12 Things You Should Know About Real Estate Investment in Nigeria
The Opportunity in Real Estate Investment in Nigeria: Nigeria, a country of over 200million people has a housing deficit of 17-21million. 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 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.
What is Real Estate Investment?
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 in some way or form or manner around using that piece of earth to make profits and all the activities carried out in said land - gave birth to Real Estate Investment.
If you go back to the basic economic principles - you’d realize from the four factors of production; Land Labour Capital Enterpreneurship
Sitting at the top is; land. Traditionally, you could not start any form of business and undertake commerce without land.
When it comes to Real Estate investment in Nigeria, the first thing to understand is that economic analysis doesn’t always follow a certain rule book here. In the Real Estate sector, much like in other sectors - we have to constantly tweak literature to align with our local realities.
So Let’s Look at the points to note
i.) Learn from Successful Real Estate Companies and Developers in Nigeria
If you want to dive into how to make successful real estate investments - 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;
Mixta Africa Landway, Rendeavour Uacn which has the subsidiary as updc. Cosgrove First World Communities Brains and Hammers etc
I have learned a lot about Real Estate just observing how these Real Estate companies have done business and real estate investment in Nigeria. I’ve learned more from them than in any book or school. If you want to invest in Real Estate or start a real estate business here in Nigeria, these are not ‘nice to haves’, but things you should definitely pay attention to!
ii.) Real Estate Investment Strategies Choose your fighter; Rentals: Rentals are one of the oldest, safest and most steady sources 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, increasing value of the rental property, asset appreciation, and property can be sold afterward. The downside is that just like in many numerous Lekki and Banana island apartments, you may experience non-subscription of your apartment which may lead to empty units. This is based on the pricing and location. A company like First World Communities handles rentals in a prime place like Abijo and a 3 bedroom flat there can go as little as 1.5m per year.
Flipping: Also referred to as land 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. They have prime properties all around Lagos in Sangotedo, Eleko, Ibadan even and some of these properties, with strategic locations like the Eleko junction, they have the gracias morganite, off monterey road, they have goldstone. Gracias ia majorly concerned in reselling and providing infrastrucutre around the rediential and commercial developments in their estates. They can see as much as over 100% ROI because they actually buy this land for cheap from Omonile, or even do sponsorships deals that would end up being rewards for documentation and survey. Word on the street was that the total payout for westwood estate by Landwey was NGN3billion.
REITS: Simply put, a REIT is a trust that pools fund from individual investors, acquires, operates and/or manages income-generating real estate (Equity REITS), or mortgages (Mortgage REITS). These REITS, listed in the Nigerian Stock Exchange then distributes the income derived from their owned properties and investments as dividends to subscribers.
REITs are illiquid assets that are traded on NGX just like stocks; you can buy or sell REITs through your stockbroker as with other types of shares. Nigeria by 2019 had a market cap of REITS at NGN32-72bn and only 3 registered REITS by the Securities and Exchange Commision; Union Homes, Skye Shelters and UPDC, a subsidiary of UACN. REITS have been very challenging to implement in Nigeria, compared with SA which has a total market cap of over $31.42 billion of 31 REITS. For example the combined market capitalization of the three REITs in Nigeria is US$131 Million, while in the United States, the combined market capitalizations of REITs stands to the tune of US$898.41billion.
Property Development Property development involves purchasing land, erecting buildings, developing infrastructure and selling to the buyer either as carcass (lintel level), fully finished, with fittings, plumbings and so on, or fully finished and furnished. This arguably is the most profitable and companies like Cosgrove in Abuja with their flagship 500m fully finished property in Wuye. Also A company like Landwey started with flipping but when they started their developments in Abraham Adesanaya - the Urban Prime Estates - each units were estimated to cost 14m and they sold for 40m+ and above. After the success of Urban Prme Estates Landwey never looked back and have been majorly into property development these last few years and they 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 I metioned 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. I think they realised their competitive advantage and stuck with Flipping properties; selling land in only prime areas.
So you can see that whatever strategy from the above you choose, you have to position for success because it isn’t a walk in the park
Ultimate Real Estate Investment Checklist
How do you choose the right Real Estate Investment Strategy? How do you implement your strategy successfully?
Location is everything 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! How to Choose The Right Location For Your Real Estate Investment
Property Development in Prime Locations: Just like a company like Cosgrove; they are in Prime locations in Abuja like Guzape, Wuye, Katampe, Mabushi, Maitama. One thing that prime locations do for you is that your property sells itself. If it is is somewhere like Mabushi that is the city centre, or close to the airport and facing a major road like katampe phase 1 and 2. But the things about prime locations is that there are expensive. Very expensive so what happens if you do not have the budget for this location? Then go to areas that share boundaries with these areas, like in Lagos, you can see that Real Estate and location value has been a linera progression - from Ikoyi-Lekki-Ajah-Sangotedo-Abraham Adesanya-Abijo all the way to Ibeju Lekki. Also prime areas do not become prime overnight; most times it does not look like it for years and for an example Cosgrove came into Wuye it was abandoned land that other Real Estate companies and developers had run away from. But through an engineering miracle they turned it around. So how do you turn locations around or spot auspicious locations that would do very well in a few years, so you can buy affordably now and maximize your profit when you want to sell? Keep reading and we will reveal
Property Rental in prime Locations: Property rental is dead. Shortlet dey reign now. It is ridiculously high and most places are occupied, you have issues of bad neighbors, and the government is looking to turn yearly rental commitments to monthly. But alot of developers are already ahead the curve like Mixta and their Lakowe gold and country estate. With the lowest package going for N115,000 per night. Lagos is such a heterogenous place that attracts, investors, expats, holidays goes, people on official visits, 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 advantge 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 positioning in Freedom way and with an initial deposit between 2-10, you can get a 3 bedroom, fully serviced apartment here.
How do you Choose the right Investment Stategy For Developing Areas and Spot Areas?
Understand the Role of the government: The role of government in any institution is heavy. Very heavy no doubt. When motocycle ride haling entered into the market it took just a simple announcement to squash investments ad livelyhood. 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 land in the state. It all belongs to him. So the governor has to approve ever single land transaction 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 It is no wonder Wale of Landwey, Sujibomi of Sujimoto, Cosgrove Ceo with fashola and governor. Understand land laws and titles Following from the above - you should be aware that legally, you should only buy a proper titled land 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 lesser known/understood land titles are Governor’s consent; a governor’s concent can be considered as a title because it confers authenticity a land. Like the name inplies, it is a duly signed deed of assignemtn by the governor of the state. This means that the land has no encumberance and all legal rights are backed by the state and power of the governor. Other useful titles to note are Gazette, and Excision. NB: A survey plan is not a title. Also, technically freehold isn’t a title because per the land law, if land is not registered and duly approved by the governor - you have no enforceable legal right over it. There can be a work around but let us talk about other titles like the excision and gazette
Follow areas of government interest -Take advantage of Urban areas
How to fund Real Estate Investments Out of pocket Take advantage of payment Plans Cooperatives Sponsorship deals
I can tell you this for certain when people especially people in the diaspora of people that are on initiated want to go into real estate and you don’t care for the rules you don’t care for the guidelines you don’t care for what others are doing and you’re trying to blaze a trail ignorantly however well-intentioned it would always end in losses maximal losses and related losses are not always in couples are pennies they are always in millions hundreds of thousands so let us understand how we do it how our situation is different and how you can invest because if there’s no profitability as far as releasing his concert is no longer real estate investment is something else so there has to be profit so how can you invest profitably in real estate in Nigeria So the first thing you need to know how the major ways you can invest in real estate in Nigeria and I’ll start with the very first one number one which is rental property rent house so it’s all about having a particular property maybe you inherited the property going to property Hello so rentals are very good way to invest in real estate in Nigeria but he has certain calls and setting pros the pro is a the flow is very very very unique income and constant income you have a steady flow of cash also we went out even as you’re getting the rent the the value of the property is increasing so you can even you can even decide probably when you have broken even from the money used to develop sell it off and then you get the rent but here in Nigeria we have the issues of issues of pesky neighbours pesky Talents and pesky guys that skinny boss you have also the issue of management of our case something goes wrong who pays if you’re not around would you give the estate management too and also the payment when I was in school there was a particular time somebody that was in Italy gave her sister which sold around the power to collect the money I know when she lost her husband she use the run that she took from some of us to settle issues so you see this kinda issues at the end of the day people are not refunding appropriate amount because there’s no set system and he can just get really really messy so that’s for rent rentals you know sometimes the landlord does the tenant will never pay and then you start chasing them down to the water issues we rent out but that is how rentals go to another way you can make money from real estate investment is formed write r e i t s real estate Investment Trust so as far as we know they are basically for writing So they’re basically for rights in Nigeria as fast As far as we know we have the Sky shelter found Union home rights and uacn property development company updc right so what is right do this right The guarantee you’re setting return on your investment and then you know after a particular maturation period at clear you clear it so that’s one way and another way you can make money from flipping properties you need to know how to flip so flipping involves buying to sell in either a short amount of time with a very long amount of time and you can flip properties here in Nigeria but one thing that you have to be very concerned about is the location because so many people they go and buy a dead-end property they go and buy a property that is not developed on time and also another thing that you need to be concerned about him flipping property is is that property title does it have a good title on the property because I I can’t even imagine the amount of times that people come and tell me that they buy a property and the property doesn’t have the proper good title then when they want to steal nobody’s going to buy a land for me that is not have the governor’s house from you or a land that is not have the governor’s consent consent does not properly documented documented that that has a court order on the land or just buy a property that is in a very very bad location To be mindful of days if you want to flip property so that it doesn’t turn into a busted Investments because it can actually go or we know so that’s for flipping property so many people do it so many people do it and leave it for years 5 years somebody properties that especially in places like I bet you lucky peak properties that were two million from 510 years ago they are going for anywhere above 15 million right now to see the power of that you know and places like a burden that are selling between 2 million 1 million to 5 million 10 years from now it will be the same story so we can actually gain a lot from just flipping properties Debbie also have development and development is what a lot of people have been reaching out to me recently about so you get the property Gail and or you get a house that is probably uncompleted are you refurbished one and you add the finishing the furnishing they’ll put it back on the market and then you get the markup on whatever it costs for you and the margin is your profit