Factors Affecting Real Estate Investment in Nigeria

Nigeria’s real estate market is constantly increasing. Many people are seeking ways to get into the real estate industry and invest money in it because of the value and profit it promises over time.

According to the National Bureau of Statistics’ GDP Report for Q1 2021, Nigeria’s real estate market expanded by 1.77%, adding 5.28% to the nation’s real GDP during the period under consideration (around USD5.3 billion).

Even with these statistics, there are visible factors affecting real estate investment. There are people interested in investing in Nigeria’s real estate but skeptical because of several factors affecting it. These factors include but are not limited to the following:

Loss of value for the Naira

The recent currency depreciation is one of the most significant concerns influencing the Nigerian real estate market. Naira is continually being devalued while the dollar is increasing, and this increase does not seem to stop.

It is because the building sector in Nigeria is highly dependent on importing construction-related supplies from abroad. The price of these raw materials and equipment is undoubtedly rising with a devalued naira which has dramatically affected Nigeria’s real estate investment.

Property developers try to pass on these extra expenditures incurred to the market to maintain profitability due to the high business costs. According to industry analysts, housing expenses were predicted to grow by 25% to 35%.

If building supplies were produced locally, the construction cost would be reduced, making homes more accessible to the typical Nigerian and the impact of the naira depreciation much more manageable.

Lack of skilled contractors and builders

In Nigeria, there is a severe lack of qualified and experienced contractors. This is another problem influencing the real estate market in Nigeria. The majority of Nigerian builders and contractors are people that prioritize money and the initial mobilization fee above hiring the best team of experts to complete the job.

The Economy

The state of Nigeria” s economy is of the highest significance here. Investors will come if the economy is strong. The outcome will be a rapid expansion of the real estate market.

People will be able to invest in the real estate market if Nigeria has a strong GDP, stable employment, sound finances, and high purchasing power. But, sadly, this is not the case.

Investors will not invest their money in real estate ventures in a down economy like Nigeria, no matter how well real estate agents try to sell to them. In other words, Nigeria will experience a booming real estate market if we have a strong and stable economy. When this happens, hiring decisions are made based more on availability than competency or possessing the proper capabilities.

Market confidence

“Trust takes years to build, seconds to break, and forever to repair.” This adage also applies to the housing market. A nation’s reputation is of the most considerable significance in the international economy. When builders and developers are honest about their work and exhibit transparency and confidence, people will invest in the firm immediately.

Individuals constantly debate between saving and investing their money. People would choose to save alternatives or even stock investments instead of investing in Nigeria’s real estate if there were property fraud, subpar developments, or poor customer service.

This makes it necessary for real estate agents to keep their brands’ reputations in good standing with clients, especially international real estate investors.

Liquidity

The simplicity of turning their assets into cash whenever necessary is one of the things that inspire investors. Investors may find it challenging to locate statistics that include basic information such as deal pricing, supply, leasing activity, and property ownership, which is unusual for most other markets. Turning a real estate investment into cash in Nigeria might take months or even years. This has been a significant drawback for most people intending to invest in Nigeria’s real estate.

Rates of Interest for Loans and Real Estate

People dislike paying high property taxes and interest rates for all the right reasons. They aim to reduce the cost as it is an expense for them. Interest rates significantly influence the development and expansion of the real estate sector. People won’t invest as readily if the government imposes excessive property taxes.

Due to the hefty taxes, they will not purchase real estate but research other small business opportunities in Nigeria. Most people refer to investing in startups or Fintechs for this reason. However, property sales would inevitably soar if the government gave tax advantages to property owners. Similarly, individuals will obtain loans and invest in real estate if Nigerian banks offer loans with favorable terms and circumstances.

High development costs for properties

In Nigeria, it is quite costly to build a house. According to Finance Minister Ngozi Okonjo-Iweala, a three-bedroom house will cost roughly US $50,000 instead of US $36,000 in South Africa and $26,000 in India.

Three factors contribute to the high cost of construction:

• High prices for building supplies
• Increased rates for trained labor
• Expenses related to inadequate roads and sewage systems

Concrete construction in Nigeria’s metropolitan regions makes up around 75% of all structures. Compared to neighboring nations and the global market, Nigerian cement costs are around 30–40% higher. The development’s overall expenditures might increase by as much as 30% due to a lack of public infrastructure.

People even struggle to develop properties because of the high cost of things. Some people interested in investing cannot do it because some properties are not well-built.

Taxation

Real estate investors are subject to many taxes and levies. It includes the development levy, income tax, construction plan approval levy, property tax, land use tax, and some circumstances. This renovation tax must be paid anytime real estate investors seek to rehabilitate their buildings. Paying these taxes has made people skeptical about Nigeria’s real estate investment.

Final thoughts

Real estate investment is highly profitable. But, the factors affecting it have made many people that would typically be interested in investing think of alternative ways of investing their money. The government and real estate industry needs to do better.