Of course, you’ve heard of how lucrative the real estate industry is in Nigeria. And you may be thinking of venturing into it because of how good the numbers are.
Well, according to World Bank, Nigeria has about 17 million housing deficit and billions of dollars are required for the infrastructure funding gap.
That obviously reveals the level of saturation in the real estate sector, and the existing opportunity. If you’ve got the funds, then I think you shouldn’t miss a piece of the cake.
However, before you take that leap, there are quite a number of factors you should consider.
What location is best suited to secure a site? How would I determine if the property is overpriced? From whom should I buy? Do I intend to engage in land or property flipping?
These are some pertinent questions to ponder over before making a decision. Answers to these questions and more would be provided in this article.
There are several real estate firms that promise high returns on patronage. I don’t want to be blunt, but I do have to say this:
Run away from them! Japa o! I’ve been offered some mouth-watering deals in Ipeju-lekki area, especially plots close to Dangote refinery.
You have to understand that these real estate firms are profit driven, so they estimate their income and expenses after deducting sales and marketing cost.
As a result, their land and properties are overpriced. These firms have already taken a large chunk of the profit margins that could have been gotten from flipping.
As for the lands in the neighbourhoods of Dangote refinery, it is not recommendable for health reasons. You shouldn’t be living that close to a refinery.
A vast majority of the real estate firms in Nigeria are simply speculating on the returns of their properties, and this tactic attracts “newbie” investors.
The influx of newbie investors creates variety of choices for future buyers, which narrows the growth of the properties.
What location is best suited to secure a site?
An average investor should avoid buying lands and properties in places like Ajah and Lekki, because real estate companies are building numerous estates.
Hence, the supply of landed properties would be greater than what the demand can accommodate.
The scenario is quite different if it is a government owned estate. There are some residential estates built across the country by both federal and state government, with the goal of meeting the housing needs of the Nigerian society.
Nevertheless, the demand for lands and properties in an area of choice should outweigh the supply — the available lands and properties.
The lead time it takes to recoup the money invested in remote locations is often too long. Sometimes it takes a lifetime.
The opportunity cost is just too high a price. Instead of buying a land in Ipeju-lekki area or a new site, you should target build up areas like Surulere, Festac, Gbagada, Ogudu or Yaba where only few choices are available.
In such areas you can make some millions from flipping within a shorter period.
However, if you have a really tight budget, there’s an old trick you could use to get cheap plots in developing areas that easily appreciate.
Areas that would become beneficiaries of Government approved projects such as new roads, universities, seaports and airports tend to appreciate at a rattling pace during construction.
For example, lands acquired nearby the planned Gelegele seaport in Edo state experienced over 300% turnover within a 5-year period.
I’m not recommending that one buy a land in a random forest, because most times the bushes get thicker and the prices stay the same or even worse, begin to depreciate.
Do ensure the lands have a government approved layout, C of O, letter of grant, and a forthcoming development. Another promising area is Abuja Municipal Area Council (AMAC), F.C.T.
In addition, the environs of the land and properties is deserving of serious attention. Some time ago, I met someone that bought a land from a federal government housing estate and he was finding it difficult to sell the house a few years later.
It is a two-unit of two bedrooms flat that is close to an airstrip. He receives N200k per flat as rent. He initially wanted to sell the apartment for N15m, but was willing to make a compromise at N14m.
Even so, he couldn’t get any bid close to that amount. That’s because he overpaid for the house, and now it’s been overpriced.
How would I determine if the property is overpriced?
There’s a street-styled economic formula that is used to calculate the break-even point (BEP) of a house, using the amount paid as rent, number of flats (units) and a constant of 20-year time period.
Worth of Property = Rate (Rent) x Unit (No. of flats) x Time (20 years)
For his apartment, the arithmetic is 200,000 x 2 x 20 = N8m.
Therefore, the worth of his house is N8m, judging by the formula. At this price, it is assumed that I’m neither going to make a profit nor a loss.
Therefore, If I were to bid for his house, I’d bid an even lesser sum.
Its proximity to the airstrip further reduces my bid, that’s due to the noise pollution and possibility of an air crash.
Consequently, these could be the reasons why he couldn’t get a buyer for N14m.
From whom should I buy?
Since we’ve discussed why it isn’t ideal to patronize private real estate companies if you wish to make juicy profit, thus, it is germane to review from whom you should purchase.
It is usually best to buy land and properties from people that have an urgent need for the cash, such as children that inherited properties from their parents and are desperate to sell, individuals with bad loans, and people that are relocating abroad.
I have witnessed fantastic deals from people relocating abroad, as they seek funds to start a living there.
Do I intend to engage in land or property flipping?
If yes, there are skills you’d need in landing the best deals. You need to be good at the negotiation process that involves the haggling of price. The art of buying and selling lands and properties is a skill you should develop.
Some people have a knack for spotting an undervalued property and are able to buy it and sell it for much higher price.
You can also try to improve if you find it difficult to negotiate prices. There are several haggling techniques you can learn by simply reading a book or from consulting an expert.
If you don’t have a conscience, you’d definitely be good at whealing and dealing. But, please do have a conscience.
If you are buying lands or properties in order to earn revenue by renting them out, you should find out the rent inhabitants pay in the community, and the kind of apartment that has high demand in the community.
For example, in a university environment self cons are of high demand.
So, you can consider building hostels to suit their needs. Residents of metropolitan areas may prefer two or three bedrooms apartments.
In Lagos, a 20 unit self contain building at Surulere will rent out several days before completion of the construction. That’s because of the high demand of accommodation there.
Old apartments can also be bought and renovated, or demolished and reconstructed. You’d buy the land with the old property on it, just as you would if you were buying the land alone.
The cost of demolition is capitalized and considered as part of the acquisition cost. This is usually done if you’re building a house in a place you’d like to stay.
In some communities, you’d find it difficult to see an empty land. So, buying a land with a property on it is your best bet.
There are several articles talking about how you should deal with Omonile (land grabbers) in the country, don’t hesitate to read them.
You should know that real estate fraud affects hundreds of thousands of persons around the country, so due diligence is needed while purchasing a land.
The C of O (Certificate of Occupancy) is the most important document which you should, I mean must, get for the land. It is usually issued by state governments in Nigeria to land owners and property buyers as a legitimate proof of ownership.
This C of O (document) spells out what the land can be used for; residential, agricultural, recreation, transportation, and commercial.
The real estate sector has a lot to offer to the Nigerian investor.