The Opportunity in Real Estate Investment in Nigeria:
Real estate is as old as God’s green earth and ever since man started cultivating land and marking territory - the accompanying commerce that ensued around using said piece of earth to make profits and all the activities carried out therein - gave birth to Real Estate Investment.
Nigeria, a country of over 200million people has a housing deficit of 17-21million depending on who you quote. With an ever increasing population growth, Nigeria is a prime investment destination, a ready market for various investments; tech, financial services and real estate investments.
But when we talk about real estate investment in Nigeria there is a need for us to realize and appreciate the peculiarity of our situation here in Nigeria. If you don’t realize, understand or appreciate our peculiarity and try to paint Real Estate investment in Nigeria with the same brush as is done in other climes - you may run into problems.
This is an example of emails I receive; a $40milion fully funded Real Estate project request from a Private Equity firm in Toronto Canada seeking for a contractor partner in Abuja.
Nigeria as a Real Estate investment destination Real Estate is worthwhile - with a ready hungry market that you can take advantage of!
This post is going to show you how to make a lot of money from Real Estate Investment in Nigeria or how you can alternatively save a lot of money from your Real Estate investment deals - because a lot can go wrong in a hurry.
In the Real Estate sector, much like in other sectors in Nigeria - we have to constantly tweak literature to align with our local realities. These are the important things you should know about Real Estate investment in Nigeria:
If you want to dive into how to make successful real estate investments in Nigeria - it goes without saying that you have to look at some successful real estate companies and developers in Nigeria.
You have to study how they have done their real estate investments and stayed successful for years in Nigeria. Despite the numerous challenges they have somehow managed to not only stay afloat but thrive.
The likes of these companies and developers are such as;
Uacn which has the subsidiary as updc.
First World Communities
Brains and Hammers etc
If you want to invest in Real Estate or start a real estate business here in Nigeria, you should definitely pay attention to what they are doing. I can tell you that they are getting alot of things right.
Broadly speaking they are four (4) major Real Estate investment strategies:
Rentals are one of the oldest, safest, and most steady source of income from Real Estate.
In Rentals, you buy a property to put on the market for monthly or yearly rental. It has a lot of upsides like; regular cash flow, asset appreciation, collateral for loans, and property can be sold afterward for a profit.
The downside is that just like in many numerous Lekki and Banana island apartments, you may experience non-subscription of your apartment for long periods.
A company like First World Communities handles rentals in a prime place like Abijo and a 3 bedroom flat there goes for NGN1.2m per year with a property worth of 25m.
Dangote has taken out a lease for over 50 units and you can make guaranteed rental income of NGN800,000 per annum by buying these properties as a rental investment.
In a place like Kubwa Abuja - it is a low and middle income neighorhood so you can get bulk land here and sell for cheap.
Also referred to as land/property banking - you purchase a property to sell in the quickest time possible for profit.
A company that works well with this strategy is Gracias Global in Lagos..They have prime properties all around Lagos in Sangotedo, Eleko, Ibadan and some of these properties, with strategic locations like in Eleko junction.
They have the gracias morganite and peridot heights, off lekki epe expressway Lagos.
Gracias’ major Real Estate investment strategy is buying and reselling land whilst providing infrastructure around the residential and commercial development.
They can see as much as over 100% ROI because they actually buy this land for cheap from Omonile, by doing ’sponsorships deals‘.
Another company that uses this strategy of flipping is; Landwey Investment Limited also located in Lagos as well.
Word on the street was that the total payout for westwood estate by Landwey in Monastery road Sangotedo, Lagos; was NGN3billion.
Nowadays though, Landwey is majorly into property development and that is the next Real Estate Investment strategy we would talk about.
Property development involves purchasing land, erecting buildings, developing infrastructure, and selling to the buyer either at carcass (lintel level), fully finished, with fittings, plumbings, and so on, or fully finished and furnished.
This arguably can be the most profitable strategy and companies like Cosgrove in Abuja with their flagship fully finished and furnished property in Wuye costing NGN500million.
A company like Landwey started with flipping lands but after they started their first developments in Abraham Adesanaya - the Urban Prime Estates - each unit reportedly cost between 14m-18m and they sold for as much NGN40million and above per unit.
After the success of the Urban Prime Estates - Landwey has never looked back and have majorly been into property development these last few years.
They currently have a 100m 5 bedroom property in Abijo, Eko Ekete. How crazy? The more mind-blowing fact is that it is off-plan (not yet built).
But property development is capital intensive and it requires alot to position for success.
For example Gracias Global as mentioned above, started years before Landwey and although they have tried their hands on many development projects like the Goldstone, Peridot Heights all in Sangotedo, they haven’t been as successful as Landwey with development.
They seem to have realized their competitive advantage and stuck with flipping properties; selling land in only prime areas in Lagos and Ibadan.
There is another less talked about Real Estate Investment strategy: Real Estate Investment Trusts (REITS).
Simply put, a REIT is a trust that pools fund from individual investors, acquires, operates and/or manages income-generating real estate.
There are different types of REITS like Equity REITS, and Mortgage REITS. These REITS, listed in the Nigerian Stock Exchange distributes the income derived from their owned properties and investments as dividends to subscribers.
REITs are traded on the Nigerian Stock Exchange (NGX) just like stocks; you can buy or sell REITs through stockbrokers.
There are currently only 3 registered REITS recognized by the Securities and Exchange Commission namely; Union Homes, Skye Shelters and UPDC, a subsidiary of UACN.
Nigeria by 2019 had the market cap of REITS at NGN32-72bn, compared with South Africa which has a total market cap of over $31.42 billion of 31 REITS.
For even better context the combined market capitalization of the three REITs in Nigeria is US$131 Million while in the United States, the combined market capitalization of REITs is around US$898.41billion.
REITS have been very challenging to implement in Nigeria, and even a major REIT - UPDC, a subsidiary of UACN posted a loss last year.
So you can see that whatever strategy from the above you choose namely;
i.) Rentals ii.)Flipping Houses/Land iii.)Property development iv.) REITs,
You have to position for success because it isn’t a walk in the park.
But How do you choose the right Real Estate Investment Strategy in Nigeria? How do you implement your strategy successfully?
The role of government is very heavy in Nigeria.
When motorcycle ride haling entered into the market it took just a simple announcement to squash investments and livelyhoods. Companies had raised millions of investor dollars, and it was over in one day.
Now to even emphasize the role of government in this industry, per the Land Use Act, it empowers the governor to have unrestricted access to all land in the state. So the governor has to approve ever single land transaction for it to become legally binding.
If you do not understand this or the role government plays in rectification, ratification, giving titles, and approving transactions, you’ll get into trouble.
Befriending government, government agencies, officials in the land bureau is a strategy here depending on how high you want to fly.
Following from the above - you should be aware that legally binding property transactions, can only be done on a proper titled property registered at the state’s registry.
The major title you should always look out for is the C of O. The certificate of occupancy is a document that confirms the lease of a piece of land to an individual for 99 years.
Other land titles you should know are:
i.) Governor’s consent: a governor’s consent can be considered as a title because it confers authenticity on a land. Like the name implies, it is a duly signed and stamped deed of assignement by the governor of the state.
This shows that a land with a C of O title has been transferred to another owner duly recognized and backed by the state and power of the governor.
Other useful titles to note are:
ii.) Excision: Excision is the process by which the government carves out areas in places it deems urban areas and officially releases and recognizes the ancestral owners as the lawful owners of that portion.
iii.) Gazette: This excised portion is subsequently recorded in the government’s official journal called the gazette. This is a recognized land title.
NB: A registered survey is not a title. Also, a’freehold’ land isn’t a title as well. But a freehold and a registered survey is free from government acquisition and processing of C of O/ perfecting of the title is possible.
Per the land law, if land is not registered or the survey lodged in the Land’s bureau and duly approved by the governor - through the C of O or allocation - you have no enforceable legal right over it.
The popular saying goes; real estate is all about location location location!
This fact it is not any different here in Nigeria.
Whichever strategy you choose; the most important decision you would make is the location!
The right property in a prime location sells itself.
One thing that prime locations do for you is that your property sells itself. Mabushi - the city centre, Katampe phase 1 and 2 close to the airport and facing a major road and Maitama are major prime locations in Abuja Cosgrove is in.
But the things about prime locations is that they are expensive. Very expensive.
So what happens if you do not have the budget for a prime location? Then consider areas that share boundaries with these prime areas.
Lagos is such a heterogenous place that attracts, investors, expats, holidays goes, people on official visits. There is a housing deficit of 2million+ and it is ever growing.
The rental industry is struggling to meet up with demand and most people do not want to rent for long or stay in hotels. So the solution? Serviced Apartments!
To this end, alot of developers are positioning their property developments for the market to take advantage of the shortlet market. And since most of the demand is in Lekki, you can see companies like veritasi, tribitat real estate, God’s Made Homes Luxury positioning in Freedom way Lekki and with an initial deposit between 2m-10m, you can get a 3 bedroom, fully serviced apartment here.
But prime areas do not become prime overnight; most times it does not look like it for years.
You could make alot of money and save massively on your initial investment by spotting auspicious locations that would do very well in a few years.
You could buy affordably now and maximize your profit when you want to sell, rent or put on the shortlet market.
These are other important points you need to note about your real estate investment:
There is this popular mantra most times during investigations: “follow the money”. ”Follow the money” is a catchphrase popularized by the 1976 docudrama film All the President’s Men, which suggests political corruption can be brought to light by examining money transfers between parties.
It follows that in Real estate business and investment here in Nigeria - that you have have to keenly government’s policy direction, area of interests.
For example, governor Rotimi Amaechi, former executive governor of Rivers State introduced the Greater Port Harcourt Scheme during his tenure. It proscribed particular areas in the state as areas where government had particular interest with infrastructural plans to drive development beyond the main city - Port Harcourt to other local governments in Rivers State.
This meant that land value increased increased in these local governments and there was more paper work involved in acquiring and perfecting your title in these areas because the government had a blueprint for every single squaremeter with specific purposes - commercial, residential, roads, hospitals, etc.
In Lagos places like Badagry, Festac, Agege, Ikorodu are not premuim real destinations because there is a dearth of government interest and it reflects on perceived property value and investor interests.
Following from the above; Lagos state has deemed Ibeju Lekki as an urban area - this means it has falls under Global acquisition - which means that government has an interest there and plans to undertake massive projects and infrastructure.
Per the Land use act - government ‘commits’ a large portion of land in this area for its use now or in the future. The remaining part is free and by a process of regularization/ratification or excision is transfers ownership of these free portions to ancestral land owners for whatever use they deem fit.
This has made Ibeju Lekki - a once remote location transform to a residential, commercial hub - an eldorado for investments spanning into billions namely; Dangote Refinery, Alaro city, Free Zones, among others.
In Nigeria, GRA means Government Reserved Areas - can be interpreted to be a euphemism for affluence and a better standard of living. These exclusive residential areas were originally created to quarter white colonial administrators. However, after independence, Nigerians began to occupy administrative senior posts that hitherto used to be the exclusive preserve of the white overlords, including their highbrow and secluded GRA residence.
GRAs now are usually a well serviced area with good road network, serviced estates, properly maintained that sometimes with the state’s government house here and undoubtedly politicians, celebrities and inflential people in the country.
Lagos has a couple of GRAs in the mainland; Ikeja GRA, Ogudu GRA and the only GRA on the island - Abijo GRA
Investing in a GRA is a goodle Real estate investment considering that whtever strategy you adopt - rentals, development or flipping yields massive returns as these areas are exclusive - so prices are premuim and they are always in demand!
Lagos Nigeria is flanked by both the Atlantic ocean and the lagoon. With an amazing shoreline and hectares of coastal real estate, you can take advantge of this premuim real estate for your beachfronts.
Infrastructural projects, construction and developments are variables that affect the value of real estate positively and by Nigerian standards, Lagos is trying! with infrastructural developments, in various stages of completion like:
1.) The Red line Rails: A 37km rail system from Agbado to Marina.
2.) The Blue line Rails: A 27.5km rail system that runs from Marina to Okokomaiko.
3.) The Green Line Rail: An 18km rail system that runs from Lagos Island, traverse Lekki Peninsula and terminate at the location of the proposed Lekki International Airport - it also bifrucates to the Dangote Refinery and Lekki Free Trade zone.
4.) 18.75km Lekki Epe Expressway Project from Eleko junction to Epe T junction. It consists of a 6 lane rigid pavement carriageway that begins from eleko juntion in Ibeju Lekki to Epe T junction, Epe.
5.) 26.7Km Lekki Epe Expressway Project from Eleko Junction to Abraham Adesanya Junction in Eti-Osa axis. This construction is a precursor to the popular 4th mainland bridge.
6.) Construction of 3.75km of road network across 4 roads including; Thompson avenue, Milverton road, McDonald road and Lateef Jakande road.
7.) Ojota - Opebi Link bridge.
8.) Six major junctions improved at Lekki phase 1 and 2, Ajah, Maryland, Ikotun and Allen Avenue with Traffic light signal (TSL) technology.
9.) 10km long Lekki Regional Road network which covers districts from Victoria Garden City scheme 1 to Lekki Freedom way.
10.) 1.4km long Agege/Pen Cinema flyover bridge.
Free zones are special economic zones in a country where there minimal to no interference from Federal, state and local government authorities. It is heavily driven by private sector, so lots of the bottlenecks and bereaucracy involved involved in commerce - exports and imports and local trade is bypassed.
As a result freezones are largely attractive to international and local investors and drives massive foreign direct investment (FDI).
Nigeria has some of such free zones like;
Some of the benefits of the companies located in these special economic zones - Free zones called Free Zone Enterprises (FZEs) include:
The largest Deep-Sea Port in West Africa is currently under construction and located to the south of the city and a bridge links Alarocity to other Free zones namely Dangote Refinery, The Freezone by LFZDC.
Already, there are a combined number of 300 private businesses in Eko Atlantic, Alaro City, Free Trade Zone by LFZDC; that are registered free zone enterprises in the different Free zones in Lagos already pised to benefit from these amazing benefits.
Lagos is bustling - a Real Estate hub with hundreds of Real Estate projects springing up every other month. But some of these projects tend to stand out. Maybe it’s more about the scale, ambition, services and amenities to be provided, the planning, but these Real Estate projects hardly ever come unannounced! Just like banana island - they start very small and in years they are premuim, exclusive communities that pays massively to investors! some of these mega projects, in different stages of completion include:
Depending on how early you can spot thtese projects, these are no brainer, sure, guranteed Real Estate investments that would pay huge dividends, and no matter what time you enter, you are guranteed your returns!
Knowing the above above Real Estate Investments - how do you fund these project. There are several methods you can deploy which include:
The most common and most intuitive in this part of the world, you can easily fund Real Estate projects from savings and salary depending on your pocket and the scale - there is somehthing for every pocket and every size!
You my not be able to shell out millions immediately out of pocket but there are different payment plans you can take advantage of. After putting down a stipulated payment - a fraction of the cost, you can spread the remaining payments, for a minth, three months, six, 12, 24, even 2-4 years. Most times these come with a little interest attached after the third months, but some are even interest free, up to 4 years! like Landwey’s development at Oworonshoki.
Maybe not so popular with individuals but lots of Real estate developers and companies take advantage of this method. It’s all about OPM (other people’s money) and channelling it to Real Estate projects.
Banks even in this part of the world that are usually not poised to give people and businesses loans but they gladly bring their cheque books out for Real Estate developments and projects. The ineterest rate might be a conversation for another day, but most companies meet up, even after taking profits!
This is very popular in Lagos, as groups of individuals, companies, and organizations come together to pool funds together and fund real estate projects. There is flexibility in the payment terms and as a group they can purchase land in bulk, start development simultaneously and secure the land, rather than doing it as a lone ranger amoung so many wolves!
A popular co-operative in Lagos is the Chevron cooperative - with a long list of investments in their real estate portfolio namely; Nicon town estate, a couple of estates in Abijo GRA and opposite Fairfield Apartments Abijo.
Ancestral land owners (also called omo ni ‘ile) with bulk amount of land usually don’t have money to develop so every now and then when they want to raise money for themselves, they partner with developers and sponsors to develop and sell their land.
This is a method called sponsorship.
In turn they offer you plots as compensation commensurate to the volume of land you do work on.
This is how big companies like Landwey, Pwan, Veritasi, Revolution Plus and other companies get bulk land in Ibeju Lekki and Epe.
Joint Ventures are another way to fund Real Estate Businesses and investments.
In this arrangement, you have a land and a real estate developer, company or individual offers to develop your land for you and splitting the profits between both of you - instead of buying the land from you and keeping 100% of the profits.
The catch hee is that it is less capital intensive for both parties- the developers doesn’t need to buy the land, so has more capital to deploy for the development, and the land owner, also does not need to lift a finger in developing his own land and get the enormous benefits instead of leaving it fallow.