Challenges in Real Estate & How to Overcome Them

One of Nigeria’s most important and active economic sectors, is the real estate market. It is crucial for bringing in investments, generating jobs, and offering shelter. It does, however, also confront a number of challenges that hinder its expansion and effectiveness. This article will examine some of the issues, challenges, limitations, and potential remedies.

Zoning and Government Regulations

For any development, local zoning, land use, and permission procedures are a major expense. It can be challenging for developers to precisely estimate the expenses of their buildings due to the broad variations in permit charges, zoning, and land use restrictions. The overall cost and schedule of a project may be impacted by land use laws that are incompatible with the intended purpose of a building.

Solutions to Zoning and Government Regulations

Before starting the entitlement process, developers must perform due diligence early in the project development phase to find any potential regulatory obstacles. By doing this, expensive delays brought on by permits and other legal concerns may be avoided. The effort doesn’t stop there, though. A team devoted to guiding their projects through the entitlement phase is necessary for developers. This includes speaking with zoning and land use officials about potential obstacles, attending public hearings to address community input, and following up with permitting authorities regarding any problems with their permit applications.

Sustainability and Environmental Issues

To lessen the effects of climate change on the built environment and the real estate sector’s role in it, governments have enacted new Environmental, Social, and Governance (ESG) laws. Notwithstanding the admirable goal, these rules may cause commercial developers to face financial and legal difficulties, such as the need for more environmental impact assessments. The regulations may also compel developers to incorporate climate-friendly technologies, which would raise the cost of a project.

Solutions to Sustainability and environmental Issues

Instead of trying to avoid ESG, developers should embrace it. And by doing this, a company might draw in new investors who would not have previously shown interest in real estate, increasing the flexibility of a project’s financing stack. Giving investors information about a building’s energy or water usage, carbon emissions, or social impact helps reassure them that the project team is effectively managing the development’s risks. Additionally, it can create opportunities for a development firm to establish new alliances with other companies or development organizations.

Effects of Market Volatility

High borrowing costs brought on by rising interest rates are the main cause of the recent instability in the commercial real estate market. despite the fact that inflation has considerably decreased. Developers may fight the recent market instability by concentrating on tenant retention and offering a variety of offerings. For example, in order to draw in new tenants, retail and industrial developers might perceive a chance to combine the two purposes and incorporate experience components into their buildings.

How to overcome Effects of Market Volatility

• Diversification: Investors should diversify their real estate portfolios across different asset types (residential, commercial, industrial) and regions to mitigate risk
• Long-Term Investment Strategies: Encouraging long-term holding of properties can provide stability against short-term market volatility.
• Stable Financing: Using fixed-rate mortgages or adjustable-rate mortgages with favorable terms to weather interest rate fluctuations

Lack of Transparency: Concerns about transparency are prevalent in the Nigerian real estate industry. Fraud, land grabbing, and other immoral activities can result from opaque real estate transactions. Investor confidence would increase and property owners’ rights would be safeguarded in a more open and responsible real estate market.

Remedies to Lack of Transparency

• Increased Digitalization: Using data-driven platforms and real estate portals to provide accurate and up-to-date information about properties.
• Public Data Access: Governments can provide open access to property data, allowing people to make more informed decisions.
• Professional Appraisers: Encouraging the use of licensed and certified appraisers to offer transparency in property valuation

Property Maintenance and Management Issues

Maintaining and managing properties, especially large portfolios, can be a time-consuming and costly endeavor. Property maintenance is crucial to retain or increase the value of a property.

 Remedies to Property Maintenance and Management Issues

• Outsourcing Management: Hiring professional property management companies to handle day-to-day operations and maintenance.
• Technology Integration: Implementing property management software to streamline maintenance schedules, tracking issues, and tenant communication.
• Preventive Maintenance Programs: Scheduling regular checkups and repairs before small issues turn into expensive repairs.

Land Ownership and Documentation Issues

In Nigeria, ambiguous property rights and land disputes are frequent issues. Establishing legal property ownership is challenging due to the existence of informal settlements, several land tenure systems, and insufficient land documentation. This puts real estate transactions at danger and causes legal disputes.

Inadequate Infrastructure

Real estate growth is greatly impacted by infrastructure flaws, such as inadequate power supplies, bad road networks, and inadequate water and sanitation systems. This results in higher building and maintenance expenses, which are then on to tenants or buyers.

Remedies to Inadequate Infrastructure

• Smart City Planning: Using technology and data to create more efficient urban environments, reducing congestion and improving services.
• Investment in Infrastructure: Governments should prioritize infrastructure projects such as roads, public transit, utilities, and community centers to keep up with growing populations.
• Decentralization: Promoting growth in suburban or less-developed areas through incentives for businesses and residential projects outside major urban centers.

Environmental Concerns

The real estate market is directly impacted by environmental problems including erosion and flooding, especially in coastal areas. Properties may sustain damage and lose value as a result of climate change and the threats it poses.

Remedies to Environmental Concerns

• Green Building Standards: Encouraging developers to adhere to sustainability standards by offering tax incentives or other benefits.
• Renewable Energy Solutions: Incorporating solar panels, energy-efficient systems, and water-saving technologies in new constructions.
• Eco-Friendly Design: Designing buildings to be more energy-efficient, with green roofs, natural lighting, and sustainable materials

 Access to Finance

For developers and prospective homeowners, obtaining financing continues to be a significant obstacle. The expansion of the real estate industry is hampered by high interest rates, strict lending standards, and a shortage of mortgage facilities. As a result, there are fewer opportunities for homeownership, particularly for middle-class and lower-class individuals.

Remedies of Access to Finance

• Government-Backed Loans: Programs like FHA loans or VA loans that help first-time homebuyers with lower down payments.
• Flexible Loan Terms: Encouraging financial institutions to offer more flexible mortgage products that cater to a wider range of buyers.
• Alternative Financing Options: Crowdfunding and real estate investment trusts (REITs) offer new ways to invest in real estate with lower capital requirements.

Inflationary Real Estate Prices

In many regions of Nigeria, real estate costs have skyrocketed to the point where many residents can no longer afford them. High building costs, speculative activity, and the absence of regulations in the real estate industry are some of the causes of this inflation in property values.

Remedies to Inflationary Real Estate Prices

• Affordable Housing Initiatives: Governments and developers can collaborate to build more affordable housing.
• Price Regulation: Implementing rent control policies or offering subsidies to help make housing more affordable.
• Financing Solutions: Providing more access to low-interest mortgage loans and offering first-time homebuyer grants or incentives.

 Political Instability

The real estate market may be impacted by Nigeria’s sometimes unstable political environment. Political unpredictability may result in policy changes that affect the sector, and the possibility of political upheaval may deter both domestic and foreign investors.

Growing Construction Costs

Developing properties has become more costly due to the steady increase in labor and building material costs. These growing expenses may discourage developers from taking on new projects or raise consumer pricing.

In Conclusion

While real estate presents various challenges and limitations, proactive solutions that involve government intervention, technology, and sustainable practices can significantly mitigate these issues. A collaborative approach between developers, investors, governments, and local communities is key to overcoming these hurdles and creating a more accessible, sustainable, and efficient real estate market.