Real Estate Development in Nigeria
Real estate is a wide spectrum covering hospitality assets, commercial developments, private, residences and landed assets, even agricultural lands. It is very vast and so for the purposes of our discussion here we will leave out areas like hospitality and farm land.
Real Estate is one of the industries in which Nigerians have done quite “well” in creating local solutions. This is partly because you cannot import houses and partly because it has proven to be a lucrative investment. Even still there is much work to be done, especially considering Federal Government and World Bank claims that the country has a housing deficit of 16million units with an estimated investment price tag of N59.5Trillion ($381Billion).
To fill the gap there is a need to build 720,000 units of housing per year. This gap has created momentous room for anyone wishing to invest in real estate in Nigeria. Mind you these units address residential housing and does not account for the tremendous opportunities in shopping center developments, office buildings and other commercial real estate investments. Today real estate in Nigeria is a gold mine with ill equipped miners. However, with the opportunities come challenges and I will address both by the end of this article.
The Nigeria Real Estate Market as it is currently
Real Estate investments in Nigeria are majorly land holdings, diverse commercial buildings and residential housing.
In land: Most landed property held for appreciation are in cities or neighboring suburbs, this because unlike developed societies in which basic amenities like roads, water and electricity are nationwide the greatest access to these infrastructures are in Nigerian cities and neighboring environs. Also as a tradition most towns (villages) are considered reserved for native communities.
There are no legal hindrances to owning properties in the villages but as an investment they are not a major area in Nigeria today. Currently most village holdings are held by manufactures and institutions who wishing to use them immediately or in the near future but not as a real estate investment. While city land often appreciates, oddly enough so do the neglected village lands but in a less predictable manner.
In commercial buildings: A good deal of development is happening in the area of commercial realty especially in Abuja and Lagos, but for the most part commercial real estate as an investment is often an afterthought in Nigeria, resulting from residential buildings which have now fallen into over developed commercial neighborhoods, market buildings, shops and retail frontages. Nigeria does not have a strong commercial estate market in areas like business parks, warehousing and raw office buildings however this is changing slowly.
In residential real estate: This area has the strongest participation by prospectors and investors. A sleuth of residential estates, apartment buildings and single family dwellings are built daily by real estate investors all over the country. They come in all shapes and sizes, with interesting configuration, amenities and styling. Yet opportunities still abound even here because of the gap between current availability and demand.
Opportunities
In land holdings: With a rapidly urbanizing population city boarders are rapidly appreciating creating an opportunity for land investments. However venturing into this area requires deep insights into government plans in terms of infrastructure distribution and land allocations. This because of the lapse in infrastructure spread across the country, especially in city outskirts. Land holdings are ideal as long term investments allowing one to sell or develop in the eventuality of enabling government policies, which with a rapidly urbanizing population is a must in most major cities especially within the next 10 years.
Real Estate is one of the industries in which Nigerians have done quite “well” in creating local solutions. This is partly because you cannot import houses and partly because it has proven to be a lucrative investment. Even still there is much work to be done, especially considering Federal Government and World Bank claims that the country has a housing deficit of 16million units with an estimated investment price tag of N59.5Trillion ($381Billion).
To fill the gap there is a need to build 720,000 units of housing per year. This gap has created momentous room for anyone wishing to invest in real estate in Nigeria. Mind you these units address residential housing and does not account for the tremendous opportunities in shopping center developments, office buildings and other commercial real estate investments. Today real estate in Nigeria is a gold mine with ill equipped miners. However, with the opportunities come challenges and I will address both by the end of this article.
The Nigeria Real Estate Market as it is currently
Real Estate investments in Nigeria are majorly land holdings, diverse commercial buildings and residential housing.
In land: Most landed property held for appreciation are in cities or neighboring suburbs, this because unlike developed societies in which basic amenities like roads, water and electricity are nationwide the greatest access to these infrastructures are in Nigerian cities and neighboring environs. Also as a tradition most towns (villages) are considered reserved for native communities.
There are no legal hindrances to owning properties in the villages but as an investment they are not a major area in Nigeria today. Currently most village holdings are held by manufactures and institutions who wishing to use them immediately or in the near future but not as a real estate investment. While city land often appreciates, oddly enough so do the neglected village lands but in a less predictable manner.
In commercial buildings: A good deal of development is happening in the area of commercial realty especially in Abuja and Lagos, but for the most part commercial real estate as an investment is often an afterthought in Nigeria, resulting from residential buildings which have now fallen into over developed commercial neighborhoods, market buildings, shops and retail frontages. Nigeria does not have a strong commercial estate market in areas like business parks, warehousing and raw office buildings however this is changing slowly.
In residential real estate: This area has the strongest participation by prospectors and investors. A sleuth of residential estates, apartment buildings and single family dwellings are built daily by real estate investors all over the country. They come in all shapes and sizes, with interesting configuration, amenities and styling. Yet opportunities still abound even here because of the gap between current availability and demand.
Opportunities
In land holdings: With a rapidly urbanizing population city boarders are rapidly appreciating creating an opportunity for land investments. However venturing into this area requires deep insights into government plans in terms of infrastructure distribution and land allocations. This because of the lapse in infrastructure spread across the country, especially in city outskirts. Land holdings are ideal as long term investments allowing one to sell or develop in the eventuality of enabling government policies, which with a rapidly urbanizing population is a must in most major cities especially within the next 10 years.
Commercial buildings: The first major opportunity in commercial real estate today is in organized retail settings. Recently there has been a rush development of malls all over the country, from a previous count of zero in year 2000 to a present count in the neighborhood of 30. While the number is not much considering that most states in America can boast of that number, it is impressive because the majority have been built within the last 10 years. It is also noteworthy because the present malls are doing great and there is a lot of room for more.
In general there is a lot of room for world class retail spaces, even shopping centers, strips and mini markets. For years Nigeria has operated a large and segmented market systems, were pricing on products are set according to your haggling ability but today as a majority of the population moves into the city and a mass majority gain incredible global exposure there is a new found push and acceptance of organized retail centers.
Commercial real estate developers in Nigeria have not paid noticeable attention to the diversity of office applications and have maintained a focus on 2 office styles, sales outlets and desk and computer style arrangements. Considerations for live-work applications, business parks, lofts and other diversified office configurations are often never made developers. This creates a lot of room for niche developments that serve specific needs.
Lease agreements in Nigeria often require an initial payment of 2 years rent and 20 percent additionally for legal and agency fees. An ability to create shortened leases will create a tremendous opportunity to capture tenants. However considerations should be made regarding renewal defaults and the legal framework for evictions.
Residential real estate: Residential real estate offers an incredible array of investment opportunities, some with reasonable participation from current investors, others left idly still. Estates development is one of the areas with high opportunities and while there are a lot of participants in that arena scaled estates covering 100’s of acres are not the norm.
A great opportunity exists in mass housing schemes for the middle income earner. While the government is actively seeking to fill this void the gap left by a deficit of 16million homes most falling within the category of low and middle income leaves great room for investors. Contrary to popular belief based on global estimates that the majority of Nigeria’s live on a dollar a day.
In general there is a lot of room for world class retail spaces, even shopping centers, strips and mini markets. For years Nigeria has operated a large and segmented market systems, were pricing on products are set according to your haggling ability but today as a majority of the population moves into the city and a mass majority gain incredible global exposure there is a new found push and acceptance of organized retail centers.
Commercial real estate developers in Nigeria have not paid noticeable attention to the diversity of office applications and have maintained a focus on 2 office styles, sales outlets and desk and computer style arrangements. Considerations for live-work applications, business parks, lofts and other diversified office configurations are often never made developers. This creates a lot of room for niche developments that serve specific needs.
Lease agreements in Nigeria often require an initial payment of 2 years rent and 20 percent additionally for legal and agency fees. An ability to create shortened leases will create a tremendous opportunity to capture tenants. However considerations should be made regarding renewal defaults and the legal framework for evictions.
Residential real estate: Residential real estate offers an incredible array of investment opportunities, some with reasonable participation from current investors, others left idly still. Estates development is one of the areas with high opportunities and while there are a lot of participants in that arena scaled estates covering 100’s of acres are not the norm.
A great opportunity exists in mass housing schemes for the middle income earner. While the government is actively seeking to fill this void the gap left by a deficit of 16million homes most falling within the category of low and middle income leaves great room for investors. Contrary to popular belief based on global estimates that the majority of Nigeria’s live on a dollar a day.
The average Nigerian has a lot to spare on good real estate, considering that most 3 bedroom homes in Lagos which command rents equivalent to $400 a month do not have running water or constant electricity. Developing mass housing will allow for the integration of infrastructures which the state has failed to provide, such well planned developments present a value proposition that middle income earner will have to accepts, allow for economies of scale and therefore reasonable rental rates which they can afford.
Challenges
High Cost of land: One of the greatest challenges and deterrents to real estate development in Nigeria is the high cost of land and a culture which values resold properties with 70% consideration for land value and 30% consideration for the occupying property. The value of land in Nigeria is high; consider this, 2 acres of land in Victoria Island, Lagos the equivalent of San Francisco, California recently sold for $12million dollars this at the equivalent of $1million per plot of land. Such high costs are hard to find in developed economies but it is a present reality in Nigeria’s major cities from Lagos, to Abuja, Enugu and Port Harcourt. Oddly enough this piece of land is considered a good deal.
When faced with such charges and not understanding Nigeria’s appetite for real estate most investors run, however put in perspective this challenge is a minor one because in truth the value can be realized upon development, meting out a great return on investment.
Inaccessibility of funds: A great challenge posed to real estate development in Nigeria is accessibility of funds and cost of funds. The average bank loan in Nigeria hovers around 17-23% which in America would be considered credit card rates, this makes development quite expensive and pushes developers to build for sale properties shying away for rentals and other long term investments. Also funds when accessed often do no cover the full value of development but a fraction leaving developers with a high cash input.
These challenges can be surmounted through sound economic evaluation of prospective investments, pre sales of properties and acquisition of foreign loans of investor capital.
Bureaucratic bottlenecks: The most frustrating of the challenging in real estate in Nigeria stem from the governments bureaucratic, aging and sometimes corrupt agencies which hamper and delay the process of documents processing and plans approval.
This can be surmounted with a good legal team, strong research on the properties being acquired and perseverance and strict pre-adherence to recommended procedures.
Wet construction dependence: An economic challenge lies in the cost of developing buildings in Nigeria. Today a dependency on imported finishes (tiles, lighting etc.), and wet construction methods using cement and blocks unnecessarily increases the cost of building in Nigeria today. A new consensus is rises around the need to take a western approach to construction using locally manufactured products, timbers, dry wall and other dry construction alternative. While this sounds great in debate the ground resources like manufactures, trader and distributors which will create access to these materials are almost inexistent. To transition one must first inspire a change in trade trends or build on a scale which makes importations of dry construction materials or local manufacturing economical.
Conclusion
The Nigerian real estate market is open for business, with a housing deficit of 16 million units, a rapidly urbanizing population, a growing middle class and an affinity to real estate as an essential asset, investments made here are primed for success.
Many challenges exist as in any other industry but it is in surmounting these challenges through strong research, adequate preparation and innovative deployments that one stands to reap the most returns.
Contrary to popular notions the citizens can afford new developments, they desire new approaches and will compensate for the challenges.
In investing in real estate in Nigeria you stand to reap tremendous financial returns whether you are renting or selling, building single family homes or mass housing estates. And best of all if you do it right you can change the standard of living in Africa’s most populous nation by diminishing the weight of a 16 million home deficit.
King Ifeanyi Oruruo is the C.E.O of LIVEN Capital
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