Nigeria's property sector holds much potential for successful investment. Kolade Arogundade looks at the opportunities available and examines the legal framework in which investors can expect to operate.
In 2004, the then President of the Federal Republic of Nigeria, Olusegun Obasanjo predicted that the Tinapa project in Calabar, the capital of Cross River State in southern Nigeria, would be a catalyst for investment into the country. The leisure, shopping and hotel complex - the first phase of which was completed at a cost of over US$120 million by mid-2006 - was funded both by equity (60%) and debt (40%). The Nigerian public and private sector took up the bulk of the equity and the South African financial sector were the main source of debt funding.
The Tinapa Project is a major reference point for other property investment projects especially if the foreign investment partners are coming from South Africa. South African property development projects seem to have succeeded so far and look to even succeed further in Nigeria. The Shoprite project in Lekki, Lagos is another notable example of foreign property investment project.
On the heels of this, Old Mutual a South African Insurance company that has a property development division is developing a shopping mall in Abuja. Other companies like Broll Properties and Pam Golding are all getting into the Nigerian property market as investors and property managers.
Local Nigerian property investors are also sourcing funds from abroad; from countries where the interest rates are lower than that obtainable in Nigeria even though they face currency and inflation risks. Many experts are warning investors to steer clear of the property market. This is completely the wrong advice. There is no housing recession. Housing prices are simply normalising. The result is that the buy-to-let market isn't quite as attractive as it has been the last few years, but it is still a viable profit-making investment and some property gems have been unearthed.
Nigeria's massive population of close to 150 million makes anything possible in terms of investment. There is a growing middle class, a middle class that needs housing to live in and for investment purposes. A large informal trading sector all exists in Nigeria. These people need shops and stalls in major cities. Getting a shop or stall on Lagos Island is an ordeal in itself and so is it in many major cities of Nigeria. Parking is also an area where investors can get involved, especially in Lagos where it is a major problem. Investment in parking is very profitable at the moment. Parking goes, for as much as N100/hour on Lagos Island right now.
Many local businessmen are investing in shops and stalls in different parts of the cities. Homeowners also build their houses in such a way that there is always more than one apartment in the house therefore letting out the other flats in the house. Local property investment companies are also building estates for residential and other uses. Lebanese property investors are investing in property especially commercial and office developments. However the biggest corporate investors in residential properties is government. They do this through their various housing corporations; state and federal. In spite of these there is still a need for residential, office, commercial and other properties. Relative to the population the housing stock is low.
| "Nigeria has growing middle class, a middle class that needs housing to live in and for investment purposes." |
Over the years, as a result of the failure of businesses, industrial properties and warehouses have been converted to other uses. Pentecostal churches have particularly bought over the warehouses to convert to churches. The potent development potentials are public spaces like amphi-theatres, market stalls, shopping malls, parking lots, residential, commercial and office properties.
Nigeria has a pool of well-qualified professionals within the allied professions of the built environment to provide needs to manage the pre and post development process. There are many successfully homegrown property developers and managers. Diya Fatimehin Partnership and Jide Taiwo and Co are good examples.
Legal issues
There are however legal considerations to land acquisition and developments in Nigeria depending of course on the objective of the developer. The major one is that according to the land use of act of 1978 there is no freehold land ownership in Nigeria. The highest form of ownership is a 99-year leasehold for which you get a certificate of occupancy (COO ). Land is vested in the state and governors are the ones who issue these certificates.
I do not believe that the law was targeted essentially at homeowners or property developers, but at mineral rich areas so expropriation can be easy when minerals are discovered in certain areas. The law has not lasted 99 years so there is no experience of what will happen when the lease term expires, the law however says that the land reverts back to the state and any structure on land belongs to the owner. An annual rate is paid on this land when you have a COO. When the term expires you might be deemed to have the first right of refusal to purchase the leasehold again. The law is not really clear on this.
Another law is the town planning law that states that if the value of a piece of land is higher than the value of the structure on the land, government can automatically expropriate such land. These can be an advantage to the developer in that he can go and negotiate a deal with the owner of such land before an expropriation order is issued.
