Where to find good value, high returns on real estate investment

Whatever the economic cycle, real estate sector remains an investment destination where investors will always get value and relatively high returns on investment, especially if the investment is done in the right place at the right price and for the right reason.

Bonds, treasury bills, equities, mutual funds, etc are all good investment asset class but cannot compare favourably with real estate in terms of reliability, flexibility of use and potential for value appreciation over time.

A good number of people think, erroneously, that real estate investment is for the ‘big boys’ but investment experts disagree,  stressing that investment in real estate takes into consideration the 5Ws consisting of who, what, when, where, why (and how).

As for who should invest in real estate, the experts say just “anybody” irrespective of age or gender can invest in real estate. Anybody, no matter how young, could investment and this includes women. At a real estate conference in Abuja recently, participants canvassed women empowerment to enable them invest in real estate, believing that it is one of the surest ways of protecting the future.

Bricks and mortar are more stable than stocks or bonds; they have long term growth with income return and this is why people should invest in real estate. The wide housing demand-supply gap offers   investment opportunity which value is well over $363billion. The deficit is said to be increasing by 2 million houses per year at the current population growth of 2.6 percent per year.

Though it is important to know that the time to invest is now, what matters most in all real estate investment considerations is where to invest and get not just great value, but also good returns.

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Good yield on any investment is very important because it compensates for the investor’s time, efforts and the sacrifice in terms of forgone alternatives to the investment. This is why where to invest and get good yield is critical.

A couple of years ago, the National Bureau of Statistics (NBS), noted that Lagos State recorded the highest amount of real estate activities at 37 percent  followed by Abuja at 22 percent and Rivers state at 6 percent,  covering 65 percent of all real estate activities in Nigeria.

That statistics has not changed, meaning that Lagos remains a compelling destination for real estate investment. This is quite understandable.  Lagos is Nigeria’s commercial nerve centre. It has over 20 million people, meaning that the city is a large real estate market. This island city has over three million housing deficit; about 80 percent of its population lives in rented accommodation which means that homeownership level is very low, thus presenting huge investment opportunity in residential real estate.

The Lagos real estate market is distinctively segmented into low, middle and high end. Demand is very weak at the low end market because this is where low income earners look for housing.  At the mid-end market, demand is relatively strong, but much stronger at the high end market.

Ikoyi, Victoria Island and Lekki, the three island locations in the state, constitute the core of high end submarkets in Lagos. Though property, land or built up, are very expensive in these locations, analysts say they offer real value and good returns to investors.

But to invest wisely and profitably in these locations, experts advise that in-depth analysis of each location’s strengths, weaknesses, opportunities and threats (SWOT) should be done.  First and foremost, potential investors have to understand that  “real estate investment is not a get- rich quick scheme;  understand your investment parameters;  be thorough in assessing opportunities; seek professional advice; do due diligence, and if the deal is not right, walk away”, Udo Okonjo, CEO, Fine and Country, advises.

As an investment destination, Ikoyi’s strength is in its excellent location,  ease of obtaining approvals for development,  high rents and return on investments (ROI) based on demand to be in a serene environment;  internationally recognized and accepted location increases value perception, and offers highest office rents in Nigeria and second highest in Africa.

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The weakness of this location is in its high cost of land and approvals, building would be restricted to high rise apartments to maximise land; there is need for an attractive design and layout of the project based on competing developments within the axis.

Opportunities in Ikoyi as an investment desitnation include ease of rental as there is a large pool of prospective home buyers, both local and  Nigerians in Diaspora would rather buy out right a finished product that meets their immediate needs in Ikoyi; amendment in Lagos planning legislation is expected to make zoning for commercial use easier.

But there are threats too. These come in as construction challenges leading to delayed delivery; lack of financing for projects or mortgages for prospective buyers; presence of competing developments within the same axis and planning challenges to secure permission for commercial office use.

The strengths of  Victoria Island are its excellent location, ease of obtaining approvals for development based on precedent, high rents and return on investments (ROI) based on demand, and a wide mix of support service companies.

The weaknesses include poor parking,  traffic congestion, lack of supporting infrastructure,  high cost of land and approvals, building would be restricted to high rise apartment to enable maximisation of land, and available land for residential development within this axis is extremely small

The opportunities in this location include lack of good quality residential and commercial space and demand for this is high; there is also opportunity for corporate entities and individuals to own properties close to their offices.

But the development of the Eko Atlantic in the long term is a major threat to the continued prosperity of Victoria Island. So, potential investors should always bear in mind that this development, which is already evolving with some residential and office developments coming up fast, may throw spanner in the works.

CHUKA UROKO

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