- August 11, 2020
- Posted by: Ijeoma
- Category: E&W ARTICLES
High Cost of Land and Property Development:
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 higher consideration for land value and low consideration for the occupying property. The value of land in Nigeria is high and such high costs are hard to find in developed economies but it is a present reality in key states in Nigeria like Lagos, Abuja, Enugu and Port Harcourt. Oddly enough most of the high prices are considered as good deals.
On the other hand, building a house in Nigeria especially in some urban cities in the country 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.
Devaluation of Naira/ Inaccessibility of Funds
The constant 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.
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. 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.
Another great challenge posed to real estate development in Nigeria is the inaccessibility 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 from rentals and other long-term investments. Also, most often than not, funds when accessed do not cover the full value of development but a fraction leaving developers with a high cash input.
Bribery and Corruption
Bribery and corruption constantly 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. Most times, some staff of regulatory bodies prefer to take bribes rather than ensure that developers obtain the necessary permits and conform to statutory construction standards
The most frustrating of the challenges in Real Estate in Nigeria stem from the government’s bureaucracy, aging and sometimes corrupt agencies which hamper and delay the process of documents processing and plans approval. The bureaucratic process of allocation and registration of charges on land is an impediment to real estate development. The lackadaisical attitude to work is the major cause of undue delay at the land registry. Oftentimes, a developer’s application would pass from office to office over several weeks and by the time the necessary approval is obtained, he may have lost his source of funding or incurred huge interest on loan obtained for development. This may disrupt the developer’s business plan and result in exorbitant cost of construction and high price for the developments.
Stakeholders in the Real Estate Sector overtime, have expressed that the threat posed by multiple taxations to property development, consultancy and administration is huge and requires urgent action because it is stifling investment in the sector. The scope, they said is large and suffocating industry players. While in many cases, people are made to cough out huge sums on taxes, they’re not supposed to pay.
Some of the taxes payable by players in the sector include consent fees on the land transaction, land use charge, withholding charge, Personal Income charge, Value Added Tax, Ground rates, Development levies, Property levy, community tax and Television Antenna charge (in some states). Multiple taxation in the Real Estate Sector is prominent and it concerns taxation from the local governments, states and federal, while there seems not to be clarity concerning who exactly is meant to charge certain taxes.