As recession continues to take its toll on the Nigerian economy, the country has witnessed a massive crash in the price of stocks and shares in the stock exchange market. Indeed, the real estate sector is not exempted from this economic situation. It is common knowledge that one of the most notable hallmarks of a recession is the scarcity of funds. This is further worsened by the fluctuation in the value of the Naira against the Dollar/Pounds. This fluctuation has made it difficult for some people to consider the possibility of investing in real estate at this time. Even those who are willing to invest are faced with the burden of finding investment opportunities in markets that offer the greatest long term growth and stability. It is thus safe to say that, with the current low investment in the real estate sector, which has seen housing prices dropping at near historical lows, this may be the perfect time to invest in real estate.
The prices of properties in Nigeria are dropping rapidly as a result of the recession. In some areas, the prices of property have fallen to the point where the problem of affordability is gradually becoming a thing of the past. At the moment, there are several developments scattered around the country that have been left uncompleted, as well as new construction projects that are either abandoned and, where completed, left unoccupied. In fact, a number of properties that have been used as securities for mortgage facilities have been foreclosed as a result of the inability of the mortgagors to fulfil their obligations under their respective loan agreements. Consequently, there are more properties on the market than there are buyers willing to buy. In other words, the real estate market has become what is termed as the 'buyer's market'.
In view of the above, investors may do well to consider taking advantage of the cheaper property prices, and the abundant array of great deals to be found from motivated sellers, distressed sales, foreclosed properties amongst other incentives, to increase their real estate portfolio. As other investors are obliged to sell their assets, this is an opportunity for potential investors to step in and pick them up for a fraction of their real value. Investors can also leverage on the fact that sellers are willing to grant significant discounts and consider offers or terms that they would ordinarily not consider, including reasonable deposits and payment in instalments. Property owners on the other hand may consider taking advantage of the market by either refinancing their own properties for lower rates and better terms until the market rebounds, instead of leaving same vacant and generating no income at all. Furthermore, the current economic situation presents an opportunity for Nigerians in Diaspora to invest in the real estate sector by acquiring more properties back home. This is especially so in view of the prevailing exchange rate of the Naira and Dollar/Pounds which puts them at a great advantage.
Of the various advantages of real estate investment, its key benefit abounds in the fact that real estate investment is relatively stable and possesses the ability to absorb inflation. It is one of the only investments that rarely loses its value, and even where that is the case, real estate investment always has the potential to bounce back within a relatively short time. It is worthy of note however that the recession will not last forever, as the market will soon restore its lost value.
Whilst it is noted that the scarcity of funds may pose a challenge in this regard, there are several financial strategies that potential investors may consider. For instance, investors can form partnerships or incorporate companies wherein they can pool resources which can then be used to acquire developed properties or even large expanse of land that can thereafter be divided into plots and allocated to the partners/members.
Finally, it is important for investors in real estate in Nigeria to engage the services of Solicitors for the purpose of conducting the requisite due diligence on the property. This is particularly so in light of the fact that a lot of properties that are up for sale are encumbered in one way or the other such as litigation, mortgage facilities, lack of authority to sell, etc. Investors are therefore advised to ensure that all necessary searches and/or confirmations are completed prior to purchase, and a solicitor is in a better position to assist in the said confirmations. The reason this is crucial is because an investor who acquires an encumbered property may be faced with several challenges that may arise in the property and he may not be able to take possession of the property as result of the encumbrance.
An article by the firm's Real Estate Group, editors of Real Estate Watch, an E-Newsletter on reforms in the sector.
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