Despite the encouraging and evolving trends, the Nigeria property market is experiencing and the rapid urbanization of various cities in the country, the Nigeria real estate industry is still burdened by several issues that are hindering its growth. Some of the issues affecting the Nigeria property market and suffocating it from achieving it’s true potential include;
1. High costs of property Development
Building a house in Nigeria, especially in some urban cities like; Lagos, Abuja or Port Harcourt can be very high. Some of the reasons for this include; high costs of building materials, high skilled labor costs, costs associated with poor roads and sewerage systems.
About 75% of dwellings in Nigeria’s urban areas are built of concrete, cement prices in Nigeria are rising by the minute than in other neighboring countries and compared to world market prices, there is the issue of lack of adequate infrastructure and more. All these things put together, make it hard to invest in the real estate sector of the economy.
2. Limited Source of Funding
Real estate is usually capital intensive and Nigeria possesses all the key factors for a lot of real estate investment; a growing middle-class population, growth in consumption, rapid urbanization and a young demographic compared to more mature economies yet, financing remains a problem both for property developers and prospective homeowners.
Whether you are thinking of investment property financing or securing real estate loans for financing a personal home purchase, you would still have to deal with the issue of insufficient funding down the line. Although the government, some private firms as well as mortgage institutions are trying to curb this, we are still a long way from home.
3. Devaluation of the naira
The recent devaluation of naira is a huge obstacle for the development of Nigeria’s real estate sector. Mainly because the Nigerian construction industry is heavily dependent on the importation of the raw materials and equipment they use for construction from foreign countries. However, a devalued naira increases the cost of purchasing these raw materials and equipment
In order to remain profitable when there are abnormally high costs of doing business, most property developers would take out the additional costs incurred, on the market.
The effect of the devalued naira would have been much milder if construction materials were produced locally, as the cost of getting these construction materials would reduce, in turn, making properties more affordable to the average Nigerian citizen.
4. The” Omo-onile” menace
Most of the scams in the Nigeria real estate sector are perpetuated by the “omo-oniles”. Apart from the fact that they are known to extort money from buyers who are developing their properties, most of them sell the lands inherited from their parents or grand-parents to more than one person. They tend to act on lands that have been sold but are yet to be developed and then they sell to a new buyer. Sometimes, they even sell lands that have been developed half-way to buyers and these buyers, in turn, find themselves in a continuous battle for possession of the land. There are a whole lot of land cases in this category presently in court and unfortunately, the “omo-oniles” are nowhere to be found and there are no means for these buyers to get their money back.
The presence of these Omo-Oniles especially in the Southwest region of the country is also part of the issues affecting the Nigeria Real Estate industry.
They demand levies for everything! Ranging from a levy for the foundation of a building, to fencing of a land, to erecting a gate, to levies for every building material transported to the site! All these are enough reasons to discourage anyone investing in real estate. Their activities often lead to an increase in labor cost, cost of building materials as well as cost of completing a building project.
5. Bribery and Corruption
Bribery and corruption have a negative effect on the Nigerian real estate sector. There have been various instances where developers who have not satisfied preconditions or who simply do not qualify for the allocation of land are granted allocation, while those who are qualified are denied. More often than none, some staff of regulatory bodies prefer to take bribes rather than ensure that developers obtain the necessary permits and conform to statutory construction standards.
Real estate investors are usually subjected to multiple taxes. Some of the taxes levied against them include development levy, income tax, building plan approval levy, property tax, land use tax, and we even have instances where real estate investors are expected to pay renovation tax whenever they want to renovate their properties.
All these issues listed above and more, hinder the development of this thriving and highly potential sector of the economy. The government, its agencies, the financial sector, local and foreign investors and even developers can curb these issues by taking deliberate steps to mitigate the effect of these challenges in the Nigeria property market.