The state of the global economy is gradually picking up after a world wide recession. The economic meltdown, which shook western economies devastated investors, individuals and institutional alike. Its aftershock is still being felt all around the globe and also in emerging economies, Nigeria inclusive. Global investment recorded huge loses and investors had a hard nut to crack.
The Nigerian stock market once acclaimed as the fastest and the most profitable market in the whole of Africa; where every investor looked up to, was equally affected due largely to large scale dumping of stocks by foreign institutional investors and some other local factors.
Though the market is gradually picking up, many investors are still weary and suspicious of its growth. A large percentage has lost confidence in the market. While the harvest in the market was churning millionaires by the day, speculator and real estate investors were selling their properties and investments in real estate and mopping up shares and stocks.
However, with the lost of attention in the capital market, investors are steadily turning their focus to the more secure investment; real estate. Though real estate investment involves a high capital outlay, it comes with a less volatile and attendant risk as opposed to stocks and shares.
Some of the benefits of investments in real estate are as follows;
(i.) It generates regular income for investors.
(ii.) It creates wealth for investors and property owners, as capital value appreciates with time.
(iii.) It provides a shield and security against mortgage and capital loans.
(iv.) It adds to the housing stock and helps solve accommodation needs and demand.
(v.) It contributes to private sectors housing development.
(vi.) It help solves the financial requirements of distressed sellers.
(vii.) It helps boost property tax for the government. (e.g. Lagos State Government, Nigeria)
Consistent and regular income from real estate investment are influenced by the following factors; location, housing and accommodation demand, type and purpose of use, facilities provided, etc.
In predominantly commercial centers, commercial and recreational properties are in high demand and as such, are good investments. Luxury and serviced apartments are highly demanded in Government Reserved Areas (GRA) and high brow areas with low density population, are also good investment options. (e.g. Ikoyi, Ikeja, Victoria Island).
The requirements for mini flats, 2 bedroom and 3 bedroom apartments as well as, community neighborhood shops are in very high demand in medium and high density locations. The supply and accommodation stock never really seems to meet the ever growing demand. It is important to note that medium range properties are better investment options as they are easier to be rent out. They are also easier to purchase, sell and re-sell.
Anybody can enter the in real estate market. An investor who wishes to engage in real estate investment (professionals and non-professionals) can do so in various ways, depending on financial capabilities. Investments can be a fresh development (i.e. virgin land) or purchasing already existing property, which can be enhanced to command current rent and capital value. I could also be to fill a prospective emerging demand. The investor who does not wish to be involved in the stress of physical building, development and management can invest through Real Estate Investment Trusts (REIT), co-operative societies or in real estate companies quoted on the stock exchange. (The prices of real estate stocks are relatively more stable)
Steps to take before making that real estate investment;
- Study and evaluate the value of the property, its location, neighbourhood, use, encumbrances, physical state and any incidental cost pursuant to its acquisition.
- Carry out a feasibility study, viability, encumbrances and any cost incidental to its acquisition. An EIA (Environmental Impact Assessment) report may also be required for some real estate developments.
- A very important step to consider is the engagement of consultants. Real Estate professional advisors are required almost at every stage for sound advice.
- All interests, titles, ownership, registration and documentation must be easily verifiable.
Real estate investment also has its pitfalls. The investor must be cautious about the following;
(i.) Do not be carried away with the physical state, aesthetics or location of a property without considering its investment potentials and viability. A beautiful structure may on closer look and study sometimes be defective structurally.
(ii.) The temptation or thought of reaping hyper profits or quick returns on investment should be avoided. It may have an unclear title or incomplete documentation or encumbered by litigation or ownership tussle.
(iii.) Power of negotiation is important, if the investor does not have a real estate qualification or background, a professional Estate Surveyor or Appraiser should be engaged at a fee. This goes along way to secure his investment and help avoid huge loss due to faulty or hasty decisions.
Some of the best investment tips for the real estate and property investor though with caution are given below;
Offers from relocating sellers.
- Bank sales and foreclosures arising from property used as security for mortgage and loans.
- Fresh allocations from governments‘ housing schemes.
- Financial distress or difficulties due to failed businesses, loss of employment, downturn in seller’s economy (meltdown), protracted illness, accidents, natural disasters, etc.
- Joint owners or divorced couples willing to sell in a hurry.
High capital outlay, not withstanding, real estate is a sure and secure investment and values appreciates with time. Though there is risk in every investment, real estate is not an exception. If the investment steps are carefully considered and decisions wisely taken, the investors streams of income are sure of continually being reaped.
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by Patrick B. Akpan