NIGERIA : THE EFFECT OF CORRUPTION ON REAL ESTATE
Nigeria has the largest number of blacks in the world and by these numbers a business haven for the wise. A lot of smart businessmen publicly tell investors to shy away but invest 80% of their funds in Nigeria. Corruption is a serious problem that is detrimental to the social, economic and political development of any country.
Every government since independence has had to mention the word in its maiden speech and prescribe means to deal with it.
The present government is finding it hard to move swiftly like they promised after the hand-over of tools of governance and leadership.
I leave that discussion to politicians and the current president of our federal republic to make sure they deliver on their promises and also stamp out corruption permanently by improvising and proffering policies that will stay even when this government is no more. My love for real estate, property consultancy and investment advisory has no bounds. Those who know me well will agree its more of a passion and hobby not a job. The issue to be discussed here is still corruption and the way it has eaten deep into the daily transactions of both prime and normal sales.
Corruption inevitably leads to a diminished business climate when the public trust is put at risk. Corruption can take many forms that can include graft, bribery, embezzlement and extortion. Its existence reduces business credibility and profits when professionals misuse their positions for personal gain.
To be certain I am able to discuss all I intend to in this short write-up I will pick specific areas within Lagos State that are more or less areas of specialization for me as examples for comparison not only to state again that investing in Land itself is the most profitable venture in the world but to also show the percentage of the rise with these short period and what smart individuals have made by sharing prices of these locations as far back as 6 years ago, 3 years ago and current prices. Also try state reasons why these locations became over-prices in the last 6 years and its so difficult to get our sector to do an all round down-ward review on prices.
A project in Lagos state government would spread across 90 hectares of land and shall be built at an estimated cost of $1.55 billion. However, on completion by 2016, the project would contribute to the internally generated revenue of Lagos state some $200 billion and will create about 163, 000 new jobs. The Lagos State Governor while inspecting the level of work also said that “In addition to bridging the capacity deficit, Lekki Port will have significant positive macroeconomic impact estimated at $361 billion over the entire concession period. And the location mentioned is not even near the most expensive locations in Lagos.
OLD IKOYI , BANANA ISLAND FORESHORE ESTATE & ENVIRONS.
The prices in this particular location seem to dictate the entire price fixing of most prime locations on the Island & maybe Lagos as a whole. Property & land owners in Ikoyi & Banana Island make the most of profit based on the rate of appreciation of properties in these location yearly.
*A plot of land measuring 1000 square meters in Banana Island is currently sold for the least price of N330,000,000.00 (Three Hundred & Thirty Million Naira Only). These same plots 6 years ago were sold for less than N100,000,000.00 – N120,000,000.00 ( One Hundred Million – One Hundred & Twenty Million Naira). If my calculations are right this is a 200 or 300 % increase in prices.
The tussle between prices in Banana Island Plots and Old Ikoyi plots still stands. New money versus Old money.Owners of plots in Old Ikoyi (BOURDILLON ROAD, ALEXANDER ROAD,GERRARD AVENUE,MILVERTON,QUEENS DRIVE,GLOVER ROAD & KINGSWAY) will always want to sell their plots at prices higher than plots of same size in Banana Island plot.
A clear example is of my client who I personally thought with N150,000,000.00 ( One Fifty Million Naira) should be able to get a plot inside Banana Island. A plot measuring 500 square meters in Banana Island is currently sold for the least price of 180 Million depending on location.
These ‘sudden unusual rise’ in prices in these location had a lot to do with the state of the country in the last 6 years. A lot of politicians & businessmen were able to buy plots within these locations at whatever price it was offered. The effect of these ‘insane prices’ and un-ethical process of practice by agents and property consultants has made the market crash lately. The fact that property owners even connive with agents to get more off a buyer has made it all worse. Owners now try to avoid payment of professional fees and in such a situation the agent who is not willing to work for free increases the price by 5% – 10% of the total price originally offered. One, out of ten situations these deals fly. This is a very sad development.
The other most annoying yet transaction killer is called ‘Loading’. The agents after a failed discussion on agreement with the buyer or seller improvise a way to get paid. They work out an agreement with the property owner on a particular amount which must be released once the buyer pays the agreed amount. So a price is stated as final to the property owner. On such cases a particular percentage is sacrificed to the owner so he or she can release the difference of his originally stated price and the price introduced by the agent of the buyer and his agent who have both agreed to dip dipper into the pocket of the innocent buyer.
A statistic by a popular property magazine once wrote that there are over 700 empty newly built apartments in Ikoyi. The Naira was devalued 2014 and February 2015 by the last administration yet a lot of properties are listed in the market in dollars. An apartment listed for $40,000 usd with the current tussle and in-stability of the Naira against the dollar could be wrongly timed. I must also state categorically that not all properties or plots with these estates are over-priced.
Most informed person will agree with me that $1million for an apartment in ‘LORENZO’ is worth every penny. Location is on Bourdillon and the facilities to be offered are out fo this world. A lot of properties cost much more. But that is just using a project that one can vouch for as a bench mark.The price of the LORENZO starts from $900k which is about N190million and only 22 units out of the 57units to be developed are currently being offered for sale. The first (20) buyers are eligible for a free furnished apartment, or a 2017 E or S-class MERCEDES BENZ. Bulk investors that express interest in the purchase of floors may do so at a discount and it shall guarantee a minimum of 2years first rents as the company is already in talks with potential lessors. Prices are to increase after launch and a lot higher (30% increase) after the ground-breaking. The 25- floor building is to be built on approximately 3,800 square meters of land consisting of 57 apartment units including 3penthouses and 2 villas.
Paying a professional fee is helping to redistribute wealth. The buyer obviously is helping the consultant by paying for a job well done. The consultant may also plough these funds else where & that way these same funds would have created and generated positive multiplier effects within the economy if the property consultant does not jet out for 2 months…..
I am suggesting a general price review. I suggest a down-ward review to be able to meet the real prices for these properties. There is no way anyone will buy most properties at the prices they are offered. The state of the economy and fight against corruption has made everyone sit-up. We can only save our profession by proffering solutions.
These acts cause Inefficiency, Lose of Resources, Weaken the Development of the industry & with such practice we may hand such shady ways to the younger generation thinking its a proper way to conclude or close a deal. This is another channel to Increase in Crime.
Corruption can take many forms that vary in degree from the minor use of influence to institutionalized bribery. Transparency International’s definition of corruption is: “the abuse of entrusted power for private gain”. This can mean not only financial gain but also non-financial advantages.
A client buying expects his agent to haggle and get the best price possible for him/her not reap them off. One must also advice all clients buying to avoid negotiating professional fees but ask for a reduction in price. That serves as a moral booster for the person consulting for you.
The definition of corruption and how much money it involves is not a particularly challenging notion to tackle.
This paper, rather, brings to the attention of the reader the economic importance of combating corruption. The aim is to show the reader & prospective clients the following:
1- The role law plays in economic development. Our colleagues who are lawyers need to stick to their legal fees.
2- The negative effects of income inequality on sustainable economic development and importance of redistribution on grounds of the Marginal Utility theory.
3- Redistribution as the most effective method of eradicating poverty.
4- The negative effects of low approval ratings (unhappiness) on sustainable economic development.
5- The negative effects of corruption on redistribution as well as approval ratings and consequently on sustainable economic development.
I hope to write more soon.
Property Consultant | Investment Advisory | Property Managers