Hurdles for institutions to invest in Nigeria

Posted On Wednesday, 23 September 2009 02:00 Published by
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Institutions looking to invest in property in Nigeria face numerous hurdles, but perseverance, strict due diligence and an intimate knowledge of the idiosyncrasies of the property environment can lead to a measure of success.

Property-Housing-Residential

Real Estate Investments for Standard Bank director Rory Roriston, who spends a large proportion of his time in Africa’s most populous country, says property in Lagos is among the world’s most expensive, along with Moscow and Luanda.

“This refers specifically to property on Victoria Island — Lagos’ business centre and Ikoyi Island. Extensive land reclamation projects are undertaken from these islands to satisfy demand at high prices,” he says.

“These projects encompass large tracts of reclaimed land of hundreds of hectares.”

Land acquisition is difficult in Lagos. Most sites are small, ranging from 600m² This is particularly the case on the islands, which were previously residential enclaves.

Daily, about 3-million people make their way from the mainland to the islands. The population of the whole of Lagos is estimated at 17-million people. The infrastructure was designed to accommodate 3-million.

Roriston says investment

Demand for A-grade office space has been created by international businesses such as financial institutions, IT companies and oil businesses.

With a dire shortage of available A-grade office space, standard practice in Nigeria is for prospective tenants to fund the development of a property for their use.

“Tenants are expected to pay the full-term rental on signature of a lease agreement. Generally developments are commenced without any pre-letting or pre sale. The up-front lease cash payment is then used to complete the development of the property. Leases are generally short — between three and five years, ” Roriston says.

“Partial pre-payments or guarantees in this regard are very difficult to negotiate.”

Because of the land acquisition issues, Roriston says developers in Nigeria have become highly adept in land reclamation. “They are currently reclaiming 6-million square metres of land on the Atlantic seaboard at similar rates to buying land on Victoria Island, which is typically worth about $3000 per square metre,” he says.

To find property requires the expertise of “street runners”, who literally run around looking for property for prospective clients. “Agents will have street runners working for them, but this process is open to fraud, misunderstandings and 419 scams (buildings that third parties sell, which are not actually for sale).

“The process of finding land is complex and tough and requires strict due diligence. This is exacerbated by the fact that Nigeria only started a land registry in the 1960s and many people were reluctant to register their land,” Roriston says. “There are still properties held under traditional title that are not incorporated in the land registry.”

There are major shortages of retail space too. “In Nigeria most products can be purchased on the side of the road or at informal markets. It may seem disorganised, but there is a rationale and control behind it.”

There is only one modern shopping centre, The Palms, in Lagos. It has proved highly successful, especially with the expansion of Checkers and Game retail stores. This success has opened up the market for a more formalised retail structure and several new retail developments are on the cards, including a Standard Bank shopping mall in Kaduna, about two hours drive from the capital, Abuja, which has a population of 6-million.

“We expect to be involved in more development activity off the back of the success of The Palms and the ambitions of South African retailers in Nigeria.”

Maintenance of existing property stock is a further problem facing would-be tenants. Roriston says “There is no maintenance culture, possibly due to the up front rental payment and the triple net lease structures. Landlords do very little, if any, maintenance during the lease term. However, due to the lack of stock, tenants have no choice but to accept the situation.”

Last modified on Monday, 14 April 2014 10:02

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