by K. Okoro
High Cost of land: One of the greatest challenges and deterrents to real estate development in Nigeria is the high cost of land and a culture which values resold properties with 70% consideration for land value and 30% consideration for the occupying property. The value of land in Nigeria is high; consider this, 2 acres of land in Victoria Island, Lagos the equivalent of San Francisco, California recently sold for $12million dollars this at the equivalent of $1million per plot of land. Such high costs are hard to find in developed economies but it is a present reality in Nigeria’s major cities from Lagos, to Abuja, Enugu and Port Harcourt. Oddly enough this piece of land is considered a good deal.
When faced with such charges and not understanding Nigeria’s appetite for real estate most investors run, however put in perspective this challenge is a minor one because in truth the value can be realized upon development, meting out a great return on investment.
Inaccessibility of funds: A great challenge posed to real estate development in Nigeria is accessibility of funds and cost of funds. The average bank loan in Nigeria hovers around 17-23% which in America would be considered credit card rates, this makes development quite expensive and pushes developers to build for sale properties shying away from rentals and other long term investments. Also, most often than not, funds when accessed do not cover the full value of development but a fraction leaving developers with a high cash input.
These challenges can be surmounted through sound economic evaluation of prospective investments, pre-sales of properties and acquisition of foreign loans of investor capital.
Bureaucratic bottlenecks: The most frustrating of the challenges in real estate in Nigeria stem from the government’s bureaucracy, aging and sometimes corrupt agencies which hamper and delay the process of documents processing and plans approval.
This can be surmounted with a good legal team, strong research on the properties being acquired, perseverance and strict adherence to recommended procedures.
Wet construction dependence: An economic challenge lies in the cost of developing buildings in Nigeria. Today a dependency on imported finishes (tiles, lighting, etc.), and wet construction methods using cement and blocks unnecessarily increases the cost of building in Nigeria today. A new consensus is rising around the need to take a western approach to construction using locally manufactured products, timbers, dry wall and other dry construction alternative. While this sounds great in debate the ground resources like manufactures, trader and distributors which will create access to these materials are almost inexistent. To transit, one must first inspire a change in trade trends or build on a scale which makes importations of dry construction materials or local manufacturing economical.
The Nigerian real estate market is open for business, with a housing deficit of 16 million units, a rapidly urbanizing population, a growing middle class and an affinity to real estate as an essential asset, investments made here are primed for success.
Many challenges exist as in any other industry but it is in surmounting these challenges through strong research, adequate preparation and innovative deployments that one stands to reap the most returns.
Contrary to popular notions, the citizens can afford new developments, they desire new approaches and will compensate for the challenges.
In investing in real estate in Nigeria you stand to reap tremendous financial returns whether you are renting or selling, building single family homes or mass housing estates. And best of all is if you do it right, you can change the standard of living in Africa’s most populous nation by diminishing the weight of a 16 million home deficit.
