1.1 BACKGROUND TO THE STUDY
The property market is a major receptacle of foreign direct investment and the extent of its development determines the extent to which it can contribute and buoy a nation’s economy. The Nigerian property market with its potential, like similar markets in several emerging economies in Africa, has not benefitted from internationalized property investment and remains poorly researched (Babawale, 2008).
With surging rents, significant housing deficits, and over-regulation, the Nigerian property market is a matrix of opportunity and unique challenges, which only optimistic investors would be able to successfully convert into viable, long-term profits.
Having already attained titles of being Africa’s largest economy and most populous nation (with over 178 million people), Nigeria seems bound to also top the list for Africa’s most expensive location for residential and property and office. With two of its major cities, Abuja and Lagos, following closely behind Angola (with average monthly rental charges of $150 per square metre of prime office space and annual rental charges of $25,000 per four-bedroom house), it should come as no surprise that there is growing interest in the lucrative prospects of up to $400 billion in real estate opportunities (JLL, 2010).
The fast rate of population growth coupled with the significantly slower supply rate of housing in Nigeria has led to a startling housing deficit of 17 million units. This inevitably led to sharp increases in rent prices, with the average executive 4-bedroom house in Abuja being rented for a monthly price of $8,500 and the average executive 4-bedroom house in Lagos, being rented for $8,000 per month.
Whilst opportunities are present in the market, there are also an abundance of obstacles, which may deter progress for investors in the Nigerian property market. Rental yields can reach 10% and above but rising costs of building materials, as a result of the relatively higher cement prices, threaten longevity of such benefits as the average cost of building a home in Nigeria (approximately $50,000) increases year on year. The significant infrastructure deficit of the nation has also contributed to the rising costs (JLL, 2010).
It has been said that the rising costs of houses is not only attributable to the cost of factors of production but also to the regulatory costs of building a home in Nigeria which can be as much as 20% of the total costs of building the house. Property registration is a significant factor that contributes to the costs due to the fact that 65%-70% of land in Nigeria is held under customary title, which can require court proceedings to appropriate the rightful holder of the title to plots of lands. Complications like this have made the registration process both longer in duration and more expensive than is necessary at 20.8% of the value of a Nigerian home.
As well as having attractive rent prices for landlords and similar investors, the Nigerian property market also provides attractive returns on investment that cannot be ignored by investors seeking to purchase property in the nation where an investment in real estate can bring returns of 30-35%. The high-end Lagos market, for example, illustrates the potential for profitable investments with properties selling for $1.37 million (JLL, 2010).
Whilst such numbers evoke hope in the Nigerian property market, it must be remembered that there is a need for affordable housing. Although the middle class of Nigeria is rising, there are still over 87 million Nigerians living on less than a dollar a day. This fact presents both challenges and opportunities as it is clear that in the long-term there is a housing market that will grow robustly but it must be attended to using methods that will would avoid the paradigm of the majority of the population being priced out of the market.
What may be a more alarming realization for some is that only 5% of the housing units in Nigeria were financed with a mortgage, with the majority of Nigerians relying on their private savings to purchase or build homes as a result of several factors, with the most important being the lack of affordable financing. This presents not only a negative effect on the demand for housing in Nigeria but also challenges to property developers who may have hopes to raise finance for their investments. There are, however, ways of overcoming such challenges as we can see from the actions of notable property developers in Nigeria who utilize cost-saving methods such as building on demand (selling all housing units before building them) (Aluko & Amidu, 2005).
Doing business in Africa is rarely easy. What may be daunting about the business challenges of Africa are not that they are impossible to overcome but rather that they are more distinct and seemingly greater than the challenges presented in other regions of the developing world. This should not overshadow the golden opportunities and rewards that the tenacious and persistent would perhaps gain. Difficulty is merely opportunity in disguise
1.2 STATEMENT OF THE PROBLEM
The Nigerian property market in spite of its size and robustness appears not to have elicited commensurate attention from international investors. It has only recently managed to receive no more than a glimpse of industry based reviews and perhaps a handful of academic research which practice is even rarely sustained. It would appear that it may have been considered to have a lot of challenges; yet no empirical study has been conducted to date on the Nigerian property market to reveal its state as has been done for similar property markets elsewhere. Consequently, investor perception about the market will remain hinged on myths rather than empirical evidence (Lim, et al. 2006).
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
1.4 RESEARCH QUESTIONS
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study on the Nigeria property market; prospects in the midst of challenges will cover the state of the Nigeria property market to identify the challenges therein with a view of analyzing the prospects.
LIMITATION OF STUDY
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
Aluko, B. T., & Amidu, A.-R. (2005). Globalization, Land Tenure and Land Market Transactions in Nigeria. In W. Fadare, A. Ajayi, & B. Babalola (Ed.), Globalization, Culture and the Nigerian Built Environment. II, pp. 25-30. Ile-Ife: Faculty of Environmental Design and Management
Babawale, G. K. (2008). An evaluation of factors influencing inaccuracy in residential property valuation in Lagos metropolis Nigeria. An Unpublished PhD Thesis submitted to the Department of Estate Management, University of Lagos. Lagos, Nigeria
JLL, (2010), Mapping the World of Transparency Retrieved Dec. 12, 2010, www.jones langlassell.com/transparency.
Lim, L. C., McGreal, S., & Webb, J. (2006). Perceptions of Real Estate Investment Opportunities in Central South Ameraica and Africa. Journal of Real Estate Portfolio Management, 3, 261-276.
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