TEN MAJOR ISSUES AFFECTING REAL ESTATE INDUSTRY IN NIGERIA
Nigeria’s real
estate industry is experiencing rapid
urbanization, with an estimated annual national population growth rate of just
over 2% and an annual urban population growth rate of about 4%. The population
is becoming more and more focused to the urban areas, towns and cities with
just under 50% of the population living in urban areas — and this number will
continue to grow. This is one of the factors responsible for the viability of
the real estate industry.
But
despite these encouraging figures and trends, the Nigeria real estate industry
is still burdened by several issues that are hindering its growth. These issues
affecting the Nigeria real estate industry is the focus of this article. We
will be looking at the top 10 issues affecting the Nigeria real estate industry
in no particular order.
1. Land Registration Bureaucratic
Process
Top on the
list of issues affecting Nigeria real estate industry is the bureaucratic
process of land registration. Nigeria is among the worst globally when it comes
to registering property, according to the World Bank’s Doing Business 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
lackadaisical attitude to work is the major cause of undue delay at the land
registry. Oftentimes, a developer’s application would pass from office to
office over several weeks and by the time the necessary approval is obtained,
he may have lost his source of funding or incurred huge interest on loan
obtained for development.
Hopefully,
the new comprehensive Second Lagos State Development Plan (LSDP), adopted in
2013, aims to streamline the regulatory environment and improve incentives for
private investment and business; for example, land registration initiatives,
the creation of GIS maps and the piloting of an e-approval system for
development permits.
2.
High Cost of property
development
Building a
house is very expensive in Nigeria. A three-bedroom house, for example, will
cost about US$50,000, compared to US$36,000 in South Africa and US$26,000 in
India, according to the former Finance Minister Ngozi Okonjo-Iweala.
The cost
of construction is high for three reasons: high costs of building
materials, high skilled labour costs, and costs associated with poor roads and
sewage systems.
About 75%
of dwellings in Nigeria’s urban areas are built of concrete. Cement prices in
Nigeria are about 30-40% higher than in neighboring countries and world market
prices. The lack of public infrastructure adds as much as 30% to the total
costs of the development.
3.
Collapsing Buildings
Building
collapses is also one of the top issues affecting Nigeria real estate industry.
From 1974 – 2010 as a result of over 60 building collapse in Nigeria, 401
people have died and several more haven’t been reported or accounted for.
Nigeria is
so blessed as a nation that we rarely ever experience natural disasters such as
earthquakes, Tsunami, or Tornadoes. But yet, despite the absence of all these
collateral damaging natural disasters, our buildings still collapse in Nigeria.
Why?
Because of our own man made infrastructural disasters. Since we didn’t have our
own natural disasters to bring down our buildings, we simply created our own
version through sheer negligence. Privately owned buildings both commercial and
residential account for the highest number of collapsed buildings in Nigeria
4.
Bribery and Corruption
Bribery
and corruption is also one of the issues affecting Nigeria real estate
industry. The Jones Lang LaSalle 2014 – global real estate transparency index
places the Nigeria in the “opaque” category of transparency, meaning Nigeria
suffers from elements of corruption, lack of fundamental data and poor
environmental sustainability programs when building large-scale properties.
Bribery
and corruption have a negative effect on the Nigerian real estate sector. There
are instances where developers who have not satisfied the preconditions for
allocation of land are granted allocation while those who are qualified are
denied.
5.
Taxation
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.
6.
Devaluation of the Naira
The recent
devaluation of naira is also among the top issues affecting Nigeria real estate
industry. This is because the country’s construction industry is heavily dependent on
foreign importation for the raw materials and equipment they use for
construction. With a devalued naira, the cost of purchasing these raw materials
and equipment will definitely increase.
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.
According to industry experts, the estimated rise in the costs of housing is
25% – 35%.
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.
7.
Limited Source of Funding
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. So 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 or
later.
This could
be attributed to underdevelopment in our mortgage industry as it generated less
than 100,000 transactions between 1960 and 2009. According to World Bank Report
(2008) the contribution of mortgage finances to Nigeria’s Gross Domestic
Product (GDP) is close to negligible with real estate contributing less than 5%
and mortgage loans and advances at 0.5% of GDP.
8.
Lack of Competent
Builders/Contractors
There is a
dearth of competent and professional builders/ contractors in Nigeria. This is
also one of the issues affecting Nigeria real estate industry. Most Nigerian
builders/contractors are quacks who place more emphasis on money and the
initial mobilization fee instead of getting the right workforce and
professionals that will execute the project.
When this
becomes the case, the workforce is chosen based on availability and not
competence and having the right skills. Experts have blamed incompetent
artisans and weak supervision of workmen as one of the major reasons of
building collapse
9.
Omo-Onile
The
existence of Omo-Onile especially in the Western part of the country is also
part of the issues affecting Nigeria real estate industry. They are a pain in
the necks of real estate investors, their activities lead to an increase in
labour cost, cost of building materials and finally in the cost of completing a
building project.
They
demand levy for the foundation of a building, fencing of a land, erection of
gate, lintel stage, roofing stage, plastering stage, they levy the builders and
artisans, levies are also charged for every building material transported to site.
All these are enough reasons to frustrate anybody who wants to invest in real
estate.
10.
Liquidity
One of the
factors that motivate investors is the ease of converting their investments to
cash whenever the need arises. Unlike most other markets, investors can have a
hard time finding statistics with basic information such as deal prices,
supply, leasing activity and property ownership. In Nigeria, it takes months or
years to convert a real estate investment to cash.
Credit:
SapientVendors
bikejoseph@gmail.com
https://joenigeria.blogspot.com
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