Experts list benefits, pitfalls for first-time real estate investors
With 75 per cent shortfall in Nigeria’s home ownership, industry experts have urged first time investors to take advantage of the gap by investing in the real estate sector.
They argued that investors must be guided by real estate investment principles such as choosing the right location, compliance with planning, zoning and other regulations, obtaining title and approval, adding that investors must be driven by return on equity, not emotion.
However, they advised investors to be wary of challenges in the sector, which include high cost of investment and maintenance, legal complexities and other expenses such as taxes and insurance, which could be costly.
The experts spoke at the maiden edition of Refin Homes Webinar series on ‘Real Estate Investment Opportunities for First Timers in 2021 and Beyond’, which was held in Lagos. Leading the discussion, the founder/Chief Executive Officer, Eximia Realty Company Limited, Mr. Hakeem Ogunniran, emphasised that the sector is the basis of all wealth globally compared to other classes of assets.
He stressed that the benefits include, capital appreciation due to inflation, forces of demand and supply in the market.
Other benefits, he noted include steady flow of income for owners or investors.
He explained that real estate investment involves the purchase, ownership, management, rental or sale such as land, buildings or an interest in real estate for profit.
Ogunniran stated that “as a first time investors, it’s important to look at the yields and potential for capital appreciation before committing funds in the sector.
“Despite the challenges of COVID-19, the opportunities are still there. There are three ROEs in real estate, the return of equity, return on ego, and return on emotion. For those who are looking at the return on equity, it could be direct investment or joint ventures. Real estate thrives on the back of macro fundamentals such as rates, disposable income, pricing and inflation as the strength of the economy determines the strength of the real estate sector”, he said.
He added, “The hotspots for first-time investors and others, include residential sector as home ownership is still at 25 per cent in Nigeria, indicating that there is still a gap and housing shortage of 20 million.
“The comfort category offers strong demand, the luxury segment is still resilient but not recommended for first-time homeowners, while premium and classic is tough as pricing is a key competitive driver as customers are price sensitive.”
Speaking on investment size, asset conversion cycle, structure and complexity of transfer mechanism between real estate and other investments like stocks and bonds, Ogunniran explained that real estate requires large amounts of cash, equity, while securities can be purchased with small amount.
“Purchase, sale and financing of real estate involve a number of legal document, financial institutions and government’s regulation. Real estate purchases and sales are usually handled on an individual basis while many securities are traded on organised and centralised exchange with the aid of brokerage houses,” he said.
For the Managing Director, Alpha Mead Development Company, Mr. Damola Akindolire, the real estate is a very important asset class for individuals in preserving and growing wealth. Areas for investment consideration in 2021, he said, includes the residential space, which would continue to be resilient.
The Chief Executive Officer, Refin Homes, Mr. Olatunde Macauley, said the economy has taken a beating due to COVID-19 pandemic and negative impact on Gross Domestic Product (GDP) in the first-three quarters of 2020.
He said, although statistics by the National Bureau of Statistics revealed that the nation was out of recession and inflation is growing at double digit since January, the realities in the industry says otherwise.
Macauley said the concern to investors at present is how to grow asset amid inflation and the COVID-19 pandemic. Hence, the need to consider investment in real estate as the fact that treasury bill and others instruments had not yielded good returns.