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Understanding the Risk

 

The month of April is a significant month for us in Realty Point Limited because it was the month we made our grand entry into the Real Estate Community. I want to use this platform to formally announce to our readers here on www.nigeriarealestatehub.com that Realty Point is 10 years!

I want to say a big thanks to everyone that’s has been connected in one way or the other to that dream that became reality in 2005. On April, 15th 2015, Realty Point attained a century in its quest to become the foremost talking point of Real estate business not only in Nigeria but in Africa at large. We’ve come a long way to rise above our challenges and it is our utmost desire to continue gaining more grounds. Above all, none of these would have been possible without everyone out there who have helped us attain this height in diverse ways.

To this end, I would want to term today’s edition of the success tips series that’s been running for six weeks now, “THE ANNIVERSARY EDITION”. That brings us to today’s topic which is ‘UNDERSTANDING THE RISK’:

To succeed in your real estate business there is a need for you to understand the risk involved. With my wealth of experience in real estate I have come to realise that a lot of people underestimate the risk involved in real estate investment. Investors tend to water down the enormity of the risk factors by overlooking or downplaying the foreknowledge, expertise and analysis required in real estate. However, experienced real estate investors and entrepreneurs know too well that real estate business has its own fair share of risk bedeviling it and if not well mitigated could spell doom for an investor, leaving him high and dry.

For those of us who do shares, we are aware that the prospectus informs you to seek advice from an investment consultant due to the fact that whatever risk involved is your cross to carry and should be taken in good faith; so there is always a disclaimer. However it appears the story is different in Real estate where there usually is a false guarantee that takes you on a high. Having spent ten years in real estate business and understanding the intricacies involved, suffice me to say that there are risks inherent in real estate investments risky enough to take you from hero status to zero.

Real Estate business is saddled with a lot of risks such as:
• Legal Risk
• Title Risk
• Country Risk
• Interest Rate Risk
• Performance Risk, and of course there is ;
• Omonile Risk

Let’s highlight some of these risk factors in no particular order;

  • The Omonile Risk: As is the parlance among the Yoruba folks used for Land merchants or original land owners, the Omonile risk is arguably the deadliest and most threatening of all aforementioned risk factors from a personal point of view. This is a risk of not having possession of a land you were thought to acquire after making payments for it or paying to the wrong person.
  • Legal and Title Risk: These occur if your transaction is not well documented and validated.
  • The Performance risk: This risk occurs when you have to engage the services of someone or a construction firm in the course of duty.
  • Country Risk: This kind of risk is related to the Government and economies of a particular country such as; outbreak of war, Inflation, fall in exchange rate and probably a total collapse of the economy.

These risks factors should be taken into consideration in your real estate business and its enormity should not be under-estimated.

To succeed in real estate business you must know your risk per transactions, have mitigations for them and possibly what you are mitigating with. Invariably for every risk you must have a way of escape and a measure to it. My Managerial board goes strong on risk analysis for every investment we delve into. We tend to analyse the risk elements and even go on to rate the said risk; how significant the risk factors are to the whole project if the risk should crystallize.In other words all risk factors mentioned earlier are put into cognizance and analyzed critically before we throw our arsenals into the projects.

Let’s take the ‘OMONILE RISK’ for instance, if this risk factor is what we will be facing in the course of an existing project it means we don’t even have a land to start with. That’s to say there is no project to begin with.

In summary, we weigh the risk inherent as against our projects and do a complete evaluation of it aligned with the project on board. We don’t just go on a wild goose hunt because a business or project looks promising; we weigh the pros and cons. We go all out to classify the risk factors by rating them according to their grey patches.

The classifications include; mild risk, average risk and critical risk. All of this risk regardless of their ratings should be evaluated critically but the ones that are critical should be mitigated fully or else don’t bother going into that business because the aftermath will send shock waves to your spines and leave you in an abyss.

Therefore, understanding your risk factors is a proven success tip that ensures your real estate business thrives, It acts like a guide to your investments not understanding the risk involved would be fatal!

Debo Adejana
MD/CEO Realty Point Ltd

 

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