The odds against foreign real estate investments in Nigeria

The Real estate sector in Nigeria is besieged by a number of foreign investors who continue to explore the goldmine inherent despite the obvious challenges.

It is no longer news that Real estate which serves as a vital tool to human sustenance and development thrives on investments. Hence, the civilization of Nigeria’s rapid growing population coupled with her economic prosperity, provides an unparalleled destination for foreign investment in Nigeria and Africa at large. However, the challenges in the financial/economic sector, legal hassle and sectarian violence are concerns that portray portent risk for real estate development in Nigeria.

Conventional wisdom holds that foreign capital is vital to the economies of developing countries. This explains why in Nigeria, we see a shift from the era when foreign investors were considerably restricted under the Nigerian Enterprises Promotion Act, (the so called indigenisation regime) to the current era when foreign investors can invest in literally any part of the Nigerian economy and own its venture 100%, following the introduction of the Nigeria Investment Promotion Commission Decree No. 15 of 1995

Nigeria like other sub-Saharan African countries has abundance of land. Real estate development opportunities exist all over the country especially in the urban centres. The Real estate sector in Nigeria is dynamic; Lagos, Abuja and Port Harcourt can be described as the hub of real estate business especially for foreign investors with other states of the federation serving as veritable base.

In view of the aforementioned there are challenges that need to be surmounted before that real estate investment becomes a reality:

The number one risk is legal hassle and bureaucratic encumbrances especially as it deals with purchase of land and development. Land is purchased in Nigeria under the land use Act of 1978 while the development of land is done under the supervision of the Nigeria Urban and regional Planning Decree of 1992. A developer is thus under obligation to obtain two different approvals, one for the right of occupancy under the Act and the other for developmental purpose under the degree. The tedious and slow bureaucratic procedure to get these approvals or resolve issue that may arise in a contract will certainly be a subject of great concern to foreign investors that are used to fast automated transactions.

Moreso, the risk of terrorism, civil unrest and natural disaster can cause a great damage to real estate development, though such fatalities are not particularly a common trend in Nigeria especially the business hub of the Country. However one cannot deny that it does exists especially the risk of terrorism and unrest of whatever form. Take for instance the situation in the northern part of the county which extends to the big Nigerian cities of Jos, Yola, Kano and Kaduna where foreign real estate investments have reduced drastically since the insurgency became a preoccupation; Jos being worse hit by it in terms of foreign participation. Also, the abductions and militancy in the Niger Delta region of the country is also a source of concern though the later is now at its barest minimum.

Insurgency and civil unrest does have its effects on properties. These could range from damages to installations, building components or total destruction of a building by burning. Apart from the huge cost that will be needed to restore such properties, investors will also be skeptical to make renovation work or rebuild for fear of future attacks.

However, this risk is not as prominent in the Southern part of the country. Risk assessments can be made on the following categories: Security, political stability, government effectiveness, legal and regulatory frame work, macroeconomic, and foreign trade and payment.

Investing in Nigeria and Africa by extension is considered as scary to most investors, because you can’t predict what will happen in the future. Real estate in Nigeria is also seen as not affordable to meet longer term loans or funding. This suggests that real estate business in Nigeria lack well-defined and reliable mortgage financing. Illiquidity as inherent risk of real estate also exist but at a minimal level.

Jones Land LaSalle ranked Nigeria 96 out of 97 in 2012 global real-estate transparency. The transparency index assesses the ease and confidence investors have in buying commercial real estate in a certain country. The report places Nigeria in the “Opague category of transparency meaning Nigeria suffers from corruption, lack of fundamental data and poor environment sustainable programs in building large-scale properties. The result of this challenge is seeing an increase in deals with high price tags from opportunistic funds willing to take a chance on Nigeria potential .

This is an indication that adequate preparation is necessary for real estate investment in Nigeria, a foreign investor will need trusted local partners who are familiar with the hassle of practice in the market to attain success. The many challenges of real estate investment in Nigeria may restrict a larger field of foreigners from investing, hence South Africa and Northern Africa could attract more investors. However, they also have challenges of their own to grapple with. Notwithstanding, the tremendous population growth in the country as well as our GDP growth rate is often seen as an edge.

A good partnership with local investors will help in locating good experts who provide real estate agents and brokers with powerful lead generation and management solutions designed to help gain competitive edge.

Finally, since property development is very capital intensive, everything ought to be done to encourage foreign real estate investments or investors who have access to funds to invest in our real estate sector in view of the many inadequacies inherent.

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