‘Plant, machinery valuation will enhance government revenue’
Paul Osaji is the founding partner of Paul Osaji and Company, an estate surveying and valuation firm. He is also an accredited senior appraiser of American Society of Appraisers and member International Conference of Valuation of Plants, Machinery and Equipment Committee. In this interview, he spoke to CHINEDUM UWAEGBULAM on issues concerning real estate market and plant and machinery valuation in the country.
With current situation in the real estate market, where the vacancy rate of residential and office space remain high, do you agree with the notion that Nigeria has exited from recession?
I will say yes and no, at the same time relying on the indices provided by National Bureau of Statistics, we have moved away from the recession. On the other hand, a look at the current inflation rate that is in double digit and a review of purchasing power of Nigerians, one could say that we are still in recession. Sincerely, as a player in the economy the growth impact is not great and the departure from recession is not being felt. The purchasing power of Nigerians has not improved, and the demand for real estate has dropped greatly. In short, this sector contribution to GDP has shrunk to less than one per cent
The estate developers seem to be shunning property developments in Nigeria. What are the challenges facing private developers?
The biggest challenge in estate development is finance, which influences the construction and disposal of real estate immensely. Developers battle with high cost of funds, shorter moratorium period, cost over run due to instability in our exchange rate/ inflation, and challenges of construction funds. The other side of this challenge is poor mortgage system, high interest rate and low earning capacity of Nigerians. Demand and supply sides of real estate are badly affected by poor financial engineering. Our governments, financial and real estate experts should come up with an ingenious, robust and scalable solution considering our level of income amongst other factors.
What has happened over time is that the government has come up with different housing policies, but at the end of the day, their contribution towards housing financing and the impact on the ordinary Nigerians are not felt. When you rate these policies, none have made up to 50 per cent success. At this point, review of the performance of National Housing Fund will be interesting.
Availability and quality of building materials is another challenge. Though the local producers are grappling with this but the cost of production and inadequate electricity have not allowed them to be competitive. Hence our reliance on imported items are at a higher cost.
Although local manufacturers have made good efforts, however, they need to be encouraged one way or the other so that they can be competitive. By doing so, they will help us bring down the cost of housing and its attendant multiplier.
Infrastructure is another serious issue we face. It accounts for about 33 per cent of housing delivery cost. Water, sewage system, electricity and roads provision are in deficit. We need to find a way to adequately create and finance proper infrastructure. Thereby reducing the cost effect on housing delivery. What we find now is that most developers bear the costs of these facilities and to recoup the cost, they push it to the buyer. But if government provides infrastructure, the cost of housing will be reduced.
There is also land acquisition challenge. Access to land is not as cheap as people think. When the developer gets it, the amount he pays to the government in processing the documents is almost 50 per cent of the cost of the land. Worse still, the process of the approval is very challenging. One of the effects is that mortgage creation is slowed down which in turn impacts negatively on real estate development.
Labour is a big issue as it is not easily available. The skilled artisans are not there any more. Lack of technical schools to train them has also made matters worse. If this area is developed, it will create personal and national wealth. Government should encourage professional bodies to certify these artisans and streamline their professional fees. Making it an attractive profession for people to get into. Most of the artisans we have in Nigeria are foreigners. Those foreigners have schools but in our own country, the reverse is the case.
Multiple taxation is a major challenge. Every government agency wants to slam the developer with one charge or the other because development is physical. Even when the taxes are not justified. The developers are forced to pay. They transfer these costs to the subscribers of their homes hence higher housing cost and this affect demand adversely.
Government’s regulation and policies on payment for real estate and their operators is a recent clog on the demand side. These, frustrate the marketing of the real estate. The developer is now required to report who is buying and where they are getting their monies from, which is abnormal. They should subject the regulations to all products and services, and not being selective.
Finally, town planning laws, its monitoring and enforcement is a huge challenge that needs to be urgently addressed as they affect both sides of real estate development.
In other climes, proper valuation of plants and Equipment is a revenue spinner? How can federal, state or local governments utilise same as a means to eliminate total dependence on oil revenue and curtail external borrowing?
Valuation of plant and equipment provides a good base for corporate taxation for federal government, rating taxation for local government and Custom duties computation. Government revenue generation will be greatly enhanced when these services are professionally done. The multiplier effect is huge. Also the leverage on good valuation in wealth creation is immense and will improve the rating of our local businesses and governments.
In a quest to be globally competitive in plant and machinery valuation practice, some estate surveyors and valuers practitioners in Nigeria have liaised with the American Society of Appraisers (ASA), to obtain international certification. What have been the benefits of this partnership?
The benefits are immense. The main benefits are exchange of professional and academic knowledge, training and retraining on various aspect of the profession and networking with colleagues.
America is an advanced society and the quantum of equipment utilisation is higher than the ones we use here and so information flow on market trends are encouraged. By interacting with them, your knowledge base will be in tune with global best practice.
We also have reciprocal relationship with other valuation organizations in the world and are member of world standards boards such as the International Valuation Standards council (IVSC) International Public Sector Accounting Standards (IPSAS), and International Financial Reporting Standards (IFRS).
The dispute between estate surveyors and engineers on who is best qualified to handle plant and machinery valuation has resonated once again. Who is really a valuer?
The definition of who is a valuer, and the process of becoming one are clearly stated by the law of Estate Surveyors and Valuers Registration Board of Nigerian (ESVARBON) established by Decree 24 of 1975 now CAP E13 LFN 2007. ESVARBON has widened its door for professionals from other fields who are interested in the practice and the process is simple.For the benefit of the public, a valuers is a professional who interprets the monetary value of an asset, tangible and intangible.
The value of an asset is not just the cost of material utilised in its production and working condition, it goes beyond that. It is not an engineering role; it is a valuation issue. If you want to know what the estate surveyors and valuers do, you have to be involved and understand the intricacies.
Taking a few courses in public health engineering or building services does not make one an engineer, conversely taking courses in costing and valuation will not make you a valuer. The profession of engineering and valuation entails more than what Nigerian engineers are advocating.
What is the different between plant and equipment valuation undertaken by estate surveyors and engineering assessment, which your professional body claim is the work of engineers?
There is a great difference. At this point, it is important that we differentiate between plant and equipment valuation and engineering assessment. The former is simply ascertaining value in exchange while the latter is ascertaining the integrity and workability of an asset. From the foregoing, engineering assessment falls within the purview of engineers whilst Valuation of assets in all its ramifications falls within the domain of estate surveyors and valuers. I think it is a lack of understanding that is confusing our engineers and there is the need for dialogue on these issues to end this matter.
We might just as well say engineers should also claim to be Business Valuers (BV), an aspect of the valuation profession that requires deep academic grounding and understanding of business studies and valuation, before one could be certified to be a professional in that field.
What are the main issues in the dispute on plant and machinery valuation?
As I mentioned earlier it a lack of understanding of the art and science of valuation, the law that governs it and the profession that is the challenge.Engineers’ role in engineering assessment assignment is to determine the integrity of an asset, which may be needed by a valuer. But when it comes to putting value on those items they have built, it is not their area. They don’t understand the art and science of converting what they have put together into value.
How can this dispute be settled?
The parties should simply focus on their profession in accordance with the laws of Nigeria and adhere to international best practices.
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