Stories by Maduka Nweke
In terms of cost, land remains the most critical factors of production in every society. But that is also one of the greatest challenges and deterrents to real estate development in Nigeria. It is the high cost of land and a culture, which values resold properties with 70 per cent consideration for land value and 30 per cent consideration for the occupying property.
The value of land in Nigeria is high. Consider this; two acres of land in Victoria Island, Lagos, the equivalent of San Francisco, California, recently sold for $12 million, which is at the equivalent of $1 million 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 realised upon development, delivering a great return on investment.
One challenge posed to real estate development in Nigeria is accessibility and cost of funds.
The average bank loan in Nigeria is around 17-23 per cent interest rate, which in America would be considered credit card rates. This makes development quite expensive and pushes developers to build for-sale properties shying away from rentals and other long term investments. Also, funds, when accessed, often do not 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.
The most frustrating of the challenges in real estate in Nigeria stem from governments’ bureaucratic, ageing 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.
According to Herbert Onodingene, Principal Partner, Herbert Onodingene and Partners, Estate Surveyors and Valuers, employing the right professionals, technical/management staff, and regular training would go a long way in keeping the staff of the estate abreast of the trends in town.
Otherwise, they could be charging either higher rates or lower rates. They could also be chasing products that are no longer in vogue during maintenance and giving the public bad impression.
“To manage your estate better, good management of the power house, the diesel usage and power apportionment are very critical.
In this regard, the estate manager must stick to the maintenance agreement without any default. This would go a long way in making the estate manageable, otherwise, if the occupants complain of power outage for long, it would become counter productive.
“Proper pricing and purchase of quality materials for repairs is a sure way of keeping your tenants. This is so because if you fail to consider the location of your estate, you would make the mistake of purchasing high class materials that the low income earners living in the estate cannot pay for. If you do this, you may eventually keep your estate in perpetuity with no one coming to ask for rent.
The problem is that the rich may not like the location and the poor would see it as exorbitant thereby keeping the owner in dilemma.
“Another factor is selecting quality tenants to live in your estate. If you perchance rent your estate to cats and dogs when your maintenance agreement put the cost of repairs and replacement on the owner, then everyday you would be buying and calling artisans to fit one thing or the other. This would make you to direct all your attention and income to that estate. It is not worth it at all.
“There should also be proper communication between the property managers and the tenants. This would go a long way in keeping the estate and ensuring tranquility within the estate. There is no love within the estate, either there would be regular fights or resentment among neighbours,” he concluded.
An economic challenge lies in the cost of developing buildings in Nigeria. Today dependency on imported finishes (tiles, lighting, among others), and wet construction methods using cement and blocks unnecessarily increases the cost of building in Nigeria.
A new consensus 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 manufacturers, traders and distributors who should create access to these materials are almost nonexistent.
The Nigerian real estate market is open for business, with a housing deficit of over 17 million units, a rapidly urbanising 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, citizens can afford new developments, they desire new approaches and would 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.
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