‘Government should impose taxes on vacant buildings’
The Federal government recently announced new stamp duty charges on real estate transactions. As a lawyer and real estate practitioner, what is your view and concerns?
I don’t have anything against the new stamp duty as it were but what I’m averse to, is the principles behind it. The Federal Inland Revenue Service (FIRS) stated that because of the downturn in the economy, falling oil prices; there was the need to create alternative ways of generating revenue to the government. You will agree with me that the timing was very wrong, especially during this COVID-19 era. For it to come at this time is a travesty. Again, the stamp duty on its own is not supposed to be that expensive because the Stamp Duty Act (SDA) of 1939, which has been reviewed as SDA of 2004, streamlined the methods of applying the duty. But the increase is unimaginable.
You can imagine where you are asking tenants to pay as much as six per cent on the lease agreement. It is unheard of. Even though they come back to say, that it is not six per cent; the six per cent is based on the residual after 20-years. The impact on the economy will be disastrous because there will be less income earned by the citizens. They won’t have enough resources to sustain and maintain their lives.
It will increase the cost of real estate development and have effects on the way the government is trying to re-engineer the economy.
The FIRS has little or no business with collecting stamp duty, they are responsible for collecting income, corporate taxes and not specifically stamp duty. If you follow the law, the issue of stamp duty has to do with NIPOST and by extension the Federal Ministry of Communication.
Granted that the value/amount to be paid as stamp duty is within the purview of the Federal Ministry of Finance and that is why you have it in the Finance Act of 2019. Even at that, the Finance Act didn’t ascribe the value FIRS is ascribing now for stamp duty. FIRS is just looking for ways and means of raising money without giving consideration to the plight of the people and the state of the economy. If you go into the law, the charges for stamp duties are minimal charges, maximum of N50 or N20, or even N10.
To now give it a leap, is unimaginable. The ad-valorem charge should be very minimal. For some documents like Deed of Assignment, Deed of Conveyance, Memorandum of Understanding as it concerns land charges shouldn’t be too high, say like N1000. Imposing ad-valorem charges is like double taxation and it becomes very burdensome for the citizenry as well as real estate developers. I agreed with our institution – Nigerian Institution of Estate Surveyors and Valuers (NIESV) that the government should rescind the charges.
Cost of building materials has increased disinvestment in the construction industry. What is the way out?
The Federal Government should research local building materials and reduce housing costs. There was a time, where the brick was suggested, some industries took it up, but it couldn’t be sustained because people still believed in block and mortar. Apart from asking people to research local building materials, the government should also produce and utilise the materials in its projects. Government must try as much as possible to patronise the manufacturers of the products in social housing projects rather than importing them. We have timber and wood but when developers go to the market, they look for the foreign building components and our people even prefer to patronise them. We must patronize our own local building materials and there should be special funding for housing development.
Government alone can’t cope with housing and so, it should create special funds yearly to support private developers.
The most important thing however in development, is infrastructure like good roads, electricity, water, and others. Government should create the enabling environment for private developers.
The COVID-19 pandemic has affected the real estate industry, especially the timely delivery of ongoing projects. How should parties to contracts manage issues that may arise?
More often than not, when you enter into contractual agreements, it is binding but the situation, which we find ourselves, nobody envisaged it. So it is force majeure as it were. The only way to navigate around this is through negotiation. If there is a tenure tied to any particular development, I think there should be a moratorium. You may even be surprised that in terms of building materials, the cost might have gone up and so at the end of the day, there could be a review of the contract.
If you don’t review, the development may get frustrated due to litigations. It goes without saying that there could be situations leading to abandoned projects. When the funds for the project are not flowing even if it is a borrowed fund, you are going to have projects that are temporarily abandoned.
With the impact of Covid-19 on the industry, what kinds of intervention do you think the industry needs to keep afloat and contribute significantly to the Gross Domestic Product (GDP)?
Nigeria can’t be an exemption from the impact of COVID-19 across the world. I’m aware that the government has announced that is going to inject about N2.3 trillion, as an intervention strategy for the economy and that amount is almost the capital budget for 2020 and quite huge.
But let’s hope that they are able to fund it. The cost of construction is on the high side when you are into property or housing development. The cost of building materials is quite high and one area of significant concern is the high-interest rate on borrowed funds.
From an average, it is about 30 per cent and I think the government should take advantage of this COVID-19, to review the interest rate charges, work more with the Central Bank of Nigeria to lower the rates, it will help in restarting the economy. For example, if the interest rate is brought down to about 10 per cent, it will be a good way to jumpstart the economy.
What are your suggestions on tackling issues of quacks in estate agency practice? Are you satisfied with ethical standards in the profession?
I think, that is strictly within the purview of government but it behooves on the institution to lodge complaints of such cases to the police. There are ethical standards in the institution, but I think that is not enough, there has to be training by the institution for most members to fall in line. The institution through in-house training should teach members and preach the ethical standards to members.
It is not enough to have code of ethics in black and white. We have the disciplinary outfit; the institution and the board have too. If there are people that default, they have to be taken to the tribunal. Recently, the tribunal sat on some cases and I think that is the way to go. In doing that, the tribunal should ensure hearing all sides to cases and not be a judge in its own case.
Amid the housing gap, about 60 million Nigerians are said to be living in indecent homes. How can we meet the needs of the people in this regard?
About 60 to 70 million Nigerians are poor. If that number of people are poor, they can’t afford a decent housing environment. It is unfortunate that we don’t have reliable data. I think that our housing need should be between five and eight million. I said eight million because of those living in derelict accommodation, which are not fit for human habitation. Government again should encourage the private sector by putting in place infrastructure and the high-interest rate on housing finance should also be looked into to ensure affordable housing.
What are your projections for the industry in the post-COVID-19 era?
There is no specificity in the way the COVID-19 is going and we don’t know where it would lead us. We just have to adjust. Government and individuals need to maintain sustainability in terms of the stimulus package and ensuring that they are well packaged and well delivered for the economy to maintain a balance for the sustainable real estate sector. Developers have to be cautious, watch their funds, and know the area of development.
Government should ensure that developers and landlords’ properties don’t lay empty. If there are taxes imposed on vacant properties as seen in developed countries, the trend will reduce drastically. Government should impose taxes on vacant buildings.
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