Real estate in Nigeria

Going Into Real Estate Or Building In Nigeria? Be Sure Of The Property And The People You Are Dealing With!

Real estate is the land and building attached to it. Real Property is the legal rights that run with land and building; leasehold, leased fee, fee simple and freehold.

Real estate is the 2-3 dimensional physical aspect of real property. Example of real property is fee simple or freehold; ownership in perpetuity except when interrupted by police power and or eminent domain of the state.

When a state in Nigeria grants one a Certificate of Occupancy, even though it is for a term certain (leasehold), it is considered real property given the initial term and renewal options. For land one owns in their village via Right of Occupancy, it is freehold, because such land is owned in perpetuity but is still subject to police power and eminent domain.

For a property that commands a gross potential rental income of N600,000, with possible sale price of N30m, is unimaginable in developed economy where income is the basis of value. Assuming one were to borrow to acquire such property and rely on the income to carry the mortgage note, it will not happen.

If rule of thumb, devoid of analysis, were to hold through and true in all cases of property valuation, the highest value one can expect from such property earning N600,000 annually is N6m or $40,000, that is a 10x factor.

Nigerian real estate, as most things in the country, is skewed and overly hinged on transactions often motivated by undue volume of cash chasing few investment assets. All things considered, Nigeria’s real estate market is very small; and even with that, the asset class and grade are hardly investment quality. That major foreign pension funds and insurance companies shun Nigeria’s real estate opportunities is due to the limited and confusing market fundamentals that direct and influence investment interests.

Because Nigerian financial institutions and service companies have limited exposure in real estate investments in the country, the cash driven investments are not at levels to produce desired trends. And given there are very few cities such as Abuja, Lagos and Port Harcourt that have some level of sophistication, the rest of the cities are bare and not attractive for considerable investment. Here is a measure of property class: Nigeria has less than 5,000,000 square feet of purpose built office buildings available for rent. This is an indication that the economy is not knowledge based and when it comes to R&D spaces, it is virtually non-existent.

Nigerians are trading people and even the retail real estate are denoted with street hawking, dominated with open space markets, and mom-pop shops/stores that sell anything and everything.

What many in Nigeria regard as shopping centres and malls are basically neighbourhood stores of less than 100,000 square feet. While definitions can be localised, certain grades of real estate assets are universal by definition, and when such definition seems to go counter to international standards, global investors shy away.

The consequence of such a culture is the absence of volumes of transactions and sophistication to help jump start the real estate market. As real estate in developed economies constitutes about 70 per cent of a nation’s economic wealth, the manner of its use must meet certain standards in order to add value to the overall economy. Most municipalities in the United States rely on real estate property taxes as a source of revenue. It is the highest single source of their revenue, bringing in up to 45 per cent. www.bcilimited.com