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7 Major Challenges Facing the Real Estate Sector By Dennis Isong

7 Major Challenges Facing the Real Estate Sector By Dennis Isong

Nigeria, the acclaimed “Giants of Africa,” has maintained its position as the country with the most Real Estate investment on the African continent for the past two decades and counting. This achievement is largely attributed to the country’s growing population of 200 million people. However, Nigeria, like most African countries, is plagued by numerous economic and political issues, which have had a negative impact on the country’s real estate market.

Here are the seven most critical concerns confronting the Nigerian property investment sector.

#Problem 1: Expensive Residences

The ongoing rise in the price of most Nigerian homes is posing a significant challenge to the country’s real estate sector. Most Nigerian cities are overpriced, which discourages potential investors. Rivers, Lagos, and Abuja are the most affected cities, all of which are important commercial hubs.

Furthermore, the exorbitant price tag has widened the social divide between different income earners. In short, there are some areas where a middle-income earner, let alone a low-income earner, cannot afford to rent a home.

For example, in Lagos State, certain housing units are occupied by the wealthy and cannot be afforded by low-income earners. When this happens, combined with the country’s rising economic woes, people tend to flock to less expensive areas, putting a damper on hopes of a possible drop in rent costs.

#Problem 2: Capital Market Threat

The risk in the capital market has increased as a result of coronavirus. The volatility of the equity capital market in this post-pandemic period is one of the reasons for Nigeria’s low returns.

As a result, because the real estate sector is a component of this financial system, most protective investors will reconsider investing in real estate. Moreover, the raising capital for lands, fees, and construction costs will make things more difficult for estate agents.

Farther from the real estate clime, this financial problem will eventually have an impact on the Nigerian economy by limiting the flow of cash in the real estate sector, thereby affecting the country’s Gross Domestic Product.

#Problem 3: ESG

ESG is an acronym for Environmental, Social and Governance. It is a set standard that is used to evaluate the environmental and climate effects of housing units.

In Nigeria, most apartments are characterised by pollution, prevalence of waste in public areas, lack of trash bins for proper waste disposal, and more. This is not just mostly prevalent in big cities such as Lagos and Abuja but is also common in some rural communities.

Furthermore, according to the Global Housing Standard, real estate professionals should be concerned about greenhouse gas emissions. Some real estate practitioners in Nigeria disregard this standard, resulting in widespread environmental and climate change in most areas of the country.

Furthermore, statistics show that Nigeria’s ESG indexes grew by an additional 40% in 2020. This increase was primarily influenced by matrices determined by how Nigerians handled waste and how conducive their environment was. Another important factor that contributed to the exponential increase was the high proportion of healthy residents compared to the low rate of medical cases caused by environmental factors.

#Problem 4: Naira Depreciation

The rate at which the Naira is depreciating is a major source of concern for all sectors of the Nigerian economy, including real estate. The Nigerian government’s failure to subsidize the cost of building materials adds insult to injury, forcing contractors and building engineers to purchase these expensive construction equipment at exorbitant prices.

Nonetheless, housing experts have made several recommendations for the country to become self-sufficient in the manufacturing of building materials. These recommendations have yet to bear fruit, but in the meantime, Nigerian Real Estate Investors will most likely be purchasing construction materials at exorbitant prices, aided by rising naira depreciation.

#Problem 5: Increased Rural-to-Urban Migration

One of the issues confronting Nigeria’s real estate sector is the increased rate of rural-to-urban migration. The large influx of renters from rural areas to urban areas has had a significant impact on property regulation in the country. As a result of this unchecked mobility, one of the major causes of high home rent is overpopulation.

Despite the fact that rent prices in rural areas are relatively low, people flock to urban areas in search of greener pastures due to a lack of investment opportunities. As a result, most real estate managers and agents capitalize on this flow by raising house rents.

#Problem 6: Ineffective Property Protection Laws

Estate laws are generally not properly implemented in Nigeria, which has resulted in many cases where investors have been deprived of the land they legally purchased. This is common in developed areas of the country, such as Lagos, and is primarily orchestrated by a group of land thiefs known as omo-onile. These well-known property scammers have a penchant for dubbing investors with the settlement fee tag. They are also commonly found on construction sites where building projects are in progress, where they either violently or deceitfully extort.

Furthermore, despite the city’s law, which guarantees offenders 21 years in prison, omo-onile (general term for land grabbers in Lagos) continues to thrive in certain areas of Lagos State. There have been numerous cases where people’s land has been forcibly taken and buildings demolished, rendering the property protection law ineffective. This appears to be deterring a significant number of real estate investors from investing in Nigerian property.

#Problem 7: Poor Building Quality

Cases of collapsed buildings in various parts of the country indicate that the construction materials used by some contractors are subpar. In short, some of these building contractors in Nigeria lack the necessary educational credentials and professional experience.

Furthermore, this persistent problem appears to have become a source of concern for the majority of Nigerians, and if allowed to persist, it may succeed in tarnishing the image of the country’s real estate sector. As things stand, some buildings in certain industrial areas of the country do not meet construction standards, which is largely due to the incompetence of the responsible building contractors.

Conclusion

The importance of real estate in Nigeria cannot be overstated. It is a major economic driver and has generated wealth for the country. However, despite being Africa’s largest sector, it has faced a number of critical challenges over the years. Building collapses, for example, have increased the number of human casualties, instilling fear in the majority of residents. These concerns have made the country’s real estate sector’s prospects less promising and likely to drive away potential property investors if not corrected.

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