Despite the fact that the economy of the world’s most populous black nation is presently in recession, Observers still believe that Nigeria’s real estate sector still evolves at a tremendous pace. The focus of this article are the factors that constitute a stiff opposition to the country’s emerging real estate industry.
There is no doubt that other budding sectors of Nigeria have provided a veritable platform for the landslide emergence of the real estate sector in Nigeria. Real estate leverages on its illustrious brothers such as tourism, telecommunications and agriculture to thrive.
It is only wise that employers build their own estate to accommodate their employees rather than pay them housing allowance throughout the period of their employment. Consequently, real estate companies and professional real estate developers are on the rise.
However, challenges facing the sector have hampered it from realizing its true potentials.
Here are the immediate challenges facing Nigeria’s real estate sector in no particular order
1. Land Registration Bureaucratic Process
If there is an issue that gives real estate investors in Nigeria sleepless nights, then that issue has to be the bureaucratic process of land registration. Nigeria is among the most inefficient globally when it comes to registering property, according to a 2013 report, which ranks it 182nd out of 185 countries. The registration process can last as long as 6 months to 2 years, taking an average of 12 procedures, and costing about 20.8% of the value of the property.
The people at the land registry are culpable of foot-dragging which occasionally causes unwarranted delays. A real estate developer most times watches on as his application passes from one office to the other for as long as possible, and by the time the needed approval gets to him, he is cash-strapped.
This in itself is a turn-off for most real estate investors, cause it eventually disrupts their business plan.
It therefore came as a welcome development when the new comprehensive Second Lagos State Development Plan (LSDP) was adopted in 2013. It aims to streamline the regulatory environment and improve incentives for private investment and business; for example, land registration initiatives, the creation of GIS (Geographical Information System) maps and the piloting of an e-approval system for development permits.
Taxation is another problem Nigeria’s real estate sector is saddled with.
Real estate investors are subjected to multiple taxations, the taxes and levies paid by them include development levy, income tax, building plan approval levy, property tax, land use tax, and we also have cases whereby real estate investors are expected to pay renovation tax whenever they want to renovate their properties. Apparently, there are further plans by the Federal Government to increase taxes.
3. Naira Slump Against Dollar
The recent devaluation of naira constitutes a huge bottleneck to the development of Nigeria’s real estate sector.
This is because the Nigerian construction industry is heavily dependent on foreign importation for the raw materials and equipment they need for construction. With a devalued naira, the cost of purchasing these raw materials and equipment will definitely increase.
Ordinarily, the naira slump against the dollar should be a source of concern to any real estate investor/developer. The reason for this is simple; some foreign developers peg the cost of construction and the value for selling developments on land in United States dollars (“$”) while they charge their clients the naira equivalent. These investors/developers would encounter no hassles if the purchase price of the developments paid in naira can be converted to the anticipated equivalent in US dollars. But the unstable price of crude oil and the continuous fall in the naira often results in a loss for the developer.
As a result of the high costs of doing business, property developers to remain profitable will have to pass on these additional costs incurred to the market.
The effect of the naira devaluation would have been much milder if construction materials are produced locally thereby cutting down the cost of construction and in turn making properties more affordable for the average Nigerian.
We hear that 1 dollar is now almost 400 naira; How much worse can it get?
4. High Costs of Property Development
Building a house in Nigeria can cost an arm and a leg, especially in the urban cities of Lagos, Abuja and Port-Harcourt.
A recent report released by a real estate firm even suggests that Lagos is the most expensive city in Africa. For instance, a three-bedroom apartment will cost about US$50,000 on the average in the nation’s capital city, compared to US$36,000 in South Africa and US$26,000 in India.
About 75% of dwellings in Nigeria’s urban areas are built of concrete.
5. Limited Source of Funding
There is less funding for real estate development in the country for developers in Nigeria. Real estate is capital intensive. An investor who wants to go all out to do his business all alone may not last in the business. It won’t be long before he tires out.
Nigeria possesses all the key factors for real estate investment — a growing middle-class population, growth in consumption, rapid urbanization and a young demographic compared to more mature economies.
Yet, financing remains a problem both for property developers and prospective homeowners.
This means that, whether you’re thinking of investment property financing or securing real estate loans for financing a personal home purchase, you will still have to deal with the familiar problem of insufficient capital sooner rather than later.
Source: By “Tunde Sokunbi” megamound