ACQUIRING LAND IN NIGERIA: 5 Things You Need To Know Before Buying
According to McKinsey & Company’s ‘Post-pandemic economy: 12 Insights’, ‘…the biggest driver of rising net worth is real estate’. Investments in real estate is becoming more accessible across income levels as new services are springing up to ease the large capital requirement through milestone payments, co-investment and crowd funding. New platforms are also making it easier to invest globally with just a few clicks of the button but due to many factors, uptake of these services is still in its infancy and people still do inspections and due diligence physically before deciding on investing in a property. As your trusted real estate partner, we have listed the first 5 due diligence steps to take if you want to buy a land in Nigeria.
1. PLAN YOUR CASH FLOW REALISTICALLY
When choosing your investment financing options, you need to plan and critically assess your cash flow. Usually, credit facilities for real estate investments are packaged with relatively long tenures to be repaid monthly, quarterly or annually terms. While making investment in real estate is a good store of value, what most people fail to consider carefully is ‘‘how much they can afford to pay per time’’ that will not impact their buying power adversely. It is important for you to scrutinise your financial standing to know how much you can afford to pay for a piece of property even before making a commitment. This may be tricky with staggered payment options especially as fluctuations in inflation and interest rates have an impact on time value of money causing a devaluation to the value of your future cash flows. Essentially, they key is to plan your cash flow realistically and determine what you can afford after living expenses and emergency funds have been allocated.
2. UNDERSTAND THE SIZE AND DIMENSION OF THE LAND
As a prospective buyer, this is most likely the first thing you want to know. The size or dimension of a parcel of land is a major determinant of the cost/price of that land. There are different measuring units but the most common UoM for land are plots, acres, and hectares. To appreciate the size of a land, you should understand the scale of these units of measurement and make comparisons. For some context, plots of land can come in either 500 square metre or 600 square metres. 6 Plots of land make 1 Acre and 6 Acres make 1 Hectare. It will also add more value to your understanding to consult further with a Land Surveyor for further clarification and or documents that give deeper information and context.
3. ACCESS THE LOCATION OF THE LAND
The geographical coordinates i.e. location of a property determines the integrity of the structure that can be erected on the land. To determine suitability, you need to consider purpose for acquiring a land. This will help you identify the right shape, geographical topology, proximity, infrastructure, road network, availability of anchor occupiers like banks, and other well established private and public institutions. These features play a huge role in driving property value. For example, if your reason for purchase is long term store of value, then you will most likely be purpose fit to buy a land in the outskirts of the city or urban areas. That gives you an opportunity to buy at a lower price per plot and then the land appreciates over time and as the locality develops. But if your purpose is to build a home or commercial structure then you need to consider thing a land with good access road, good drainage system, and proximity to commercial hub e.t.c. A plot of land in Lekki Phase 1 that now averages over ₦300million in sales value, once sold for ₦3m and less in 2001. The increase in value was largely due to the location, and the presence of growth drivers within Lekki Phase 1. Before you buy into a project, it is important to assess the location and its growth potential to determine its fit for purpose.
4. CREATE A CHECKLIST OF DOCUMENTATION AND REGULATORY APPROVAL REQUIREMENT
All over the world, land title is the most important component of any real estate transaction. This is because a Land title and other contractual documents are the evidence of ownership of the physical land. Outside ensuring that the land has a good title, you need to understand the regulatory implications in terms of town planning to ensure the land is zoned for the use that you intend to put it to.
5. DISCUSS PAYMENT OPTIONS EXTENSIVELY
In the event you are employing credit to finance your purchase, it is critical that you do proper due diligence on the charges and all the terms and conditions. This will help you mitigate things like hidden charges and to also plan your payment calendar to avoid default. A good payment option should be considered because they help reduce the financial burden that comes with upfront payment when buying real estate. It allows you to spread the payment in a way that would not affect your other financial obligations. Where the development company or seller is willing to offer a payment plan, it is advisable to take the opportunity.
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