset the costs,
developers inflate property prices for willing homebuyers.

Lagos Land Ownership in Hands of Few "Big Men"
--------------------------------------------- -

3. (SBU) Williams believes the concentration of land "ownership" in
the hands of a few political godfathers in Lagos State had led to an
exaggerated scarcity of supply in land, which further added to the
explosion in real estate value. Williams learned from his contacts
that former Governor Tinubu and the Oba of Lagos together own about
20 percent of property on the highly-coveted Victoria Island and
Lekki Peninsula. He believes that generally land owners have a
trader mentality of hoarding a scarce product and selling it for the
highest price to developers. However, they either are not cognizant
of or do not buy into the idea of increasing their property value
through investment in infrastructure development. According to
Williams, the primary task for the current Lagos State Governor is
to get land owners to invest in the state's decaying infrastructure.


Eleven Percent Delinquency Rate on Bank Mortgages
--------------------------------------------- ----

4. (SBU) Nigeria's mortgage banks and firms are for the first time
looking to off-load their mortgage lending portfolios. This is due
to the recent downturn in the capital market and a general loss of
confidence in the banking industry in the past year, Williams said.
Some banks have been managing mortgage portfolios valued around
Naira 50 billion (USD 400 million), and the delinquency rate might
be as high as 11 percent for some of these mortgage programs.

5. (SBU) TransAtlantic is working with a few major mortgage banks
and firms on an exit strategy, helping to restructure their loans or
securitize them so they can be sold as bonds. The company was
scheduled on September 11 to sign a contract with two local mortgage

LAGOS 00000401 002 OF 002


banks to securitize Naira 90 billion (USD 770 million) of mortgages
and to sell them as bonds to international hedge funds and
investment firms. (Note: EconOff was unable to confirm with Williams
whether the contracts were signed. End Note)

6. (SBU) Williams said local mortgage banks are unable to handle
mortgage lending; at the very best, some had been able to offer
three to five years short-term loans for construction projects at a
ramped-up 25 percent interest rate. Most of these construction
projects have gone sour, he noted, and banks have become
increasingly reluctant to offer construction loans. He continued by
emphasizing that that the gap between available finance for
construction and residential mortgages was impeding overall housing
development.

Securitization, Foreclosure Bills Stalled
-----------------------------------------

7. (SBU) Williams said a bill that would provide the legal framework
for securitization of mortgages and establish a system of
non-judicial foreclosures in the event of mortgage defaults had not
passed the third reading in the National Assembly and would likely
not be taken up again. TransAtlantic had been working with the
National Assembly since 2006 on new legislation and policy reforms
for the housing and mortgage sector. These bills have fallen by the
wayside with the substantial change in leadership that came with the
2007 election, he lamented.

8. (SBU) As a result, Williams said, his company is placing less
effort on influencing federal policy reforms for a more localized,
geopolitical approach. TransAtlantic is partnering with state
governments on commercial and residential development projects. In
some cases, state governments could gain equity in projects through
land contribution. Williams believes that demonstrated successes on
these projects at the state level would influence policy change at
the national level.

9. (SBU) Comment: The effects of the financial crisis on Nigeria's
banking and financial sector are still being assessed and debated.
Given the current credit environment, it is doubtful whether any
international hedge fund managers and investment firms would buy
Nigerian mortgage-backed securities. End Comment.

10. (U) This cable has been cleared with Embassy Abuja.

BLAIR

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