OMO ONILE AND 7 OTHER BOTTLENECKS IN REAL ESTATE INVESTMENT IN NIGERIA
(Over 20 years investing experience in Nigeria’s financial markets)
Investing in real estate is a good strategy for people who want to create a passive income and an enduring wealth for themselves and their loved ones. The last time we met I wrote on the benefits of investing in real estate, this week we shall be looking at the risks and problems associated with real estate investment in Nigeria.
The following are some of the problems facing real estate investors In Nigeria.
1. FINANCE: The major problem that will be encountered by real estate investors is the availability of funds. Real estate investment is a capital intensive venture and most of the funds available for investors are short term, while investment in real estate is a long term project giving rise to what can be termed fund mismatch. Finance is one of the reasons why we have numerous abandoned real estate projects all over the country.
2. LAND POLICIES: Some of our land policies and laws do not favour real estate investment, these policies and laws include the land use act, right to compulsorily acquire an investor’s property by government for overriding public benefits, revocation of certificate of occupancy, Governor’s consent etc. Government officials and politicians have used some of the provisions of these policies and laws to short-change real estate investors. A governor in the opposition camp lost his property in Abuja due these policies.
3. DIFFICULTIES IN OBTAINING TITLE: Obtaining a title to a property in Nigeria is a cumbersome exercise; about 90% of the properties in Nigeria do not have valid titles due to the difficulties in obtaining title documents for their real estate investments. Obtaining a title to property does not mean ownership of the property because government owns the land, the title only gives right to occupy the land for a period of time and the right can be revoked by government. Properties without valid titles cannot be used to obtain loans from financial institutions.
4. MANPOWER: Another problem faced by real estate investors is the lack of competent and trustworthy builders, workers and artisans that can be used by investors and the few good ones are very expensive to hire.
5. TAXATION: Real estate investors are subjected to multiple taxations, the taxes and levies paid by them include development levy, income tax, building plan approval levy, property tax, land use tax, and we also have cases whereby real estate investors are expected to pay renovation tax whenever they want to renovate their properties. A real estate company quoted on the stock-exchange paid close to N500 million for development levy and building plan approval levy for a luxury apartment project, which is yet to be fully occupied and the rental income from the property is falling.
6. LIQUIDITY: One the factors that motivates investors is the ease of converting their investments to cash whenever the need arises. It takes months or years to convert a real estate investment to cash, I have a waterfront property at Ikorodu Lagos which I put up for sale since September 2013 and is yet to be sold.
7. ECONOMIC SITUATIONS: The economic situations in Nigeria which has led to job losses, business closures etc have made some good tenants to owe rents for months or years. We have cases whereby properties in the high-end market are vacant for many years even after reducing the rents and tenants are moving out to areas where the rents are affordable thereby preventing real estate investors from deriving good returns from their investments.
8. OMO-ONILE: The menace of Omo-onile is rampant in South West Nigeria, most especially in Lagos and Ogun states. They are a pain in the necks of real estate investors, their activities lead to an increase in labour cost, cost of building materials and finally in the cost of completing a building project. They demand levy for the foundation of a building, fencing of a land, erection of gate, lintel stage, roofing stage, plastering stage, they levy the builders and artisans, levies are also charged for every building material transported to site. All these are enough reasons to frustrate anybody who wants to invest in real estate.
For the benefits of those of us who do not know who an Omo-onile is, Omo-oniles are the original landowners and their children, most of them do not invest the proceeds from the sale of their ancestral land, rather they will use the money to marry more wives and produce more children who later become area boys.
Omo-onile are lazy, lack education and marketable skills, in order to survive they need to introduce ridiculous levies and charges.
I am surprised you did not mention fraudulent real estate agents and land speculators, that can collect money from multiple accommodation seekers for non-existent apartment or those that use fake land documents to defraud land buyers