NIGERIAN PROPERTY
MARKET: PROSPECTS IN THE MIDST OF CHALLENGES
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
TO THE STUDY
The property market is a major
receptacle of foreign direct investment and the extent of its development
determines the extent to which it can contribute and buoy a nation’s economy.
The Nigerian property market with its potential, like similar markets in
several emerging economies in Africa, has not benefitted from internationalized
property investment and remains poorly researched (Babawale, 2008).
With
surging rents, significant housing deficits, and over-regulation, the Nigerian
property market is a matrix of opportunity and unique challenges, which only
optimistic investors would be able to successfully convert into viable,
long-term profits.
Having
already attained titles of being Africa’s largest economy and most populous
nation (with over 178 million people), Nigeria seems bound to also top the list
for Africa’s most expensive location for residential and property and office.
With two of its major cities, Abuja and Lagos, following closely behind Angola
(with average monthly rental charges of $150 per square metre of prime office
space and annual rental charges of $25,000 per four-bedroom house), it should
come as no surprise that there is growing interest in the lucrative prospects
of up to $400 billion in real estate opportunities (JLL, 2010).
The
fast rate of population growth coupled with the significantly slower supply
rate of housing in Nigeria has led to a startling housing deficit of 17 million
units. This inevitably led to sharp increases in rent prices, with the average
executive 4-bedroom house in Abuja being rented for a monthly price of $8,500
and the average executive 4-bedroom house in Lagos, being rented
for $8,000 per month.
Whilst
opportunities are present in the market, there are also an abundance of
obstacles, which may deter progress for investors in the Nigerian property
market. Rental yields can reach 10% and above but rising costs of building
materials, as a result of the relatively higher cement prices, threaten
longevity of such benefits as the average cost of building a home in Nigeria
(approximately $50,000) increases year on year. The significant infrastructure
deficit of the nation has also contributed to the rising costs (JLL, 2010).
It
has been said that the rising costs of houses is not only attributable to the
cost of factors of production but also to the regulatory costs of building a
home in Nigeria which can be as much as 20% of the total costs of building the
house. Property registration is a significant factor that contributes to the
costs due to the fact that 65%-70% of land in Nigeria is held under customary
title, which can require court proceedings to appropriate the rightful holder
of the title to plots of lands. Complications like this have made the
registration process both longer in duration and more expensive than is
necessary at 20.8% of the value of a Nigerian home.
As
well as having attractive rent prices for landlords and similar investors,
the Nigerian property market also provides attractive returns on
investment that cannot be ignored by investors seeking to purchase property in
the nation where an investment in real estate can bring returns of 30-35%. The high-end
Lagos market, for example, illustrates the potential for profitable investments
with properties selling for $1.37 million (JLL, 2010).
Whilst
such numbers evoke hope in the Nigerian property market, it must be remembered
that there is a need for affordable housing. Although the middle class of
Nigeria is rising, there are still over 87 million Nigerians living on less
than a dollar a day. This fact presents both challenges and opportunities as it
is clear that in the long-term there is a housing market that will grow
robustly but it must be attended to using methods that will would avoid the
paradigm of the majority of the population being priced out of the market.
What
may be a more alarming realization for some is that only 5% of the housing
units in Nigeria were financed with a mortgage, with the majority of Nigerians
relying on their private savings to purchase or build homes as a result of
several factors, with the most important being the lack of affordable
financing. This presents not only a negative effect on the demand for housing
in Nigeria but also challenges to property developers who may have hopes to
raise finance for their investments. There are, however, ways of overcoming
such challenges as we can see from the actions of notable property developers
in Nigeria who utilize cost-saving methods such as building on demand (selling
all housing units before building them) (Aluko & Amidu, 2005).
Doing
business in Africa is rarely easy. What may be daunting about the business
challenges of Africa are not that they are impossible to overcome but rather
that they are more distinct and seemingly greater than the challenges presented
in other regions of the developing world. This should not overshadow the golden
opportunities and rewards that the tenacious and persistent would perhaps gain.
Difficulty is merely opportunity in disguise
1.2 STATEMENT OF THE PROBLEM
The Nigerian property market in spite
of its size and robustness appears not to have elicited commensurate attention
from international investors. It has only recently managed to receive no more
than a glimpse of industry based reviews and perhaps a handful of academic
research which practice is even rarely sustained. It would appear that it may
have been considered to have a lot of challenges; yet no empirical study has
been conducted to date on the Nigerian property market to reveal its state as
has been done for similar property markets elsewhere. Consequently, investor
perception about the market will remain hinged on myths rather than empirical
evidence (Lim, et al. 2006).
1.3 OBJECTIVES OF THE STUDY
The
following are the objectives of this study:
1. To
examine the prospects of the Nigeria property market.
2. To
identify the challenges of the Nigerian property market.
3. To
investigate the present state of the Nigerian property market.
1.4 RESEARCH QUESTIONS
1. What
are the prospects of the Nigeria property market?
2. What
are the challenges of the Nigerian property market?
3. What
is the present state of the Nigerian property market?
1.6 SIGNIFICANCE OF THE STUDY
The
following are the significance of this study:
1. This
study will educate the general public especially the investors of the present
state of the Nigerian property market with a view of identifying the prospects
and challenges.
2. This
research will also serve as a resource base to other scholars and researchers
interested in carrying out further research in this field subsequently, if
applied will go to an extent to provide new explanation to the topic
1.7 SCOPE/LIMITATIONS OF THE STUDY
This
study on the Nigeria property market; prospects in the midst of challenges will
cover the state of the Nigeria property market to identify the challenges
therein with a view of analyzing the prospects.
LIMITATION OF STUDY
Financial constraint– Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
and interview).
Time constraint– The researcher will
simultaneously engage in this study with other academic work. This consequently
will cut down on the time devoted for the research work.
REFERENCES
Aluko,
B. T., & Amidu, A.-R. (2005). Globalization, Land Tenure and Land Market
Transactions in Nigeria. In W. Fadare, A. Ajayi, & B. Babalola (Ed.),
Globalization, Culture and the Nigerian Built Environment. II, pp. 25-30.
Ile-Ife: Faculty of Environmental Design and Management
Babawale,
G. K. (2008). An evaluation of factors influencing inaccuracy in residential
property valuation in Lagos metropolis Nigeria.
An Unpublished PhD Thesis submitted to the Department of Estate
Management, University of Lagos. Lagos, Nigeria
JLL,
(2010), Mapping the World of Transparency Retrieved Dec. 12, 2010, www.jones
langlassell.com/transparency.
Lim,
L. C., McGreal, S., & Webb, J. (2006). Perceptions of Real Estate
Investment Opportunities in Central South Ameraica and Africa. Journal of Real
Estate Portfolio Management, 3, 261-276.