Most sections of Land Use Act are inimical to real estate practice, says Mark

Dr. Emmanuel Mark is a former president of the International Right of Way Association (IRWA) and fellow of the Nigerian Institution of Estate Surveyors and Valuers. He spoke to CHINEDUM UWAEGBULAM on the controversy surrounding the Land Use Act, commercial real estate and impact of the inflation on built environment.

Protection of the Right of Way in Federal highways has been a major issue in the country. How can we enforce rules that curb encroachments on the highways?
Actually, the protection of the Right of Way (ROW) of the Federal Government has been a major crux of conflict. The basic principle is that no person or entity may lawfully occupy or use the ROW (land/property) lawfully acquired without authorisation.

Encroachments are situations when unauthorised object is partially or wholly situated within the acquired highway right of way. They usually pose potential safety hazards to motorists, cause damage to state property, or in some cases lead to claims of adverse possession.

Experience has shown that most successful right of way protection rely on early, consistent and clear right of way planning. The most effective way of enforcing the rules most times will be for the acquiring authority to take possession as soon as right of way is acquired and paid for. Also, government agencies responsible for the protection of the right of way must be alert to their responsibilities and prevent indiscriminate encroachment on acquired spaces.

In more severe cases, the acquiring authority can fence off the property for safety and to prevent encroachment. Usually, the decision to fence is based on the type of ROW, the practicability of installing and maintaining the fences and the relative benefit to the authority.

There has been agitation for review of the Land Use Act to conform to the generally accepted standard of acquisition and compensation. What sections are inimical to real estate practice? What are the issues?
The central objectives of the Land Use Act (LUA) are to make land readily available and affordable for development. However, after 40 years of implementing and administering the Act, it has failed to achieve its set objectives. As regards the aspect that deals with acquisition and compensation, land whose Certificate of Occupancy (CofO) has been revoked is the unfair section of the law. It limits compensation to only improvements on the land and ground rent paid in the year of acquisition.

This means that if you buy a plot of land for N50 million in Government Reserved Area (GRA) phase one in Port Harcourt one year ago and land is acquired for public purposes today, you will be entitled to compensation for only ground rent paid in the year of acquisition. Not compensated for the purchase price, which you paid. It is so unfair to property owners.

The law goes further to say that if, for instance, you are provided an alternative to your acquired property and the value of the alternative is higher than the value of your property; you shall be made to pay the difference. But if it is lower, you will not be entitled to the difference.
We were taught that the principle of compensation is to put you in the same position as you were before your property was acquired. The above law (sections) cannot do that.

This LUA, especially the section that deals with compensation, is in conflict with the constitution. The 1979 Constitution has provided that “no person’s property shall be acquired without adequate compensation.” Section 29 – 33 of the LUA does not make way for adequate provision, thereby creating a conflict. Since the Act has been made part of the same constitution, this conflict, in my opinion must be removed.

Most sections are inimical to the real estate practice. An example is where; banks and other financial institutions will not accept bare land as collateral for loans and advances, despite the high price paid to purchase it. This is also as a result of the compensation clause in the Land Use Act, which has nothing for the owner of bare land if C of O is revoked.

The situation has also been a source of serious concern for those who have land and will like to use it as collateral for loans either to develop the land.

The value of the land can be greater than the value of the development on the land in most high-end locations. It is therefore not right to ignore the value of the land and pay compensations only on the land. As a practitioner, this is one of the ways the LUA is inimical towards real estate development and practice.

Infrastructure has been used as a tool to stimulate growth of human settlements in many urban areas. Is this the case in Nigeria? What has been the hindrance to urban development in the country?
Before any settlement could be termed developed, it must have infrastructure services like power, transportation, telecommunications provision, water and sanitation, including the safe disposal of wastes, which are tools to simulate growth in most human settlements.

Policy makers have used infrastructure systems to attract private investments for housing and economic development. In fact, research has shown that there is a relationship between levels of infrastructure and land values and prices.

In emerging markets, inadequate infrastructure can be a substantial barrier to growth. Today, Nigeria is experiencing a rapid growth in urbanisation, which lacks regulations and proper administration, leading to high population density, inadequate infrastructure, lack of affordable housing, flooding due mainly to blockage of canals and waterways by developers, pollution, emergence of slums, crimes, poverty and others.

The challenges to urban development are connected to lack of development and absence of spatial planning policy framework for guidelines and standards for urban as well as regional developments.

Nigerians are feeling the impact of high inflation in the country, especially in the built environment. What’s the likely effect on residential real estate?
Today, inflation rate in the country is over 15 per cent and its effect on real estate is considered a major concern for long-term investor. Inflation certainly has a real estate related side effects, some of which are higher mortgage rates and increase in asset prices, while long-term debts get devalued and construction gets more expensive.

However, real estate has been said to be a hedge against inflation, especially in the residential property market. In most circumstances, an inflationary environment leads to higher rents and increase in asset prices, as real estate is considered a great hedge against inflation because the value of property rises with inflation and the debt on asset is devalued when the value of that debt decreases.

The effect of inflation on residential real estate is usually positive; it offers the most attractive return characteristics and should be considered in the inflation protected portfolios.

The effect of inflation on the market is usually positive for property owners – the value of their property rises with inflation; for investors when you invest, especially at the period that rates are low, while paying the same fixed rate, the return on investment will soar.

Office vacancy rates have continued to peak due to the COVID-19 pandemic induced work-from-home model. Do you think the commercial real estate will bounce back this year and what are your expectations in that segment of the market?
The impact of the COVID-19 pandemic on real estate is an indirect one; as pandemic affects humans’ activities and these in turn impact the real estate market.

It is evidenced that office-using employment declined while vacancy rates for office space increased significantly. How office property asking rents have responded to the pandemic remains unclear. Due to the long-term required for commercial leases, landlords are unwilling to lower rents, because they expected that market conditions would soon improve.

However, at present, office rent remains relatively stable and in most cases record increased occupier activity, because some offices in the central areas prefer to relocate to suburbs and more affordable locations.

Businesses have since resumed as usual due to the opening up of the economy. I look forward to a more robust office property markets.

The right of way association is little known among Nigerians. What are the aims and objectives of the professional body in the built environment?
The International Right of Way Association (IRWA) is a global, member-led organisation of dedicated professionals within the right of way industry. It was established in 1934 as a not-for-profit organisation and acts as a platform for members to have global industry-wide recognitions, designation and certifications and to elevate the role of right of way professionals by strengthening their industry relevance.

It is a global body of over 10,000 members from over 15 countries around the world. Though not popular like professional bodies in the built environment, our members have been involved in most infrastructural and real estate projects in Nigeria.

The organisation was inaugurated in 2013, as the first chapter in West Africa and the second in Africa. IRWA’s purpose has always been to improve people’s quality of life through infrastructure development.

Our chapter consists estate surveyors, land surveyors, engineers, lawyers, town planners and others involved in right of way acquisition and management. Our clients now appreciate our roles in the right of way acquisition project.

Though not as popular as we would want, the present executives are doing a lot in the area of public enlightenment, promotion of the association and its activities.