Home » Real Estate » Articles » Top 10 Challenges Facing Nigeria’s Real Estate Sector
Nigeria's real estate sector

Top 10 Challenges Facing Nigeria’s Real Estate Sector

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 top 10 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 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 people at the land registry are culpable of foot-dragging which occasionally causes unwarranted delays. A real estate developer most times watch 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 invariably 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 maps and the piloting of an e-approval system for development permits.

2. Taxation

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. Worse still, there are 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 use 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 (“US 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 400 naira; How bad 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 or later.

6. Lack of Competent Builders/Contractors

In recent times, there has been an outcry over dearth of competent and Professional builders/contractors in Nigeria. Most of the men that work on buildings sites are quacks who ventured into the industry just for the money they will make out of it. Most Nigerian builders/contractors fail to focus on satisfying their clients by getting the job done well with the right kind of workforce. They would instead employ mediocres’ to execute professional projects

Experts have blamed incompetent artisans and weak supervision of workmen as one of the major reasons of building collapse

7. Frequency of Building Collapse

The frequency of building collapse in the country is alarming and forms the core of issues affecting Nigeria’s real estate sector. This is a quite disturbing trend and the sad development has hampered the real estate industry of the country.

The fact that natural disasters such as Hurricanes, Earthquakes, Tornadoes or Tsunami, are alien to the country should be seen as a big blessing to us, yet building collapse in the country with reckless abandon causing collateral damage.

Truth be told, we are the architects of our own misfortune as a country.

Why? Because of our own man made infrastructural disasters. Since we don’t have our own natural disasters to bring down our buildings is the case with some countries in Asia, South, North and Central America, 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.

8. Bribery and Corruption

Bribery and corruption are malignant growths that have eaten deep into every facet of our societal and corporate life as a nation, and Nigeria’s real estate sector is no exception. The Jones Lang LaSalle 2016 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. The country is ranked 83rd out of 109 markets, a marked improvement from her rankings in 2014.

Bribery and corruption are two evils that have from time immemorial bedeviled every sector of the country and it continues to rub off on Nigeria’s 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.

The increasing rate of collapsed buildings in the country can also be attributed to non-compliance to regulatory and environmental laws. Some staff of regulatory bodies prefer to take bribe rather than ensure that developers obtain the requisite permits and conform to statutory construction standard.

9. Omoniles

Recently, the Lagos State Government clamped down on the activities of Omoniles, urging the members of the public to report any clandestine activities of land grabbers. A task force was instituted to tackle the menace of the Omoniles while a 21-year jail term was proposed for any Omonile that would be found wanting.

The existence of Omonile or Ajagungbaale as they are popularly called in South-West Nigeria, is a huge challenge to Nigeria’s real estate sector. It has seriously hindered the development of the industry. Omoniles are a major headache to real estate investors, and invariable it’s ripple effect is felt in Nigeria’s real estate sector. 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.

The aforementioned reasons can be frustrating and agonizing for any real estate investor or developer, and Nigeria’s real estate sector will thrive better without them

10. Insecurity and Unrest

Insecurity and Unrest are salient factors that has hampered the development of Nigeria’s real estate sector.

There are also some parts of the country whose landscape have been characterized by immense unrest, insurgency and consequently the lands in such parts of the country will rather welcome bloodshed than any real estate development. The North-east zone of the country is a big no-no for any real estate developer that loves his life.

In fact what kind of real estate business would anyone want to do in a place like Maiduguri or even Damaturu? Who would be your clients? Ghosts or Boko Haram members? The Niger-Delta region of the country is also not left out of the insecurity issues that leads to instability in business.

Luckily, the government, its agencies, the financial sector, local and foreign investors and even developers are taking deliberate steps to mitigate the effect of these challenges on the sector.

The menace of the Boko Haram sect is fast becoming a thing of the past and hopefully sooner than later the bottlenecks would only serve as tales on how much we have grown from what we use to be.

 

One comment

  1. infact taxation is one of the key factor affecting real estate in nigeria

Leave a Reply

Your email address will not be published. Required fields are marked *

*