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Investing in Nigerian Properties: Scam, Sham or Gold Mine?

By Diaspora Investment Advisory Team
Updated August 14, 2022

If you’re in the U.S or U.K and want to invest in Nigerian properties, now is the most profitable time.

24.4 million of 216.5 million Nigerians are homeless. 80% live in homes that are in a terrible state. Housing deficit in Nigeria is presently at 28 million. There is a rising need in the sector because of the housing deficit. 

This is a gold mine for investors.

There’s more…

70% of property investments in Nigeria come from Nigerians abroad. The housing market has grown in the last 3 years. According to the NBS, real estate services GDP increased by 10.84% in the first quarter of 2022. Home-based Nigerians make up merely 30% of these services. 

In this guide, I will share 4 reasons you should invest in Nigeria’s real estate. I will cover Nigeria’s real estate tax and rate leverage, ease of control when renting or selling and the favorable  cost price. Value and steady flow of active and passive income. 

You will likewise learn about the risks you might face and what you should do to avoid them.

1. Tax Advantage

Property tax policies in Nigeria are better contrary to countries such as the United states. No state in Nigeria takes annual taxes on real estate, though just as in the United states policies differ from state to state. 

It's this simple.

You will make payment of required taxes on properties during registration of the property at the state’s deed registry. Oyo and Lagos states, for instance, collect Land use charges yearly on plots in GRAs. Yet, the fees aren’t outrageous as the property tax in the United States or United Kingdom. 

Compared to  the United States, Nigeria’s real estate tax rate makes it a fertile investment terrain. 

For instance…

The property tax rate in California sits at 0.73% but in Lagos state, the highest land use charge rate in GRAs is 0.039%. But, no state in Nigeria charges land use charges for free-hold lands.

So,  investing in Nigeria’s real estate market has abundant benefits for you.

Real Estate Investment firms in Nigeria are no longer required to pay CIT (tax imposed on profits of a company from all sources)  on rental income and dividend as long as the company distributes at least 75% of such income within 12 months.

2 . Time and Financial Control

Real estate investment in Nigeria will give you control on time.

This is how…

You get to keep your property for as long as you want. Unlike the stock market where you want to sell so you don’t run at a loss, real estate investments do not depreciate. 

The more you keep it, the more the value appreciates. 

Likewise…

You get to control the price. Interestingly, market price does not mean fixed price. So, you can sell or rent out your property at your desired price.

3. Value for your budget

You will always get a property that fits your budget either in the rural or the urban areas. And your budget’s size will not reduce the value of your real estate. 

4. Active and Passive Income

Whatever amount you invest, as long as demand for real estate is increasing, the value of your investment increases too. You will always sell higher than the price you bought your property.

5. Nigeria's Housing Market is Profitable

The rise in housing deficit has caused a boost in the market. You can make real estate your main business while abroad. A lot of  CEOs are abroad whose real estate firms are in Nigeria. These businesses are doing well and making profit with a solid arrangement. 

There's more…

You can also be sure that you will get good passive income even with your busy schedule abroad. All you need to do is to have a trusted hand. And, I will recommend that you make that trusted hand your real estate lawyer.

Risks of investing in Nigeria 

The 'Ọmọ Onile' fiasco

These are land grabbers in the South West of Nigeria. They are sometimes stronger than the state. After buying a property, they exploit buyers for money. They even seize properties from buyers, claiming their family owns the land. Lack of proper research on the history of the property gives them a room to attack the buyer.

Get a real estate lawyer to avoid this problem. The history of the property will be confirmed by your lawyer. They will also verify documents before you buy.

Know your location

Location controls the rise in value of your property. It might be cheap, you need to perform a market survey of the area to answer questions like; 

Is the area a growing one? 

Is it the location for the middle class or the rich?

For example:

You can't build a luxury duplex in Epe, Lagos state and expect to sell at the same price you will sell the luxury duplex in Banana Island, Lagos state. Epe is a freshly developing location with cheap properties, while Banana Island is a location only for the wealthy and prominent in Nigeria.

You must work with your real estate lawyer to ensure that the location is ideal for your investment and your desired returns. 

Documentation issues

Fake or partial documents can cost you your investment. 

This puts your claim in doubt. 

You can be scammed with wrong documents. It is a key process in buying property in Nigeria. 

You must verify documents from the seller to be original and complete before the purchase of any property.

In addition…

You have to know the documents you need to process to register your ownership. 

Some of these documents are C of O, Deed of Sub-lease, Deed of Assignment, Building approvals.

Delayed  liquidity 

This risk comes with the fact that selling real estate as quickly as stocks is not a sure thing. The time of selling might not allow you to meet your urgent needs.

 However, you can use your property to get a quick loan to raise money for your emergency. 

This is another reason for you to have good documents for your property. Banks will insist on genuine documents before processing any loan. 

Proper documents will add to the value of your property, which will influence the amount of loan you can get. So, your property might take long to sell, you can always keep it and still get a loan with it.

REITs are Dicey

REITs are not for you if you know nothing about the stock market. The Real Estate Investment Trusts work exactly as the stock market. 

Just like stocks, 

REITs will expose your investment to market risks and liquidity risks, among others.

You are going to trade in major stock markets that are prone to price fluctuations in money markets. As a result, you might get a lower payment than what they paid for their shares in the public exchange.

The investments in public REITs are not as liquid as stocks and bonds, though investors are allowed to sell on the public exchange market. The fund’s buy-back offers alone can  liquify. And, there is no secondary market for sale of properties.

You won’t have control over the returns of your investment, and often you can’t even sell your shares until after a few years. The best you can do is trade through a stockbroker. 

Still, your broker also doesn’t have control over how well the market does. So, delving into it without excellent knowledge is a risk you don’t need.

That's it.

Nigeria’s real estate industry has benefits for all, home and abroad. You don't have to be in Nigeria to invest in her property market. You will get the same returns and control as a home-based investor. 

Hire a real estate lawyer who will stand-in for you. Tell them clearly what you want. Don’t take documentation lightly. 

Also, avoid all the risks I have shown you in this article with the precautions. Take this article as your guide to property investment in Nigeria. 

What prevents you from investing in Nigerian properties? Share with us in the comment below.

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