Challenges Associated With Real Estate Investment

Project and Seminar Material for Estate Management

Challenges Associated With Real Estate Investment


Chapter One


1.0 Introduction

Proper financing is all-important to successful property investment and development. Various forms of finance on varying terms from diverse investing agencies are available to the property market. The principal field where various forms of investment finance are employed is that of development where every loan has to be specially tailored for an individual scheme and the particular stages within the scheme.

Since property development in particular involves huge capital expenditure, finance is therefore an essential input, the nature of which is to provide capital to enable the enterprise operate commercially. The cost and availability of finance for real estate development can influence the viability of such project.

Inspite of the importance of development finance in property development, there is dearth of information on the amount of funding that takes place, by whom, or the method used. Though this is not unexpected given the general characteristics of development funding: there is no central agency or institution to co-ordinate the business of property funding.

In the hierarchy of man’s needs, housing has been ranked second and as a result of this; housing provision has become a paramount conerstone of the policies of various governments both at federal and state levels since independence in Nigeria. The consequences of the rapid rate of urbanisation are most visible in the rapid deterioration of urban housing resulting in urban housing poverty especially as there is no proportionate increase in the number of housing stocks.

The house occupies a very unique position in the life of all human beings and stands out as one of the basic necessities of human beings after food as there is the innate desire of every man to own a decent house. It is the most single noncommercial investment or consumer of income.

For most working Nigerians, the earning capacity is generally low and makes it practically impossible for the average Nigerian to save towards owning a house. In addition, the dwindling economic fortunes in Nigeria which dims the capacity of individuals to own a house.

The economic boom periods of the 1970s also contributed to the housing problems in Nigeria.

During this period, there was surplus capital, the economic climate then was favourable for the development of real estate and the prospect of gain was over blown and so were the rate of development. The oil boom brought in an era of urban development, which was beyond all expectation and thus led to a massive surge in property development. Financial houses readily obliged developers’ loans, as they perceived minimum risks.

However, with the crash in oil prices in the early 1980s, the economy was thrown into crises and recession thus set in which badly affected the real estate sector. Since real estate investment and development requires huge capital outlay, there is always the need for real estate investors and developer to source for fund. This capital is usually higher than the equity capital of such an invertor and the only way out of this predicament is to source for found through other means apart from his personal savings.

Which other sources of finance apart from equity capital are available to the real estate investors? What problems are being encountered in getting funds through these various sources?


1.1 Background To The Study

Real estate has continued to play a significant role in man’s evolution. It is not a coincidence that food, shelter and clothing believed to be the three essentials that sustain mankind, also have some linkage to land. Food grows out of land while shelter is affixed to it, and man’s clothing is made largely from what grows out of land. Indeed, whether in ancient times or today’s modern system, land constitutes a significant index for man’s wealth, and as economic activities have assumed more sophistication over time, land has continued to play a central role in their development (Lewis , 1994). There is hardly any business venture that does not require to be supported by some form of real estate: from the small business that requires real estate as offices from where its business can be organized, to the major venture that needs it for its factory.

Consequently, through some very robust and well thought out land policies comprehensively address challenges that are encounter in the real estate sector. This is not exactly the situation here in Nigeria and the result is that there is a myriad of problems in the real estate sector (Adewale, 2000). In the course of this study, the researcher will provide an overview of real estate investments in Nigeria and its associated challenges.

Real estate investment is intrinsically connected to the economic development and well being of any nation, thereby necessitating some intervention by prudent governments. Such interventions vary in degrees, depending on the nation. In Nigeria, individual could rarely lay claim to any part of it as owner and therefore could not alienate it without the consent of the head.

Proper financing is all-important to successful property/real estate investment and development. Various forms of finance on varying terms from diverse investing agencies are available to the property/real estate market. The principal field where various forms of investment finance are employed is that of development where every loan has to be specially tailored for an individual scheme and the particular stages within the scheme. Since real estate and property development in particular involves huge capital expenditure, finance is therefore an essential input, the nature of which is to provide capital to enable the enterprise operate commercially (Ratcliff, 1999). The cost and availability of finance for real estate development can influence the viability of such project. It is necessary to examine the nature of real estate investment in Nigeria with a view of finding solutions to the associated challenges.


1.2 Statement Of The Problem

In recent times, research on real estate investment has been on the front burner has it is the major source of housing for man. In the hierarchy of man’s needs, housing has been ranked second and as a result of this; housing provision has become a paramount cornerstone of the policies of various governments both at federal and state levels since independence in Nigeria. The consequences of the rapid rate of urbanization are most visible in the rapid deterioration of urban housing resulting in urban housing poverty especially as there is no proportionate increase in the number of housing stocks.

During the period of economic boom in the 1970s in Nigeria, there was surplus capital, the economic climate then was favorable for the development of real estate and the prospect of gain was over blown and so were the rate of development. Due to the recent drop in the prices of crude oil world wide and corruption, government has not been able to invest in real estate. Overpopulation and urbanization has led to massive increase in property development.

Financial houses readily obliged developers’ loans, as they perceived minimum risks.

Since real estate development requires huge capital outlay, there is always the need for real estate developer to source for fund. However, this study will examine the scope of real estate in Nigeria and its associated challenges with a view of making useful suggestions on the way forward for real estate in Nigeria.


1.3 Objectives Of The Study

The following are the objectives of this study:

  1. To provide an overview of real estate investment in Nigeria.
  2. To examine the challenges associated with real estate investment in Nigeria.
  3. To identify the way forward for real estate in Nigeria.

1.4 Research Questions

  1. What is the level of real estate investment in Nigeria?
  2. What are the challenges associated with real estate investment in Nigeria?
  3. What is the way forward for real estate in Nigeria?

1.5 Hypothesis

HO: Real estate investment has no challenges in Nigeria.

HA: Real estate investment has several challenges in Nigeria.


1.6 Significance Of The Study

The following are the significance of this study:

  1. The findings from this study will educate the general public on the benefit of real estate investment and its associated challenges which will form the basis for guidance in decision making.
  2. This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.

1.7 Scope / Limitations Of The Study

This study on real estate investment and its associated challenges in Nigeria will cover the extent of real estate investment in Nigeria looking at the factors that has facilitated or hindered it. It will also cover the challenges associated with real estate investment in Nigeria.

Limitation Of Study

Financial constrain

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.


1.8 Definition Of Terms

Investment:

An investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.

Real Estate:

Property consisting of land or buildings.


Challenges Associated With Real Estate Investment


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