Challenges associated with real estate investment in enugu nigeria

Thesis Overview

<p> </p><p><b>1.0 &nbsp; &nbsp; INTRODUCTION</b></p><p>Proper financing is all-important to successful<br>property investment and development. Various forms of finance on varying terms<br>from diverse investing agencies are available to the property market. The<br>principal field where various forms of investment finance are employed is that<br>of development where every loan has to be specially tailored for an individual<br>scheme and the particular stages within the scheme.</p><p>Since property development in particular involves huge<br>capital expenditure, finance is therefore an essential input, the nature of<br>which is to provide capital to enable the enterprise operate commercially. The<br>cost and availability of finance for real estate development can influence the<br>viability of such project.</p><p>Inspite of the importance of development finance in<br>property development, there is dearth of information on the amount of funding<br>that takes place, by whom, or the method used. Though this is not unexpected<br>given the general characteristics of development funding: there is no central<br>agency or institution to co-ordinate the business of property funding.</p><p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; In the<br>hierarchy of man’s needs, housing has been ranked second and as a result of<br>this; housing provision has become a paramount conerstone of the policies of<br>various governments both at federal and state levels since independence in<br>Nigeria. The consequences of the rapid rate of urbanisation are most visible in<br>the rapid deterioration of urban housing resulting in urban housing poverty<br>especially as there is no proportionate increase in the number of housing stocks.</p><p>The house occupies a very unique position in the life<br>of all human beings and stands out as one of the basic necessities of human<br>beings after food as there is the innate desire of every man to own a decent<br>house. It is the most single noncommercial investment or consumer of income.</p><p>For most working Nigerians, the earning capacity is<br>generally low and makes it practically impossible for the average Nigerian to<br>save towards owning a house. In addition, the dwindling economic fortunes in<br>Nigeria which dims the capacity of individuals to own a house.</p><p>The economic boom periods of the 1970s also<br>contributed to the housing problems in Nigeria.</p><p>During this period, there was surplus capital, the<br>economic climate then was favourable for the development of real estate and the<br>prospect of gain was over blown and so were the rate of development. The oil<br>boom brought in an era of urban development, which was beyond all expectation<br>and thus led to a massive surge in property development. Financial houses<br>readily obliged developers’ loans, as they perceived minimum risks.</p><p>However, with the crash in oil prices in the early<br>1980s, the economy was thrown into crises and recession thus set in which badly<br>affected the real estate sector. Since real estate investment and development<br>requires huge capital outlay, there is always the need for real estate investors<br>and developer to source for fund. This capital is usually higher than the<br>equity capital of such aninvertor and the only way out of this predicament is<br>to source for found through other means apart from his personal savings.</p><p>Which other sources of finance apart from equity<br>capital are available to the real estate investors? What problems are being<br>encountered in getting funds through these various sources?</p><p>1.1 &nbsp; BACKGROUND<br>TO THE STUDY</p><p>Real estate has continued to play a significant role<br>in man’s evolution. It is not a coincidence that food, shelter and clothing<br>believed to be the three essentials that sustain mankind, also have some<br>linkage to land. Food grows out of land while shelter is affixed to it, and<br>man’s clothing is made largely from what grows out of land. Indeed, whether in<br>ancient times or today’s modern system, land constitutes a significant index<br>for man’s wealth, and as economic activities have assumed more sophistication<br>over time, land has continued to play a central role in their development<br>(Lewis , 1994). There is hardly any business venture that does not require to<br>be supported by some form of real estate: from the small business that requires<br>real estate as offices from where its business can be organized, to the major<br>venture that needs it for its factory.</p><p>Consequently, through some very robust and well<br>thought out land policies comprehensively address challenges that are encounter<br>in the real estate sector. This is not exactly the situation here in Nigeria<br>and the result is that there is a myriad of problems in the real estate sector<br>(Adewale, 2000). In the course of this study, the researcher will provide an<br>overview of real estate investments in Nigeria and its associated challenges.</p><p>Real estate investment is intrinsically connected to<br>the economic development and well being of any nation, thereby necessitating<br>some intervention by prudent governments. Such interventions vary in degrees,<br>depending on the nation. In Nigeria, individual could rarely lay claim to any<br>part of it as owner and therefore could not alienate it without the consent of<br>the head.</p><p>Proper financing is all-important to successful<br>property/real estate investment and development. Various forms of finance on<br>varying terms from diverse investing agencies are available to the<br>property/real estate market. The principal field where various forms of<br>investment finance are employed is that of development where every loan has to<br>be specially tailored for an individual scheme and the particular stages within<br>the scheme. Since real estate and property development in particular involves<br>huge capital expenditure, finance is therefore an essential input, the nature<br>of which is to provide capital to enable the enterprise operate commercially<br>(Ratcliff, 1999). The cost and availability of finance for real estate<br>development can influence the viability of such project. It is necessary to<br>examine the nature of real estate investment in Nigeria with a view of finding<br>solutions to the associated challenges.</p><p>1.2 &nbsp; STATEMENT<br>OF THE PROBLEM</p><p>In recent times, research on real estate investment<br>has been on the front burner has it is the major source of housing for man. In<br>the hierarchy of man’s needs, housing has been ranked second and as a result of<br>this; housing provision has become a paramount cornerstone of the policies of<br>various governments both at federal and state levels since independence in<br>Nigeria. The consequences of the rapid rate of urbanization are most visible in<br>the rapid deterioration of urban housing resulting in urban housing poverty<br>especially as there is no proportionate increase in the number of housing<br>stocks.</p><p>During the period of economic boom in the 1970s in<br>Nigeria, there was surplus capital, the economic climate then was favorable for<br>the development of real estate and the prospect of gain was over blown and so<br>were the rate of development. Due to the recent drop in the prices of crude oil<br>world wide and corruption, government has not been able to invest in real<br>estate. Overpopulation and urbanization has led to massive increase in property<br>development.</p><p>Financial houses readily obliged developers’ loans, as<br>they perceived minimum risks.</p><p>Since real estate development requires huge capital<br>outlay, there is always the need for real estate developer to source for fund.<br>However, this study will examine the scope of real estate in Nigeria and its<br>associated challenges with a view of making useful suggestions on the way<br>forward for real estate in Nigeria.</p><p>1.3 &nbsp; OBJECTIVES<br>OF THE STUDY</p><p>The following are the objectives of this study:</p><p>1. To provide<br>an overview of real estate investment in Nigeria.</p><p>2. To examine<br>the challenges associated with real estate investment in Nigeria.</p><p>3. To identify<br>the way forward for real estate in Nigeria.</p><p>1.4 &nbsp; RESEARCH<br>QUESTIONS</p><p>1. What is the<br>level of real estate investment in Nigeria?</p><p>2. What are the<br>challenges associated with real estate investment in Nigeria?</p><p>3. What is the<br>way forward for real estate in Nigeria?</p><p>1.5 &nbsp; HYPOTHESIS</p><p>HO: Real estate investment has no challenges in<br>Nigeria.</p><p>HA: Real estate investment has several challenges in<br>Nigeria.</p><p>1.6 &nbsp;<br>SIGNIFICANCE OF THE STUDY</p><p>The following are the significance of this study:</p><p>1. The findings<br>from this study will educate the general public on the benefit of real estate<br>investment and its associated challenges which will form the basis for guidance<br>in decision making.</p><p>2. This<br>research will also serve as a resource base to other scholars and researchers<br>interested in carrying out further research in this field subsequently, if<br>applied will go to an extent to provide new explanation to the topic.</p><p>1.7 &nbsp;<br>SCOPE/LIMITATIONS OF THE STUDY</p><p>This study on real estate investment and its<br>associated challenges in Nigeria will cover the extent of real estate<br>investment in Nigeria looking at the factors that has facilitated or hindered<br>it. It will also cover the challenges associated with real estate investment in<br>Nigeria.</p><p>LIMITATION OF STUDY</p><p>Financial constraint- Insufficient fund tends to<br>impede the efficiency of the researcher in sourcing for the relevant materials,<br>literature or information and in the process of data collection (internet,<br>questionnaire and interview).</p><p>Time constraint- The researcher will simultaneously<br>engage in this study with other academic work. This consequently will cut down<br>on the time devoted for the research work.</p><p>1.8 &nbsp; DEFINITION<br>OF TERMS</p><p>Investment: an investment is a monetary asset<br>purchased with the idea that the asset will provide income in the future or<br>appreciate and be sold at a higher price.</p><p>Real estate: property consisting of land or buildings.</p><p>REFERENCES</p><p>Adewale, J.R. 2000: Real Estate Investment Analysis.<br>Lexington Books.</p><p>Lewis, M.G. (1994): When Real Estate Becomes Big<br>Business: Mergers, Acquisitions and Joint Ventures. Cahners Publishing.</p><p>Ratcliff, R.U. (1999): Real Estate Analysis. McGraw<br>Hill, New York.</p> <br><p></p>