How to make Real Estate Investments in Nigeria
When we discuss real estate investments in Nigeria, we must understand and accept the uniqueness of our country’s circumstances.
If you don’t recognize, comprehend, or value our uniqueness and attempt to compare real estate investing in Nigeria to that practiced in other regions, you may encounter difficulties.
This is an example of an email I get: it’s from a private equity group in Toronto, Canada, asking for a contractor partner in Abuja for a $40 million fully funded real estate project.
Nigeria makes sense as a real estate investment location since there is a hungry, ready market there that you can tap into!
It is a nation of more than 200 million people, is estimated to have a housing shortage of between 17 and 21 million.
The country is also a top investment location with a ready market for a variety of assets including IT, financial services, and real estate due to its rapidly growing population.
Because a lot may go wrong quickly, this post will teach you how to make a lot of money from real estate investing in Nigeria, or, conversely, how you can save a lot of money from your real estate investment agreements.
Also Read: What makes a room a “Master’s Bedroom”
The most significant considerations for Real Estate Investment in Nigeria
We must continually modify literature to reflect our local reality in the real estate market, just as in other industries in Nigeria. The following are key details regarding real estate investing in Nigeria:
1. Study Nigeria’s Successful Real Estate Companies and Developers
It goes without saying that you must look at some prosperous real estate firms and developers in Nigeria if you want to learn how to create profitable real estate investments in Nigeria.
You must research how real estate investors in Nigeria have made and maintained long-term profits. They have somehow overcome all of the obstacles to not just survive, but also to flourish.
These businesses’ and developers’ likes include;
You should absolutely pay attention to what they are doing if you want to invest in real estate or begin a real estate business here in Nigeria.
2.) Select the ideal real estate investment plan
There are, generally speaking, four (4) main real estate investing strategies:
One of the most established, secure, and reliable sources of revenue from real estate is rentals.
In rentals, you purchase a home with the intention of renting it out on a monthly or yearly basis. There are several benefits to it, including consistent cash flow, asset growth, the ability to use the property as security for loans, and the possibility of profitably selling it later.
The drawback is that you can face prolonged periods of non-subscription of your flat, exactly like in several Lekki Phase 1 and Banana island complexes.
A 3-bedroom apartment there with a property value 25 million is rented out by a business called First World Communities for NGN1.2 million annually.
Dangote has a lease in place for more than 50 apartments, and if you purchase these properties as an investment for rental use, you may earn a guaranteed monthly income of NGN 800,000.
Since Kubwa Abuja is a low- and middle-income neighborhood, buying bulk land there and selling it at a discount is possible.
ii.) Land and house flipping
You buy a property with the intention of quickly selling it for a profit; this practice is known as land/property banking.
A business that successfully employs this tactic is Gracias Global in Lagos. They have prime properties all across Lagos in Sangotedo, Eleko, and Ibadan, some of which are in ideal areas like Eleko Junction.
Off the Lekki-Epe Expressway in Lagos, they have the Grace Morganite and Peridot Heights.
The main real estate investment strategy of Gracias is purchasing and reselling property while building an infrastructure for residential and commercial development.
They really purchase this property from Omonile for a low price by engaging in “sponsorship deals,” which allows them to realize returns of up to over 100%.
Landwey Investment Limited, a Lagos-based firm, is another one that employs similar flipping approach.
The rumor stated that Landwey paid a total of NGN3 billion for the Westwood Estate on Sangotedo, Lagos’ Monastery Road.
The second real estate investment method we’ll discuss is property development, which is now Landwey’s primary focus.
Development of real estate
Land is purchased, different home types are built, infrastructure is built, and then the property is developed. Then, it is sold to a buyer either at carcass level (the lintel), fully finished with fittings, plumbing, and other amenities, or fully finished and furnished.
With their flagship completely furnished and finished property in Wuye costing NGN 500 million, firms like Cosgrove in Abuja believe this to be the most successful tactic.
A firm like Landwey began by flipping properties, but after they began building their first housing complex in Abraham Adesanaya, the Urban Prime Estates, each unit allegedly cost between $14 and $18 million and went for as high as NGN $40 million and more per unit.
Since the Urban Prime Estates’ success, Landwey has never looked back and has focused heavily on real estate development over the past five years.
They presently reside in a 100m, 5-bedroom villa in Eko Ekete, Abijo. How bizarre? Its off-plan (as in, unbuilt) status is the most astounding reality.
But to position for success, property development needs a lot of finance.
For instance, Gracias Global, which was established years before Landwey, hasn’t had as much success with development as Landwey, despite having tried their hand at several projects like the Goldstone and Peridot Heights, both of which are located in Sangotedo.
They appear to have recognized their competitive edge and have continued to flip houses, exclusively selling land in prestigious districts of Lagos and Ibadan.
Real Estate Investment Trusts (REITS) are a different real estate investment method that is less commonly discussed.
A REIT, in the simplest terms, is a trust that pools funds from individual investors and buys, manages, and/or runs income-producing real estate.
REITS occur in a variety of forms, including Equity REITS and Mortgage REITS, both of which are listed on the Nigerian Stock Exchange and provide dividends to subscribers for their subscribers’ participation.
Like stocks, REITs can be bought or sold through stockbrokers on the Nigerian Stock Exchange (NGX).
Only 3 registered REITS are now acknowledged by the Securities and Exchange Commission, notably Union Homes, Skye Shelters, and UPDC, a division of UACN.
Nigeria had a market valuation of NGN32–72 billion for REITS by 2019, but South Africa had a market cap of over $31.42 billion for 31 REITS as of that year.
To put things into an even clearer perspective, the aggregate market capitalization of the three REITs in Nigeria is US$131 million, but the combined market capitalization of REITs in the US is around US$898.41 billion.
It has been exceedingly difficult to establish REITS in Nigeria, and even a significant REIT, UPDC, a UACN subsidiary, made a loss in 2017.
You can see from the foregoing that either technique you select is;
Rentals, home and land flipping, property development, and REITs are a few examples.
Because it isn’t a stroll in the park, you must set yourself up for success.
3.) Recognize the government’s role:
In Nigeria, the role of the government is highly significant.
A straightforward statement was all it needed for investments and livelihoods to be crushed when motorcycle ride-hailing joined the market. Millions of dollars have been raised by businesses from investors, and it only took one day.
The Land Use Act gives the governor the authority to have unfettered access to all of the state’s land, which further emphasizes the role that government plays in this sector. In order for a property transaction to be enforceable, the governor must first authorize it.
You’ll get into difficulty if you don’t comprehend this or how the government participates in rectification, ratification, title grants, and transaction approval.
It should come as no surprise that prominent figures like Wale of Landwey, Sujibomi of Sujimoto, and Cosgrove’s CEO are frequently shown with the governor and other senior government officials.
Depending on how far you want to go, you may want to make friends with the government, government agencies, and land bureau officials.
4.) Recognize property rights and laws
You should be aware that only properly titled properties that are registered at the state’s registry are eligible for legally binding property transactions, as a result of the aforementioned.
The C of O is a key title that you should never overlook. A 99-year lease on a plot of land is officially acknowledged by the certificate of occupancy.
You should be aware of the following land titles:
i.) Governor’s permission: Because it lends legitimacy to land, a governor’s consent might be viewed as a title. It is, as the name suggests, a properly executed and stamped deed of assignment by the state governor.
This demonstrates the transfer of a piece of property with a C of O title to a new owner who was officially acknowledged and supported by the state and the governor’s authority.
Additional titles to take note of are:
ii.) Excision: Excision is the procedure by which the government carves off sections in locations it determines to be urban areas and formally releases and acknowledges the ancestors as the rightful proprietors of that portion.
iii) Gazette: This omitted passage is afterward included in the official journal of the government, known as the gazette. This is an official land title.
Please note that a registered survey is not a title. A “freehold” title is not a title at all. However, the processing of a C of O and the finalizing of the title are both free from government acquisition and are only achievable with a freehold and registered survey.
According to the land code, you do not have an enforceable legal claim to property until it is registered, the survey is not filed with the Land Bureau, and it has not received the governor’s proper approval (through a C of O or allocation).
5.) Select the Ideal Location – Location is Everything
According to a proverb, real estate is all about location, location, location!
Here in Nigeria, this truth is no different.
The site would be the most crucial choice, no matter which technique you go with.
6.) Tips For Choosing The Best Location For Your Real Estate Investment
A desirable house in a good neighborhood sells itself.
7.) Real estate development in strategic locations
A corporation like Cosgrove is located in prime areas of Abuja, such as Guzape, Wuye, Katampe, Mabushi, and Maitama.
Prime sites have the added benefit of making your home sell itself. Major desirable areas in Abuja Cosgrove include Maitama, Katampe phases 1 and 2, which are adjacent to the airport and face a major road, and Mabushi, which is the city center.
But the pricey nature of desirable sites is a drawback. very pricey.
What happens then if your budget does not allow for a premium location? After then, think about the locations whose boundaries these key areas share.
From Ikoyi-Lekki-Ajah-VGC-Chevron-Sangotedo-Abraham Adesanya-Abijo all the way to Ibeju Lekki, the value of real estate and location have increased linearly in Lagos.
8.) Rental properties in desirable areas
Lagos is such a diverse city that it draws tourists, business travelers, expats, and those on official business. There is a 2 million+ unit housing shortage, and it is continually expanding.
The majority of individuals do not want to remain in hotels or long-term rentals, which is making it difficult for the rental business to satisfy demand. The answer then? Apartments with services!
In order to do this, several developers are setting up their real estate projects to capitalize on the short-term rental market.
Since Lekki has the most demand, you may find businesses like Veritasi, Tribitat Real Estate, and God’s Made Homes Luxury positioned on Freedom Way Lekki, where you can obtain a three-bedroom apartment with complete services for an initial deposit of between 2 million and 10 million nairas.
The majority of the time, however, it takes years before a prime region actually becomes prime.
For instance, Cosgrove entered Wuye to find abandoned land that other real estate firms and developers had fled. However, they managed to turn it around thanks to a technical miracle.
By identifying favorable places that would flourish in a few years, you might make a lot of money and significantly reduce your initial investment.
If you buy today at a low price, you may sell, rent, or place your property on the short-term rental market and make the most money possible.
You should be aware of the following other crucial details about your real estate investment:
9.) Keep up with topics of governmental relevance
When conducting an inquiry, the phrase “follow the money” is frequently used. “Follow the money” is a term made famous by the 1976 docudrama film All the President’s Men, which claims that uncovering political corruption may be done by looking into money transactions between parties.
It follows that you must carefully consider the government’s policy direction and area of interest before engaging in the real estate business or investing in Nigerian real estate.
It designated some parts of the state as those in which the government had a special interest and infrastructure plans to spur growth outside of Port Harcourt, the state’s capital, to other local governments in Rivers State.
Due to the fact that the government had a blueprint for every square meter with specific uses in mind—commercial, residential, roads, hospitals, etc.—the value of land increased in these local governments, and there was more paperwork to complete in order to acquire and perfect your title there.
The lack of government involvement in areas like Badagry, Festac, Agege, and Ikorodu in Lagos has a negative impact on investment and perceived property value. As a result, these areas are not the most desirable locations to live.
10.) Benefit from urban areas
As a result of the aforementioned, Lagos State has designated Ibeju Lekki as an urban area, which implies it is subject to a global acquisition, meaning the government has plans to build significant infrastructure there.
The government “commits” a significant amount of this property for use now or in the future, according to the Property Use Act. The free sections are transferred to the ancestral land owners for use in whatever they see fit through a process of regularization, ratification, or excision of the residual portion.
This has transformed Ibeju Lekki, a hitherto isolated site, into a residential and commercial center and an eldorado for investments totaling billions, including the Dangote Refinery, Alaro City, and Free Zones, among others.
Also Read: Whats a Short Sale in Real Estate?
11.) Make the most of GRAs
Government Reserved Areas, or GRA, are a term used in Nigeria to denote wealth and a higher level of living. Originally designed to house white colonial officials, these privileged neighborhoods.
But once the country gained its independence, Nigerians started to fill prominent administrative positions that had previously been reserved only for the white lords, even those in their upscale and exclusive GRA mansion.
Today’s GRAs are often well-maintained neighborhoods with a decent road network, well-maintained estates, and occasionally the state’s government residence. Politicians, celebrities, and influential individuals from around the nation are also frequently found in these neighborhoods.
Lagos has three GRAs: the Ikeja GRA, the Ogudu GRA, and the lone GRA on the island, the Abijo GRA.
As these neighborhoods are exclusive, the prices are high, and there is always demand for them, investing in a GRA is a fantastic real estate investment given that whichever approach you choose—rentals, development, or flipping—yields big profits!
12.) Make use of beachfront properties
The Atlantic Ocean and a lagoon surround Lagos, Nigeria. Take advantage of this prime real estate for your beachfront with its stunning shoreline and hectares of coastal property.
Both the Atlantic Ocean and a lagoon may be found on the Victoria island of Sangotedo. There are several beach vistas in locations including Banana Island, Osapa London, and Pinnock Beach estate.
13.) Make use of planned infrastructure development locations
By Nigerian standards, Lagos is making an effort. Infrastructure projects, construction, and developments are factors that favorably enhance the value of real estate. in different phases of completion, with infrastructure projects, such as:
1.) The Red Line Rails: A 37-kilometer rail line that connects Agbado and Marina.
2.) The 27.5-kilometer-long Blue line Rails, which connects Marina with Okokomaiko.
3.) The Green Line Rail, an 18-kilometer rail line that connects the Dangote Refinery and Lekki Free Trade Zone as well as terminating at the site of the proposed Lekki International Airport, travels from Lagos Island to the Lekki Peninsula.
4.) The 18.75-kilometer Lekki Epe Expressway Project, which runs from Epe T Junction to Eleko Junction. From the Eleko Junction in Ibeju Lekki to the Epe T Junction, it is a six-lane rigid pavement highway.
5.) The construction of a 26.7-kilometer Lekki Epe Expressway along the Eti-Osa axis from Eleko Junction to Abraham Adesanya Junction. The well-known fourth mainland bridge’s predecessor is this building.
6.) Building a network of roadways spanning 3.75 km along Thompson Avenue, Milverton Road, McDonald Road, and Lateef Jakande Road.
The bridge between Ojota and Opebi.
8.) Using traffic light signal (TSL) technology, six important intersections at Lekki phases 1 and 2, Ajah, Maryland, Ikotun, and Allen Avenue were enhanced.
9.) The 10 km long Lekki Regional Road network, connects the Victoria Garden City Scheme 1 neighborhood to the Lekki Freedom Way neighborhood.
10.) The Agege/Pen Cinema flyover bridge, which is 1.4 kilometers long.
14.) Use free zones to your advantage
Free Trade Zones
Free zones are unique economic zones in which federal, state, and municipal governments exercise little to no control. Since the private sector dominates, many of the administrative hurdles that hinder international and domestic trade as well as local trade are avoided.
Because of this, free zones
attract a lot of attention from both foreign and domestic investors and generate a lot of FDI.
Such free zones exist in Nigeria and include;
LFZDC’s (Lekki Free Zone Development Company) “Free Trade Zone”
The Dangote Refinery
Benefits of the businesses situated in these special economic zones, also known as Free Zone Enterprises (FZEs), include some of the following:
On dividends, there is no withholding tax.
Income from free zones is exempt from corporate income tax.
No VAT is applied to purchases made inside the free zone.
Absence of customs fees for imports
Dedollarization and foreign exchange regulations are exempt.
No strikes, prolonged storage of cargo in ports.
To the south of the city, where it is now under development, is the largest deep-sea port in West Africa. A bridge connects Alarocity to other free zones, including the Dangote Refinery and The Freezone by LFZDC.
There are already 300 private companies registered as free zone firms in the several free zones in Lagos, including Eko Atlantic, Alaro City, and they are all eligible to get the great advantages.
15.) Get involved with megacity developments early
With hundreds of new real estate developments opening up every two months, Lagos is humming. However, certain of these initiatives frequently stand out.
These real estate developments virtually never go unannounced, so perhaps it has more to do with magnitude, ambition, the services and facilities to be offered, and the planning.
Similar to Banana Island, these communities begin relatively tiny and grow into wealthy, exclusive neighborhoods over time, paying huge returns to investors. In various phases of completion, some of these massive projects are:
Landwey’s Isimi Lagos
Golf and Country/Estate Lakowe Lakes by Mixta
Southhen Energy X’s Eko Atlantic by FWC Aurora Campo
These are guaranteed real estate investments that would yield big rewards, and no matter when you enter, you are guaranteed your returns, depending on how early you can detect these projects.
16. How to Fund Nigerian Real Estate Investments
How do you fund these projects knowing the above-mentioned real estate investments? You can use a variety of techniques, such as:
You may simply fund real estate projects in this area of the world from savings and earnings depending on your budget and the scale – there is something for every budget and every size!
18.) Use payment arrangements
There are several payment options you may use even if you can’t instantly fork out millions of dollars out of your own pocket.
You may spread out the remaining payments after making the required down payment, which is often a small portion of the total price, over a minimum of one month and a maximum of two to four years.
The majority of the time, they have a little amount of interest added after the third month, but some are even interest-free for up to 4 years! similar to Landwey’s construction at Oworonshoki.
18.) Credit Cards
Maybe not so popular with the general public, but many real estate developers and businesses use this tactic. OPM (other people’s money) is the key, and using it to fund real estate developments is everything.
Despite the fact that banks in this region of the world are often reluctant to lend money to individuals and businesses, they are happy to open their checkbooks for real estate projects and developments. Even after extracting profits, most businesses still function well, regardless of the interest rate.
20.) The cooperative sector
This is particularly common in Lagos, where a variety of people, businesses, and organizations join together to fund construction projects for real estate.
The conditions of payment are flexible, and by working together they may buy property in large quantities, begin construction simultaneously, and protect the land rather than acting alone among so many wolves!
The Chevron cooperative is a well-known cooperative in Lagos. Their real estate portfolio includes a number of properties, including the Nicon Town Estate, a few estates in the Abijo GRA, and the property next to the Fairfield Apartments Abijo.
21) Sponsorship agreements
In order to earn money for themselves, ancestral landowners (also known as omo ni ‘ile) owning large tracts of land may collaborate with developers and sponsors to develop and sell their property.
This approach is referred to as sponsorship.
In exchange, they give you plots as payment proportionates to the amount of land you work on.
This is how large businesses in Ibeju Lekki and Epe like Landwey, Pwan, Veritasi, Revolution Plus, and others acquire large tracts of property.
Creating joint ventures is another method of financing real estate ventures and investments.
In this scenario, you own a piece of property, and a real estate developer, business, or individual offers to develop it for you while dividing the earnings equally between the two of you, as opposed to purchasing the land outright from you and keeping 100% of the profits.
The catch here is that it requires less capital from both parties because neither the developers nor the landowner needs to purchase the property, which frees up more funds for development.
The landowner also doesn’t need to do anything to develop his own property but instead reaps the enormous benefits of doing so rather than leaving it fallow.