Why real estate auctions are failing in Nigeria
Efforts by real estate professionals, government agencies and developers to use auctions as an alternative method for disposal of properties may have hit rocks, as recent events show that it’s yet to gain prominence in the industry.
The trend began in the 70s in the United States and others, when some developers found auctions as an effective way to sell a property quickly without incurring large carrying costs. This method was adopted following severe declines in real estate prices and for the property involved in foreclosure and bankruptcy.
With its popularity in other climes, real estate auctions have therefore overshadowed the traditional channels of searching real estate listings and working with real estate agents.
But the culture is still at its lower ebb in Nigeria despite being a big industry, as many prospective buyers still prefer consultation with the traditional real estate agents in their quest for property acquisitions.
The Guardian investigation revealed that the inertia towards real estate auctions is connected to the generally held distrust, lack of credibility and the opinion that such platforms are often used to sell distressed properties.
Speaking on the development, the chairman faculty of auctioneering, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Tope Yinka Ojo disclosed that a major militating factor against real estate auctions is lack of a clear cut regulation on auctioneering, despite the existence of different bodies, association and institutes acting as auctioneers.
He explains, “Lagos state actually has an auctioneering bill that gives anybody that wants to practice as an auctioneer the right to practice in the state to register and obtain the license, but the regulatory framework is weak.
“In some other states anybody could just work into the local government and pay a little amount to collect the auctioneering license and that’s what goes on. It’s a big industry that has a lot of potentials if well regulated in Nigeria but it’s just coming up.
“ In an auction, you see the way bidding is done and those winning the bid. Also in auctions, you need to know the realistic worth of your property with regards to the market value. If you put a property in the market and you overpriced it, the market will respond that you are not getting the bid and if you under price the market would put it up against itself. We need to engage the higher institutions on the teaching of auctioneering as a course, building capacity in that regards through training on the techniques, creating awareness between government, and the private sectors to know the value auctioneering could bring to the economy,” he said.
A developer who pleaded anonymity told The Guardian that most buyers are concerned that property auctions are sometimes fraught with challenges for sellers.
He explained that some already built up properties could be inundated with cracked walls, lands could have litigation challenges, properties could have been neglected and may have stood empty for several years, deteriorating building exterior, sagging or curving roof, which could indicate a problem with the structure and old windows that need complete replacement.
“ It is true that auctions are not really working in Nigeria mostly due to lack of credibility in the system. Most of the problems can only be spotted if you actually have the opportunity to view the property where it is located. It’s never a good idea to buy a property without first conducting thorough viewing.
“The costs of rectifying it, if there are issues could run into millions and the problems with properties are rarely unsolvable. It is advised to get a professional surveyor’s advice on the building ahead of the auction”, the source stated.
“Also the owners may not have been able to afford upkeep or maintenance expenses on the property, so it could need major repairs. Visiting the property before the auction will give you a better understanding of what you are bidding on and what needs to be fixed.
“The knowledge of the value of the property against similar properties in the area is necessary to ensure you are bidding within the market price range. Additionally, there is the possibility that you might be dealing with a different pool of potential buyers who are experienced investors and so competition could be higher”, the expert said.
In his contributions, another private developer, Mr. Femi Beecroft said the problem is not about the industry, but the Nigerian market, which is not very educated on financial products and the fact that the Nigerian real estate sector is not that deep to accommodate such property acquisition option.