Nigeria: The fundamentals for real estate investment performance

Zawya

6 hours ago

Though it has contributed significantly to Nigeria's financial economy, real estate sector in the country is going through a significant transformation, driven and powered by population growth, rapid urbanisation and increased investor interest. And looking at the emerging trends, untapped opportunities and potential for sustained growth, one can assuredly conclude that the sector is poised for remarkable expansion.
That makes real estate investment an investment one could venture into and sleep with his two eyes closed.
For the purpose of clarity, real estate investment has to do with the purchase of real estate properties as a means to generate additional income instead of using them as a primary residence.
It also involves the management and sale or rental of real estate for profit.
Globally, real estate industry is one of the largest and important sectors in the world. It includes everything from residential and commercial properties and agricultural land. And because the industry is constantly evolving and expanding the frontiers for opportunities, it requires knowledge, talent, organization and perseverance to venture into real estate.
As a matter of fact, having knowledge and being educated about the real estate market is essential to a successful real estate investment and growth.
Real estate investment requires a comprehensive business plan to optimize decision-making and utilize resources.
There are myriad benefits in real estate investment. These benefits include: predictable cash flow, hedge against inflation, tax advantages, portfolio diversification, in that one can conveniently leverage real estate to build wealth, land banking.
Another reason for undertaking real estate investment could be for social purposes—it could be seen as self-actualisation (one's life achievement drive) or just to make a social statement (boost status).
Location is of utmost importance and would continue to be the most valuable factor for profitability in real estate investment.
Location and price go hand in hand. If a property is situated in a prime locality, it will command a better selling price.
The same property in an area that is not so prime will command a lower price. Investors should be guided by this.
Proximity to amenities, green space, scenic views, and the neighborhood's status factor prominently in residential property valuations, while closeness to markets, warehouses, transport hubs, freeways, and tax-exempt areas play important roles in commercial property.
Investors should also put into consideration ''build vs. buy.''
New construction, with the option to customize, and modern amenities usually offers attractive pricing, though it comes with risks of delays, increased costs, and the unknowns of a newly developed neighborhood. On the other hand, existing properties offer convenience, faster access, established improvements (utilities, landscaping, etc.), and in many cases, lower costs.
Valuation is crucial to making accurate and informed decisions in real estate investment. When it comes to determining asset pricing, actual worth and risk assessment, valuation plays a vital role.
In other words, valuation provides prospective buyers with ideas of how much they should pay for an asset and sellers with how much they should sell for.
In an economy where real estate transactions are critical drivers, it is essential to have a reliable and objective system for evaluating property values because lack of clarity on purpose may lead to unexpected results, including financial distress—especially if the investment is mortgaged.
Within the Nigeria business environment specifically, issues of long and bureaucratic process of land registration, planning law, that is, law regulating or otherwise relating to the uses of land or the construction of things on land, high cost of building materials, high cost of construction, high skilled labor costs, and costs associated with poor roads and sewerage systems, building collapse, limited source of funding, multiple taxation and levies such as development levy, income tax, building plan approval levy, property tax, land use tax paid by investors, devaluation of the Naira and its effects on the Nigerian construction industry which largely depends on foreign importation of raw materials and equipment for construction, land-grabbers (Omo-Onile), and difficulty in converting investments to cash whenever the need arises are besetting factors to real estate investment.
In addition, Nigeria just like every other jurisdiction has its set of laws and regulations which affects and influences real estate investments, and which investors must be familiar with.
The most critical one is the Land Use Act of 1978. The Act is the principal law enacted to regulate the ownership of real estate in Nigeria. By the provisions of the Act, the power to control and administer all land situated within a geographical area of a state is vested in the state governor for the benefit of the citizens.
The governor is responsible for granting a right of ownership for individuals and corporate bodies to hold and use the land for a limited term, and such grant is evidenced by the issuance of a Certificate of Occupancy or Governor's Consent. By the provision of the Land Use Act, it becomes unlawful to transfer any interest in land without first obtaining the consent of the governor of the state where the land is located, as provided under Section 22 of the Land Use Act. Other key legislation affecting real estate investment which investors must critically note includes laws governing land registration, tenancy, and environmental protection.
Real estate sector in Nigeria might be having a number of challenges which include fraudulent practices by land grabbers, breach of contract by real estate sellers, sale of government acquired lands, among others at the moment, but the sector presents lucrative opportunities for investors seeking to capitalize on the country's growing economy and burgeoning property market. Investors are however advised to always engage the services of professional estate surveyors and valuers for consultations, for real estate investments and transactions.
Olaitan Olanrewaju is an estate surveyor and valuer