by
ESV. Patrick Ogungbola
MD/ CEO, BLUEHEDGE REALTORS
We welcome you to this beautiful month of November 2017, the second to the last month of the year. How time flies, 2017 is fast rounding up. This is a period of appraisal and inventory to know what is left to be done before the year runs out. This is also a period to round up unfinished projects and to put finishing touches to completed ones.
This month’s article is centred on ‘How Money Can Be Lost or Is Being Lost in the Nigeria Real Estate Market’. No doubt, real estate offers a veritable avenue of growing wealth if properly harnessed, however, hard-earned money can also be lost in the process. There are numerous articles online (on the internet) and offline (magazines, newspapers, paper publications, etc.) on different ways of making money in the Nigeria real estate and property business that one would be confused to think that real estate is completely a safe haven and hence, money can’t be lost. The truth is many people lose money in real estate, just like in any other business, but they rarely talk about it. There is no business without its attendant risk and same goes for real estate in any part of the world.
The fall in property prices rarely attract newspaper headlines or feature in the national network news the way stock market crashes or foreign exchange (forex) rate fluctuations do, hence, many are not aware unless they follow the market closely. Ignorance of this fact has made many to sink their money into real estate without proper due diligence, believing that they will sell for more than they invested. In the recent past, we have heard of the Europe and U.S. credit crunch and the negative impact on their real estate/ housing market. This proves to us that there’s no economy in the world that is immune to crisis.
No one goes into any business to lose money, but if truth must be told, money can be lost in any venture that promises gain, real estate not exempted. Since there’s no business in the world that doesn’t have its downside, below are 10 different ways of losing your hard-earned money in real estate, most especially in Nigeria:
– Buying land in a government committed areas (schemes) or area under government acquisition: When you buy land in an area already committed for future government projects, you have lost your money abinitio, the land cannot be yours. Government committed areas or schemes are no-go areas. Not knowing the status of the land before buying is also not an excuse, as they say ‘ignorance is not an excuse in law’. Many houses have been demolished by government for building in such committed areas. This is the reason why it is necessary to consult relevant professionals to conduct proper due diligence on any property before committing your hard-earned money into it. Proper charting and searching of land title documents at the Land Registry will reveal certain ‘secrets’ that would not have been made known. It was during one of such search on a property at Abraham Adesanya Estate, Ajah, Lagos that we discovered that the owner who wanted to sell had used the property as collateral against mortgage for another property. This underscores the importance of carrying out proper due diligence on the property to be purchased.
– Ignorance/ Lack of basic knowledge on real estate: Real estate is regarded as both an art, as well as a science. Just like most other investments, real estate investment entails both technical and fundamental analysis. Many people fail in their property investment decisions not just because of the locations of such properties, but because of the failure to understand what drives the property market. You may not be expected to know the nitty-gritty of the market, but you can be well guided by the real estate experts, most especially, the Estate Surveyors and Valuers who understand the dynamics of the market. These set of professionals have undergone necessary training and hence have the requisite knowledge and hands-on experience as far as the real estate market is concerned. By engaging their service, you will save yourself from seemingly unpleasant situations, and they will walk you through the process in order to achieve your real estate investment objectives.
– Unfavourable government policies: Government policies can impact favourably or otherwise on real estate market. A practical illustration of this is the effect of fencing off of the road on Lekki-Epe Expressway in Lagos, Nigeria which prevented many businesses such as banks, event centres, office and shopping complexes from having direct access to and fro the express. One of such is Scintilla Event Centre which overlooks the Chevron Tollgate. The Event Centre was built before the tollgate was constructed, and by that time, they had direct access into the property from the express, and business was good. However, the upgrading and expansion of the Lekki-Epe Expressway, with the erection of the tollgate led to the fencing off of such businesses from the express, and this drastically affected the business, such that access to and fro Scintilla Event Centre is now through Chevron Alternative Road behind Chevron headquarters.
Furthermore, we have seen situations whereby government take over people’s properties for overriding public interest, even without paying appropriate compensation. There are also other scenarios whereby government demolish people’s properties due to non-conformity to building and town planning regulations, or for building on illegal land. All these will pose great financial and emotional loss to the affected parties.
– Bad economic conditions: Economic conditions such as recession, fluctuation in the oil price in the international market, fluctuation in the exchange rate, etc have telling effects on real estate market, since the market is not in isolation. Economic recession is defined as a period of general downturn in any economy characterised by high unemployment, slowing gross domestic product and high inflation. This is usually evidenced by a drop in the stock market and a decline in the housing market. Although, the Nigerian government recently declared that the country is officially out of recession, the effect is not yet evident in the real estate market, as the supply of real estate products far outstrips the demand. There is a cash crunch in town due to dwindling government revenues which has affected the economy. Many politicians with a huge financial war chest are on the run from the Nigeria anti-corruption watchdog – the EFCC (Economic and Financial Crimes Commission) which has seized many properties, most especially in Abuja. Many who put theirs for sale are not getting buyers as no one wants EFCC trouble. There are a lot of properties in the market but the buyers are few. It is now a buyer’s market. Most of the houses that were built since March of this year still remain unsold, while new ones have been added to the stock, yet the demand side has seriously contracted. Many developers and house owners have lost money, and some are still losing money as a result.
– Natural disaster: Nigeria is a blessed country. Natural disasters such as tsunamis, earthquakes, hurricanes, tornadoes, volcanic eruptions and so on which are regarded as acts of god are not common in Nigeria. The commonest natural disaster we experience here is Flooding, which to a large extent is caused by human factor. By this, we mean, it is usually caused by lack of proper drainage, and/ or blockage of existing ones. The effect of this was evident few months ago when almost the entire Lekki environ and some parts of Lagos mainland were heavily flooded. This largely affected the value and prices of properties in these areas as prospective buyers and tenants are very mindful of investing in those flood prone locations.
– Paucity of ‘good’ real estate experts: There are many real estate experts in Nigeria, but arguably only few are really good. Real estate experts include the Architects, Builders, Estate Surveyors & Valuers, Quantity Surveyors, Town Planners, Civil/ Structural Engineers, etc that are involved in the development of properties from conception to completion even up to the management of the properties throughout their entire life cycle. Certain building projects require special skills and expertise that getting such experts in Nigeria are practically non-existent, hence, the need to ‘import’ expatriates to execute such projects. For instance, it is noteworthy that the ongoing Dangote refineries and Fertilizer plant are being constructed by Indian and American experts, most Nigerians at the site are only doing the manual labour work, while the technical works are being handled by the former. In addition, the prevalence of building collapse with its antecedent financial losses, amongst others is partly due to paucity of good building experts.
– Prevalence of Quacks, Fraudsters and Imposters: Real estate practice, to a large extent, is unregulated in Nigeria; it is usually seen as an all-comers business. This situation has led to the incidence of fraudsters, quacks and even the so called omo-onile (indigenous land owners) who parade themselves as real estate agents/ consultants. In a bid to curb this menace and introduce some sanity into the system, the Lagos State Government during Gov. Fashola’s administration established the Lagos State Real Estate Transaction Department (LASRETRAD), and the Nigerian Institution of Estate Surveyors and Valuers (NIESV) established the Association of Estate Agents in Nigeria (AEAN) with the aim of training and registering willing estate agents. But, can we say the objectives of establishing these bodies have been achieved? No doubt, quackery in the real estate business is second to none, and real estate fraudsters are also having a field day. Many unsuspecting investors have lost so much money into the hands of these sets of people.
– Property management issues, such as ‘Bad’ Tenants: Many people venture into real estate business strictly for investment purpose, that is, to build or buy for the aim of getting periodic rental income. Many real estate investors hope and expectations have been thwarted due to property management issues such as expenses incurred for major house repairs and maintenance, and the most pronounced one – dealing with ‘bad’ erring tenant who will refuse to pay subsequent rents (after the payment of first year rent) and even at that, they will refuse to vacate the house by taking advantage of the Tenancy Laws which favour tenants more than the landlord, and due to the fact that the judicial system is clogged with so many litigation that a simple eviction could take between 3-5 years before getting judgement. A recent scenario is that of a tenant who rented a 4 bedroom detached house in Crown Estate, located along the Lekki Peninsula area of Lagos, and paid one year rent. After the expiration of the one year tenancy, the tenant refused to pay subsequent rent, and he kept dodging the property manager as well as the landlord. Various letters sent to him in respect of his tenancy on the property were deliberately ignored. This went on for close to two years, until one Saturday morning, the landlord arranged some military officers to arrest him for the purpose of questioning him to know why he is deliberately refusing to pay his rent. A week after this incident, this erring tenant instituted a legal action against the landlord for infringement of his fundamental human right for arresting him and he was claiming N25million as compensation from the landlord, whereas, the rent on the property is N1.8million per annum.
– Cloned/ Fake title documents: The title on a property is an evidence of ownership on such property. This is so important because in law, ownership of a property holds more water than mere physical possession. The common property titles in Nigeria are Certificate of Occupancy (C of O), Governor’s Consent, Deed of Assignment, Deed of Sublease, and Deed of Conveyance. As important as these documents are, we have seen many situations where they are cloned making it very difficult to differentiate between the cloned (fake) copy and the original one. This situation is so pathetic in the sense that some staffs and officers of various Lands Registries also help to perpetrate this ungodly act. Many innocent unsuspecting investors have been duped of their hard-earned money which usually runs into millions and billions of naira as a result of this.
– Wrong advice from ignorant friends and relations: Many investors have lost so much money by listening to ignorant and uninformed advice from friends and relations, although some of these people may be innocent in their advice. These advice are termed ‘ignorant and uninformed’ because they are not a product of research or logic, but emanating from personal ideology or general opinion. For instance, many Nigerians in diaspora have been misadvised by friends and relations to invest in ‘wrong’ locations. Such people call on us every now and then to help sell their properties in Ikorodu, Sango Ota, Alakuko, Ajangbadi, Idimu, et cetera. Before the investors realize their error, their relations would have advised against investments in the Lekki area because of the supposed threat of Atlantic Ocean surge as well as the perennial traffic, amongst other hypes. However, the truth is obvious today, as Lekki has been adjudged to have the highest rate of growth not only in Nigeria, but in Africa. These sets of people (friends and relations of investor) will always emphasize the negative features and aspects of a location or property, without pointing out other several advantages of the same. Many have incurred great losses, or involved in bad investment as a result.
Buying and selling of lands in Nigeria, especially in Lagos is the most risky and tricky aspect of real estate investment in Nigeria. 50% of cases in Nigerian courts are land related. Building house for rent is the most troublesome niche in real estate investment in Nigeria as tenant can make your life miserable, and the chances of getting your rent as at when due is slim.
Every investment involves risk. The higher the risk, the greater the reward. The risk is not in the investment itself, but in someone who does not know what he is dabbling into. What makes driving very risky is when someone who does not know how to drive or is drunk takes to the wheels. The less you know about an investment, the more it is risky for you when you dabble into it. You are the risk. You can minimize that risk by taking time to study and also consult with the experts in the industry. You can gain the required experience by starting small before you raise the stakes. The caveat here is to always look before you leap.
Real estate investing is very exciting, especially if you learn how to invest profitably. That skill will not jump on you, you have to learn it. A risk free world does not exist. Real estate prices go up and come down. Until you actually sell your property, you cannot say with certainty what you will get for it. That is the difference between an opinion and a fact.
Overall, everything that goes up comes down sometime. That is what markets do. If you don’t understand the nature of the market you are entering, you can enter at the wrong time and exit at the wrong time. You can buy property in an area heading nowhere and it will lie dormant for many years. Ignorance is much more expensive than education. In the process, you waste time and resources.
This article is not intended to discourage anyone going into or already into real estate investment in Nigeria, whereas, the objective is to encourage you to venture into this lucrative business. It is indeed a money spinner for a savvy investor. Certain words are best defined by their opposites; one may not fully grasp what it means to be wealthy, but when one knows that wealth is the total absence of poverty (a state of no lack), you will have a better understanding of what we are talking about. Similarly, total health is a state of no sickness. When you know how not-to-do something, you have indirectly learnt better ways to do that thing, and that is the essence of this article. By knowing how you can lose money in real estate in Nigeria, you will guide and guard yourself properly so as not to lose money, thereby making money in the process. To this end, we wish you an outstanding success in your real estate investment in Nigeria.
As usual, we want to remind you that we care so much about you, and that when it comes to your real estate investment and advisory, we are always here to give you the very best service you can never get elsewhere. That is our promise, and will always be.
We wish you the very best in the month of November 2017.
Thank you.
