Real estate investors and developers have faulted the new land use charge law Lagos State passed recently by the state’s house of Assembly, saying it is anti-property investment.
The new Land Use Charge Law (LUCL) 2018, which applies to real and landed property in the state, seeks to consolidate all property and land-based rates/charges into a single property charge and sets modalities for levying and collection of land use charge in the state.
The charge, which is to be collected along with tenement rates by local government authorities, is now based on the capital values of properties rather than rental income. This is where the investors have their concerns about the new charge law, which is awaiting the governor’s assent.
“At a time when governments in other jurisdictions are putting measures in place to encourage investment in the housing sector, the Lagos State government is still piling charges on developers with their new land use charge which is now on capital values and not rental income,” said Hakeem Oguniran, MD,UACN Property Development Company (UPDC), who spoke at a real estate summit in Lagos Tuesday.
Oguniran, who noted that the structure of the Nigerian economy is not in favour of real estate and the investors, said basing the land use charge on capital gains was inappropriate at a time when many houses were empty because they could not find buyers or tenants.
Lagos has a large chunk of vacant buildings across the various segments of the market including residential, commercial office space, retail malls and industrial warehouses. Until the last two quarters of 2017, when the economy improved, residential vacancy rate in the state was as high as 37 percent while both office space and retail malls averaged 30 percent and 42 percent, respectively.
The recent sale of high yield Treasury Bill by the federal government was also seen as a majority discouragement to investment in real estate. Bolaji Edu, CEO, Broll Nigeria, described it in an interview with BusinessDay as government’s systematic way of “crowding out private investors.”
On Wednesday, January 31st, the Federal Government raised 252.88 billion naira ($827 million) at a treasury bill auction with investors piling into the higher yielding one-year debt.
The central bank sold 177.22 billion naira of one-year debt at a rate of 13.7 percent. It auctioned 6.09 billion naira of three-month debt at 12 percent, and 69.57 billion naira of six-month maturity debt at 13.65 percent. Total subscription stood at N355.2 billion.
Traders said some offshore funds participated at the auction, helping boost dollar liquidity on the currency window for investors to keep naira rates stable.
“This is a high-yield investment instrument and no investor would close his eyes on this for real estate which gives a maximum of 8-9 percent interest rate with its long gestation period,” Edu noted, advising that government should not see itself as being in competition with the private sector.
As at January 2017, the World Bank estimated the value of diaspora remittances to Nigeria at $25 billion and, according to Emmanuel Obire, MD/CEO, Multi-purpose Infrastructure Development Company (MIDC), about 20 percent of these remittances went into real estate investment.
The investors noted that, though the participation of offshore funds in the treasury bill auction was good for the economy because of increased dollar liquidity, it was a negative development for real estate because money that would have gone into this sector has found alternative market.