Of course, you’ve heard 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 the World Bank, Nigeria has about 17 million housing deficit and billions of dollars are required to fund this infrastructure gap.
This obviously reveals the level of saturation in the real estate sector, as well as the existing opportunity. If you’ve got the funds, then I think you shouldn’t miss having 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 should I buy a landed property? 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:
Avoid 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 the returns on their properties, and this tactic attracts “newbie” investors.
The influx of newbie investors creates variety of choices for future buyers, which stifles the growth of returns on such 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 over there.
Hence, the supply of landed properties would be greater than what the demand can accommodate.
The scenario is quite different for government-owned estates. 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 land and property in an area of choice should outweigh the supply — the available land and property.
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 land in Ipeju-lekki area or a new site, you should target build-up areas like Surulere, Festac, Gbagada, Ogudu or Yaba where only a few choices are available.
In such areas you can make some millions from flipping within a shorter period.
However, if you are on a really tight budget, there’s an old trick you could use to get cheap plots in developing areas with potentials.
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.
Ensure the lands have a government-approved layout, C of O, Letter of Grant, and a forthcoming development. One promising area is Abuja Municipal Area Council (AMAC), F.C.T.
In addition, the surrounding environs of land or property are deserving of serious attention. Some time ago, I met someone who bought land from a federal government housing estate and he found it difficult to sell just a few years later.
It is a two-unit of two bedrooms flat that is close to an airstrip. He receives ₦200k per flat as rent. He initially wanted to sell the apartment for ₦15m but was willing to make a compromise at ₦14m.
Even so, he couldn’t get any bid close to the requested amount. That’s because he overpaid for the house, and now it’s 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 of a house, using the amount paid as rent, number of flats (units), and constant of a 20-year time period.
For example, the estimated actual worth of the property is;
Using the BEP formula, the worth of his house is ₦8m. At this price, it is assumed that neither a profit nor a loss is made on the sale of said property.
Therefore, If I were to bid for this property, I’d bid at an even lesser rate.
Its proximity to the airstrip further reduces my bid, due to the noise pollution and the possibility of an air crash.
Consequently, It would be near impossible for him to get ₦14m for that house.
From whom should I buy a landed property?
Having discussed why it isn’t ideal to patronize private real estate companies, it is, therefore, germane to review from whom you should a landed property.
It is usually best to buy land and properties from people that urgently need 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.
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, which involves haggling prices. 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 and sell it for a much higher price.
You can improve your game if you find it difficult to negotiate prices. There are several haggling techniques you can learn from reading a book or consulting an expert.
If you don’t have a conscience, you’d definitely be good at wheeling and dealing. But, please do have a conscience.
If you are buying lands or properties in order to receive rents, you should find out the rent payment structure in the chosen community together with the apartments in demand. Learn more about buying or building a rental property.
For example, in a university environment, self-cons are of high demand. So, you can consider building hostels to suit their needs. On the other hand, 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 its completion. 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 when 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 land with a property on 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 land.
The C of O (Certificate of Occupancy) is the most important document you must obtain. It is issued by the state government in Nigeria to landowners and property buyers as a legitimate proof of ownership.
This C of O spells out what the land can be used for; residential, agricultural, recreation, transportation, and commercial.
No doubt, the real estate sector has a lot to offer to the Nigerian investor.