Challenges Facing Real Estate Developers in Nigeria

Last Updated on January 26, 2024

Introduction

Definition of Real Estate Developers

Real estate developers are professionals that create and manage real estate projects, such as residential and commercial buildings, industrial parks, and shopping centers.

They oversee the entire development process, from land acquisition to construction, leasing, and sales.

Importance of Real Estate Development in Nigeria

Real estate development is critical to Nigeria’s economic growth and social progress. It creates jobs, attracts foreign investment, and provides affordable housing for the growing population.

It also contributes to infrastructure development and urbanization, which are key to sustainable development.

Overview of the Challenges Facing Real Estate Developers

Despite the essential role of real estate development in Nigeria, developers face numerous challenges that threaten their success and viability. These challenges include:

• High cost of land acquisition and development
  
  
• Inadequate infrastructure, such as roads, electricity, and water supply
  
  
• Inefficient regulatory processes, such as building permits and environmental impact assessments
  
  
• Insecurity and political instability, which discourage foreign investment and increase construction costs
  
  
• Unfavorable tax policies and inconsistent government policies

These challenges make it difficult for real estate developers to deliver affordable and quality projects, leading to a housing deficit and urban slums.

However, some developers have found innovative ways to overcome these challenges, such as partnerships, public-private initiatives, and digital solutions.

Read: Understanding Real Estate Investment in Nigeria: A Guide

Lack of Access to Funding

In Nigeria, real estate developers face several challenges, including a significant lack of access to financing options.

Unfortunately, traditional funding sources such as banks may be unwilling to provide credit for real estate projects due to the high level of risk.

High-Interest Rates

The cost of borrowing funds to finance a real estate project in Nigeria can be extremely high, with interest rates ranging from 20% to 30%.

This high-interest rate can make it difficult for real estate developers to secure financing for their projects, which may result in delays or even canceled projects.

Lack of Collateral

Most financial institutions usually require collateral before lending money to real estate developers.

The lack of available land title deeds and legal ownership documentation for the property often makes it difficult for real estate developers to provide the necessary collateral.

This lack of collateral further restricts their access to funding.

Government Policy

The government’s policies can also affect access to funding for real estate developers.

The policy on the types of projects eligible for government grants, low-interest loans, or other facilities affects access to funding.

Additionally, the process involved in obtaining these loans or grants can be complicated and time-consuming.

Solutions

To address these challenges, real estate developers in Nigeria can consider alternative financing options. One of the options is for developers to seek out private investors for funding. Another option would be to invest in other asset classes to generate capital, which they can then use to fund their real estate projects.

Developers can also engage in joint ventures where they partner with other developers, spread the cost, and share the risks and profits of the project.

Another option would be for developers to seek out international financial institutions that are willing to finance real estate projects in Nigeria, although this option might come with additional terms and conditions.

Finally, the Nigerian government can support real estate developers by implementing policies and initiatives that facilitate access to funding.

These may include providing incentives for financial institutions to lend to real estate developers, simplifying loan application processes, and creating policies to establish a more significant and transparent land title system.

In general, lack of access to funding is one of the significant challenges facing real estate developers in Nigeria. High-interest rates, lack of collateral as well as government policies all play a crucial role in this challenge.

However, developers can adopt alternative funding options, while the government can initiate policies to support funding for real estate developers.

Read: Becoming a Digital Marketing Consultant in Nigeria

Challenges Facing Real Estate Developers in Nigeria: Insecurity and Land Use Policies

Land Grabbers

Land grabbers, also known as Omo-oniles, are a major challenge in the real estate industry in Nigeria. They are individuals or groups that claim ownership of pieces of land and demand payment from developers or land buyers.

They use violence, intimidation, and harassment to extort money from developers. This has increased the cost of owning and developing land in Nigeria, as developers have to pay exorbitant fees to secure their land.

Unfortunately, the government has not been able to curb this menace effectively, leaving developers at the mercy of these land grabbers.

Inconsistencies in Land Use Policies

The lack of consistency in land use policies is another challenge facing real estate developers in Nigeria.

The government’s zoning policies are often unclear and sometimes contradictory, making it difficult for developers to identify suitable areas for real estate development.

This inconsistency leads to a situation where a parcel of land may be zoned for commercial development in one locality and for residential development in another locality.

This leads to confusion and sometimes results in litigation, delaying the development process.

Security Challenges

Insecurity is also a significant challenge facing real estate developers in Nigeria. The country is plagued by frequent incidents of kidnapping, armed robbery, and terrorism.

These security challenges have made it difficult for developers to secure their properties and have caused delays in the construction process.

The cost of security personnel and equipment has also increased due to the high risk of theft and vandalism.

Solutions

One way to address the issue of land grabbers is for the government to enforce existing laws and regulations effectively.

The government should also streamline the processes for obtaining land titles, making them easily accessible to developers and land buyers.

This will go a long way in reducing the activities of land grabbers. Furthermore, the government should work towards creating more consistency in land use policies by providing clear guidelines and zoning regulations.

Regarding security challenges, developers must prioritize the safety and security of their properties. They should invest in the training of security personnel, installation of security equipment like CCTV, and secure fencing of their properties.

Developers should also work with the government to improve security in the areas where their properties are located. This can be achieved through the provision of police patrols and other security measures in these areas.

In review, insecurity and land use policies are major challenges facing real estate developers in Nigeria. It is essential for the government to address these challenges, as they have significant implications for the growth and development of the industry.

By creating more consistency in land use policies, enforcing existing laws and regulations, and prioritizing security, the government and developers can work together to create a more conducive environment for real estate development in Nigeria.

Read: The Lucrative Nature of Construction Business in Nigeria

Poor Infrastructure

Real estate developers in Nigeria face numerous challenges, and one of them is the poor infrastructure in the country.

Nigeria is one of the most populous countries in Africa, and the inadequate infrastructure has made it challenging for real estate developers to build and develop properties.

Some of the infrastructure challenges that developers face include poor drainage systems, poor road networks, and the absence of basic amenities.

Poor Drainage System

The poor drainage system in Nigeria is one of the significant challenges affecting real estate developers.

Many areas in Nigeria are prone to flooding due to the country’s inadequate drainage systems. Flooding has caused significant damage to buildings and properties, leading to losses for real estate developers.

The government needs to invest in improving the country’s drainage systems to reduce the effect of flood on real estate projects.

Poor Road Network

The poor road network in Nigeria is another significant infrastructure challenge. The bad roads make it challenging for real estate developers to transport building materials, which results in increased construction time and cost.

In addition, the poor road network affects the value of properties as buyers might not be willing to invest in areas with poor road networks.

The government must improve the country’s road networks to facilitate real estate development.

Absence of Basic Amenities

The absence of basic amenities, such as electricity, water, and sewage systems, is another significant challenge for real estate developers in Nigeria.

Many areas lack these basic amenities, making it difficult for developers to build and attract buyers.

Developing properties with these basic amenities is essential in creating value for the properties and providing a conducive environment for people to live and work.

The government needs to provide these basic amenities to create an enabling environment for real estate development.

Solutions

The Nigerian government must develop strategies and implement policies that will address the infrastructure challenges facing real estate developers in the country. Some of the solutions include:

• Investing in the country’s infrastructure: The government must invest in the development of the country’s infrastructure to create an enabling environment for real estate development.
  
  
• Collaboration with private developers: The government can collaborate with private developers to develop infrastructure such as roads, drainage systems, and basic amenities, thereby reducing the burden on government expenditure.
  
  
• Prioritizing infrastructure development: The government must prioritize infrastructure development in its budget, allocating more funds towards the development of infrastructure in the country.
  
  
• Policies to incentivize developers: The government can incentivize real estate developers by offering tax breaks and other benefits to encourage them to develop properties with basic amenities in areas with inadequate infrastructure.

In essence, the poor infrastructure in Nigeria is one of the significant challenges facing real estate developers in the country.

The government must tackle these infrastructure challenges by investing in the country’s infrastructure, collaborating with private developers, prioritizing infrastructure development in its budget, and developing policies that incentivize real estate developers.

By addressing the infrastructure challenges, Nigeria can create an enabling environment for real estate development, which will have a positive impact on the country’s economy.

Read: Role of Mobile Technology in Nigeria’s E-commerce Boom

See Related Content: GIS Technology in Nigeria: A Surveyor’s Essential Tool

Bureaucracy and Corruption

Real estate development in Nigeria is a challenging task filled with obstacles. Among the various challenges, bureaucracy, and corruption remain the thorniest.

The Nigerian Government has various regulations put in place to ensure that the industry operates smoothly, but the government’s bureaucracy has often hampered the operations of real estate developers.

Delays in Approval

The process of acquiring approvals for real estate development in Nigeria is quite daunting, with various stages that must be completed before construction can begin.

The bureaucratic process often results in delays and makes it frustrating for real estate developers. The Nigerian government needs to streamline the approval process and make it more transparent and straightforward.

Discrepancies in Valuation

The valuation process for real estate developments in Nigeria is another area where bureaucracy often rears its ugly head.

The valuation process often suffers from discrepancies, with valuations ranging from one extreme to another. This situation creates a lot of difficulty for real estate developers who often cannot understand how valuations are computed.

It is essential for the Nigerian government to create a standardized process for valuations to ensure that developers are not shortchanged.

Corruption in Land Allocation

Corruption in Nigeria is endemic, and the land allocation process is not immune from its tentacles. Land in Nigeria is often allocated through political patronage, and this has resulted in many problems for real estate developers.

Land allocation is a critical factor for real estate development, and developers must pay a certain amount to obtain land.

However, the payment of bribes for land allocation has become the norm, resulting in uneven land distribution and inflated costs for buying land.

The Nigerian government needs to create a transparent and accountable system for land allocation.

Solutions

The Nigerian government must work towards creating an enabling environment for the real estate industry in the country.

Some solutions for the bureaucracy and corruption challenges plaguing the real estate industry in Nigeria are:

• The Nigerian government must streamline the approval process to make it transparent and more straightforward for real estate developers.
  
  
• Creating a standardized process for valuations to ensure that developers are not shortchanged.
  
  
• The Nigerian Government needs to create a transparent and accountable system for land allocation to avoid corruption and political patronage.
  
  
• The Nigerian government needs to empower regulatory bodies to ensure that regulations are adhered to by all parties involved in the real estate industry.
  
  
• The Nigerian Society of Estate Surveyors and Valuers (NIESV) needs to monitor and regulate the industry to ensure that it operates within established ethical standards.

In short, bureaucracy and corruption are some of the significant challenges facing real estate developers in Nigeria.

These challenges have made it difficult for developers to operate efficiently in Nigeria.

However, the Nigerian government must create an enabling environment for the real estate industry to thrive in Nigeria.

Read: How to Become a Licensed Real Estate Agent in Nigeria

Conclusion

Real estate development is a lucrative business in Nigeria, but it is not without challenges. In this chapter, we have discussed some of the major challenges that real estate developers face in the country.

Recap of the Challenges

• The high cost of land and building materials
  
  
• Inadequate infrastructure
  
  
• Insecurity
  
  
• Inefficient land administration
  
  
• Lack of access to finance
  
  
• Government policies and regulations

The Way Forward for Real Estate Developers in Nigeria

Real estate developers in Nigeria can tackle these challenges by adopting the following strategies:

• Exploring alternative building materials to reduce costs
  
  
• Partnering with the government to improve infrastructure
  
  
• Investing in security measures
  
  
• Lobbying for land administration reform
  
  
• Developing relationships with financial institutions
  
  
• Engaging with policymakers to create favorable policies and regulations

Final Thoughts

Real estate development is a critical industry that can drive economic growth and improve the standard of living in Nigeria.

Developers must be proactive in addressing the challenges they face and collaborate with relevant stakeholders to ensure a sustainable and prosperous future.