Real estate is regarded as a bundle of rights which an holder can exercise and benefits from. It is regarded as real because of its nature, being fixed and immobile. An investment in real estate or property thus is aimed at long term benefits which the investor is expected to derive as a result of its ownership. Thus, the major yardstick of measuring real estate investment is the return on investment which usually is in form of rent (or profit – when it is used as business). In another form, real estate has the ability for capital appreciation overtime, when it is held for re-sale purpose.

Investment in real estate often  requires a large capital outlay, which with the right enterpreneurial ingenuity can attract adequate return. Added to this is the long gestation period which the investment will take to pay-back the capital. However, real estate has been identified as a very reliable investment avenue compared to other investments such as stocks, securities, etc. Unlike other investment media, real estate confer special status that may not  be available to other investors in term of social prestige in addition to the financial returns. Hence, an investor in real estate apart from enjoying regular income from the investment, has a social status that money may not be able to guarantee. In other words, the decision to invest in real estate could be economic, social prestige or political. This therefore addresses why different property investment exist base on various objectives.

 Types Of Real Estate Investments

Investment in real estate takes different forms, and each of the forms or category has various objectives of the relevant investors. The major ones are:

 Residential Property Investment

 This is an investment that is developed to serve as shelter for human habitation. It comprises of housing units of different types serving different family needs. Investment in residential properties could be for owner occupation (social prestige) or annual returns in form of rent. Residential property investment are in different categories, namely;

Bungalow – this is a single family accommodation built on a single floor. It is further identified by the number of bedrooms which is used to meet the different family needs bases on size. Hence, we may refers to Two-bedroom, Three-bedroom or Four-bedrooms Bungalows. Most investor for social prestige, especially the medium income prefer this type of property for personal occupation. As an investment property, bungalow has good demand especially for middle and high income earners because of its privacy. 

Block Of Flats – this is an apartment building which accommodate (usually) more than one family units. It could be single or multiple floors with share common external facilities (e.g. staircase, parking, security, etc). Like Bungalows, flats are also identified by the number of bedrooms in each of the family units. The return on this type of property is good due to high demand in the market.

Duplex – The duplex,which means double of two-fold, is a type of single family storey building that can be found together as a housing unit on two floors. It could be detached (alone) or semi-detached (sharing compound with another unit).it is usually designed with internal stairway. Duplex is regarded as a low density residential unit which is for high income earners. As such, they are usually designed with state of the art facilities to show the class of the occupants. Demand for this type of properties is among the high class and they are usually not as many as flats and bungalows, but with high rental income. It is also a higher social status for the property owners.

Terrace Houses: These are row of houses sharing walls and premises. They could be on one or two floors. The demand for this property investment is also good especially in highbrow neighbourhood.

Mansions: Mansions are special type of multi apartment units contained in a single building. It is a large impressive house with state of the art facilities serving a family or an entity. A mansion could have several rooms and other complementary faciliities within the large premises. It is usually contained of main building and other service facilities such as guest chalet, servants quarters, service areas (e.g. security building, generator house, conference hall, swimming pool, lawn tennis court, etc). It is occupied by the highly placed personalities in the society and has few demand. While mostly developed for owner occupation, there are few in the market for income yielding.

 Commercial Property Investment

Commercial properties are developed for business purposes. It consist of buildings used for offices, shops, warehouses, etc.

Offices – offices are usually developed to provide conducive environment for secretarial and other related functions and meetings. It is usually designed to have safe environment for work and business transactions. Offices may be designed as open plan or partitioned into smaller units; single or multiple floors (high rise); single or multiple occupation; owner occupation or leased out (single or multi-tenanted), etc. Usually investment in offices take consideration of space for adequate parking, security of properties and lives, and location in terms of accessibility to other business environments. Demand for offices is good especially in cities and commercial centres and returns therefore is encouraging.

Shops –  This type of property provides accommodation for buying and selling (trading) of different forms. It ranges from market stalls, shopping malls/complexes to trade fairs complexes. Shopping environment are usually developed with adequate parking and security for customers. Generally,investment in shops have good return but location is very important to ease of accessibility.

Warehouse – This is a special type of commercial property investment used for storage facilities. It usually service other business concerns such as industries, shops, offices, etc. It requires good access for ingress and egress of heavy duty vehicles that are used to transport goods. The demand for this property class is good especially where there are business concerns that require same.   

Industrial Property Investment

Industrial properties are mostly owner occupied. However, there are few ones in the market on rental income. Location, design and facilities are very important in investing in industrial properties. There are demand for industial properties especially light  industrial uses in commercial centres.

 Recreational Property Investment

The major ones in this category are hotels, cinema houses, club houses, golf courses, theatres, sports complex, etc. The returns on this type of specialized properties depend on the business ingenuity and management by the investors. They are basically run as business concern by the investors and only few are on lease.

 Licensed Property Investment

This type of properties are closely related to recreational properties in the fact that they are operational based and returns depend on the managerial ability of the operators. The major ones are hospital, fuel stations, cementeries, events centres, etc.

Characteristics Of Property Investment

 Real estate as an investment has some peculiarities which differentiate it from other forms of investments. These peculiarities are features that are usually considered by investors when going into the real estate business. The major ones are:

Indivisibility – Investment in property can not be easily divided into small units as it is done in shares. Thus investors require large capital to go into property investment.

Cost Of Ownership Transfer – Property ownership transfers entails costs. Fees have to be paid in respect of government consents, title search, agency fees and legal documentation to effect pwnership transfer.

Capital Appreciation – Property has the quality of appreciating in value over time. This may be as a result of government action, discovery of mineral resources, infrastructural development, migration of people due to urbanization, etc.

Capital Growth – Investment in property has the capacity of growing in returns as a commodity good. It as a good potential of increase earning power with passage of time.

Form Of Security– Property is a form of collateral to secure credit facilities from financial institution. It can also be used a surety for bail condition without loosing the investment.

Management– Investment in property requires proper management and maintenances to have security of income yield.  There are question of selecting good tenants, collection of rents, attending to repairs and maintenances as well as meeting up with statutory responsibilities such as paying groung rents, tenement rates, etc which become liable on the property.

Direct Control – Unlike other investments, property owner has direct control on the investment. He can regularly review the performance and take action on the investment as he wishes.

Marketability – Real estate are tradeable in the market, though not as prompt as shares. It is fairly  low in liquidity because of the large capital involved and procedure for transfer of ownership which require third party consent. Disposal of real estate require title search, price negotiation and other technical information which usually takes time before transaction is concluded.

Major Considerations In Property Investment

Because of the features of property investments, some major factors are considered by investor before the decision is taking on any property. The major factors are;

Location

Location is very important in real estate investment. It is the location that attract tenants to a particular place. Location is essentially conected with safety and accessibilty to other uses. It also influences demand and supply from tenants and buyers.

Demand And Supply

The state of market at any time could affect property investment at any time. Where the supply of a particular property is much in the market, the price will fall and this may discourage investors. In the same vein, a rise in demand may trigger up more investments resulting in good returns.

Title

Real estate investors will consider whether the interest is freehold or leasehold, statutory or customary titles. The security of the documents may also influence investment decisions, as could be seen in FCT with the introduction of Abuja Geographic Information System with some level of security on the title documents.

Infrastructure Availability

Basic infrastructure provision is essential for good property returns. Tenants and buyers prefer properties serviced with infrastructural facilities.

Maintenance

An investor will take into consideration the cost of maintenance when making investment decisions. Preference will be given to property with less maintenance problems to those with serious maintenance issues.

Government Policy 

Where government action is put in place for regulation of property returns such as rent control, recovery of premises, property charge, etc it may discourage property investment in the area.

Issues And Challenges Of Real Estate Investment In The Satellite Towns

The satellite towns of FCT cut across all the six area councils. From Lugbe, Karu, Nyanya, Karshi in Abuja Municipal Council to Kuje, Kubwa, Bwari, Gwagwalada, Abaji, Kwali, Zuba, the vast majority of FCT residents resides in the satellite towns. Hence, these areas have become very important for the economic and social life of the territory. Thus a greater investment in real estate takes place in these locations than the Abuja city centre.

Real estate investment in these satellite towns is faced with many challenges, among which are;

Insecurity Of Titles

There are cases of fake title documents which discourage investors in real estate. Another common problem related to titling is the indiscriminate revocation of titles without adequate compensation.

Lack Of Credit Facilities

Property investment require huge capital which may not be available to most investors. In most advanced countries, credit facilities is made available for property acquisition, whereas credit facilities are lacking in developing economies. Most titles in the satellite towns have customary rights of occupancy which are not acceptable as collateral by many commercial banks.

Inadequate Infrastructure

Infrastructural developments aid property investment. However. Most of the essential infrastructure are not provided in the satellite towns thus discouraging investors who may be required to spend more money in an attempt to provide infrastructure.

Delay In Development And Planning Approval

Approvals of building developments by planning authorities are unnecessarily delayed thereby discouraging serious investors who are eager for immediate project development and returns. Presently, planning approvals have been suspended by the FCT for all lands within the satellite towns with Area Councils title documents.

Government Policies

Various government policies/legislations could make or mar property investment. The Land Use Act 1978, Mortgage Reform Act, Pension Reform Act, National Housing Policy and so on, all have effects on real estate investment.

Tenants’ Attitudes

For investors in residential properties, the attitude of most tenants is capable of discouraging them from investing their hard earned capital where returns may be jeopardized due to non-payment of rents by tenants.

Judicial Bottlenecks

The process of recovery of premises from recalcitrant is usually delay and expensive due to judicial bpttlenecks. Property owners could wait for several months before securing vacant possession and usually at high cost. The process involve the service of legal practitioners and payment of different charges to the government. Landlords will not be able to receive the rents during this period thereby losing on two sides. This weak system which is also corrupt could discourage real estate investment.

High Cost Of Transaction

Real estate acquisition involve high cost apart from the main property cost. This cost may run into a high percentage of the price which may cover professional fees, consent fees, stamp duties among others. This high cost couple with time consuming nature may also discourage investment.

Prospects

Property investment in Kubwa has a very good potential based on various factors as highlighted below:

The current infrastructural development in the satellite towns has made transportation and livelihood more easier. Various roads construction, installation of electricity infrastructures, expansion of greater water supply to the towns, among others have made real estate investment in these locations attractive. Residents now spend less times to commute and could enjoy the good facilities without coming to the city centre.

The re-introdution of Accelerated Area Council Titles Regularization System aimed at securing the title documents for property owners in the Area councils has helped in reducing titles deficiency. This will ensure ease of title verification and security of property documents.

The location of some government offices and several educational institutions outside the city centre has increased property demand in satellite towns.

There is an improvement in the judicial system that recovery of premises cases are not allowed to take long time to decide.

 Recommendations

Based on the findings from the study, the following recommendations are hereby  made:

Government should encourage acquisition of real estate by introducing a sustainable mortgage policy that will provide long term funds to investors.

FCTA should fastrack the process of regularizing the Area Council titles so as ensure genuine property transactions of Area Council lands.

The Satellite Town Development Agency (an agency under FCTA) should be provided with adeaquate funds for sustainable infrastructure provision in the satellite towns of FCT.

Government should ensure transparent process of land allocation to all citizens to enable them go into property investment through direct allocation which is cheaper and secured.

Prospective property investors need to understand the peculiarities of the investment in term of capital involvement, gestation period and need for effective management of the investment while considering the investment potential.

The provision of National Housing Fund limiting access to funds to N15 million need to be reviewed especially for senior civil servants who desired decent home for their families, the cost of which is above this ceiling figure.

 Conclusion 

Based on the study, it has been established that investment in real estate is safe and have secured returns, hence more investors will be required to meet up the housing deficit. The property market in FCT is also dynamic and could change overtime, however, demand for residential estate is secured and returns is guaranteed for any potential investor. This is where the service of Estate Surveyors and Valuers is required first to determine the feasibility and viability of the proposed property investment and later upon completion, to effectively manage the investment to enable it yield the expected returns.

Compare to other investments, real estate has low risk and appreciate overtime giving it an edge over inflation. Equally, apart from the financial return, the benefits of property ownership is enormous and can not be compared to any other investment. Owning a property investment in FCT, for instance, confers high level social prestige in addition to the good and secured returns which has been analyzed in this write up.

Esv. Adebayo Ismail, MNIVS, RSV, LL.B is the principal partner,  Bayo Ismail & Partners, Estate Surveyors & Valuers