Evaluating the regulation of real estate in Lagos state; the clock is ticking

The city of Lagos, popularly referred to as “Las Gidi” by its young and vibrant inhabitants, is known as one of Africa’s most vivacious and culturally diverse cities.  Many residents of the city who pride themselves as “Lagosians” may not understand why this is so. Perhaps, those who appreciate its commercial history, will understand why although, the smallest state in the country in terms of land mass, Lagos will potentially remain industrious, highly populated and the preferred city for multinationals and locals alike to do business in Nigeria.

Due to its coastal nature, and resultant ease of travel, Lagos in the pre-colonial era, attracted individuals from various tribes within Nigeria who were interested in fishing and other economic activities. In addition, Lagos served as a center of trans-atlantic slave trade for the Portuguese and    other European countries in West Africa. During the colonial era, its potential to drive income for the British colony was quickly identified. By creating ports, duties and administrative levies were charged on imported and exported goods. Courts were established not only to resolve disputes but also to generate revenue for the colony. As economic activities increased, markets were built, financial institutions were established and roads were constructed to continue the facilitation of trade. This in summary is how Lagos became and remains the economic capital of Nigeria.

Across the world, urban development is recognised as a major contributor to economic development. In other words, real estate is fundamental to financial advancement. Lagos as a fast growing city, is not left out in identifying this fact. It is for this reason that the past and present governments of the State have aspired to develop Lagos into a mega city. To achieve this however, availability of housing, healthcare, effective sewage, drainage and waste management systems, hotels, education and recreational amenities is crucial. Local and Foreign Investment by the private sector is also paramount in developing these facilities.

According to the Central Bank of Nigeria, Lagos State’s real estate sector is valued at about $45.6 Billion. Specifically, due to the exponential growth of its ever increasing population, and its increasing need for infrastructure, the state government in 2003, signed into law, the Public Private Partnership law to encourage private participation in infrastructural development to enable the state meet its housing and basic infrastructure demands. To promote investment in the real estate sector, one notable regulatory development in Nigeria is that REITs have now been granted pioneer status, effective August 2017. In effect, companies registered as REITs and listed on the Nigerian Stock exchange will be granted tax holidays for a period of 3 to 5 years.

Challenges

Similar to other emerging economies however, investment in real estate is not without drawbacks. Some will argue that Lagos is closer to becoming one of the biggest slums in the world than it is to becoming a mega city. This observation arises due to the impact of urbanization on major cities across the world.

Ownership

For every law student and commercial lawyer in Nigeria, one issue remains mind-boggling. The Land Use Act which is the federal law governing interest in land in Nigeria, vests title in land in the state to be held in trust for its citizens. This therefore, is not peculiar to Lagos State, as the law is applicable to Nigeria’s 36 states. Following that position of the law after its promulgation in 1979, every person who acquires interest in land is granted a Certificate of Occupancy for a period not exceeding 99 years. 

In essence under the law, there is no freehold interest in land and any acquisition or transfer in title to a third party only grants interest for the remainder years from the date of the Certificate of Occupancy. The questions therefore arise- Does the allocation automatically renew after 99 years? Is the holder of legal title required to pay huge sums of money to retain possession after 99years? In any case, what happens to developments on the land where renewal is not achievable? These are pertinent questions that remain unanswered and create uncertainties for both local and foreign investors. Hopefully, the government will recognise the need for a clear policy direction on this issue.

Construction 

According to the media, in 2016, Lagos recorded the highest number of incidents of building collapses in the past 10 years. Many will recall the incident involving a six-storey building popularly known as “The Synagogue” which left over 100 people dead and scores injured. Many will also recall the more recent tragedy which occurred within an estate known as The Lekki Gardens which left about 35 workers dead. According to reports, orders of the Lagos State Building Control Agency, prohibiting further construction of the building were flouted.  Generally, building collapses have been identified to be caused by failure to abide by building codes, using substandard materials, improper piling, foundational faults, amongst others.

To control indiscriminate construction in Lagos State, the previous administration passed into law, the Urban and Regional Planning and Development Law (2010). Under this law, the Lagos State Building and Control Agency is conferred with the primary responsibility of enforcing construction regulations and issuing building permits. The same law also creates a number of other agencies responsible for ensuring quality control, inspection and testing of building materials, and issuing certificates verifying that buildings are safe and fit for purpose.

It is due to non-compliance with this law, that structures, for which no permits/approvals were obtained are demolished from time to time. The demolition exercises are however criticized by many and labelled as being targeted at the more vulnerable population without providing them with alternative homes or business locations.

The reality however remains that, majority of the  agencies do not give effect to the purpose for which they were established. It is not uncommon in Lagos Island for example to see evidently illegal developments for which permits could not have been lawfully issued or obtained due to their location and structure. It is correct that illegal structures are sealed and demolished from time to time but it is also the case that, permits and approvals are obtained without following due process, while buildings are certified as fit for purpose without the due diligence required to be conducted by the relevant agencies.

Registration Procedures

Generally, ease of registration of title in property has been recognized as a contributing factor to the promotion of foreign investments in developed and developing countries. To this end, in 2015, property registration was included in the annual World Bank’s Ease of doing Business Report as one of the indices for ranking participating countries.

In Nigeria, the process and costs of registration of title in land vary from state to state. One common factor however is that costs are usually high and procedures, cumbersome. On matters relating to record-keeping, availability of information and costs of registration however, Lagos State has advanced beyond most states and is worthy of emulation by others. Prior to January, 2015, the cost of perfection of title was about 15% of the purchase price and was reduced to 3% of the “fair market value” of the property by an executive order of the state government. Essentially however, the effect of basing the costs on “fair market value” was to reduce the costs within certain geographical locations while increasing the costs by over 300% in other areas. For one thing, whilst the cost of registration is rather high and discourages purchasers from taking steps to register their title, the level of bureaucracy also creates difficulty for many. Not only do transferees have to deal with unofficial fees, obtaining information on land is sometimes more tedious than necessary. Comparatively, in Dubai which has a thriving real estate industry, information is available at the tick of the clock and by law, the cost of registration is borne equally by both the seller and the buyer, therefore reducing financial burden in land acquisitions. Similarly, in the United Kingdom, information on required documentation, official fees (which are often nominal) and procedure can be easily obtained over the internet. 

Land Grabbing

One recurring menace is having to deal with hoodlums popularly known as Omo Oniles. If you have acquired land or have ever constructed a building in Lagos State, encountering Omo Oniles is inevitable. They are self-proclaimed land owners who take over construction sites and unoccupied property and harass lawful owners into parting away with substantial sums of money in exchange for peaceful possession. Their activities have remained a recurring nightmare for property owners.

To protect lawful owners from continuous harassment and exploitation, the state government, on 15th August 2016, passed the Lagos State Properties Protection Law into law. The law precludes individuals and unauthorized agencies from demanding payment for construction and also criminalizes the acts of the Omo Oniles. The impact of this law is yet to be felt. But time will determine whether the law will be effective in the final event.

Waste Management

Again, Lagos is at the forefront of generating waste as it reportedly generates 15,000 metric tonnes daily, making it the largest waste producing State in Nigeria. Waste Management has been one major impediment to the development of Lagos state. Scavenging also serves as a source of livelihood for many. In highbrow areas like Ikoyi and Victoria island, littering streets and dumping wastes is not unusual.  In line with the Clean Lagos Initiative which was introduced to resolve these issues, the Environmental Sanitation Law, was passed in March 2017. Under the law, issues of water generation, drainage maintenance and licensing are catered for. Under the Initiative, an efficient value chain of waste management and environmental protection will be created.

Conclusion

It is true that Rome was not built in a day. It is interesting to note however that similar to Lagos, 50 years prior to now, Dubai, was a fishing settlement surrounded by creeks. Presently, Dubai boasts of a booming real estate and tourism sector, being the city with the 3rd highest number of sky scrapers in the world, exotic hotels, some of the best health facilities, good roads and transportation system. Therefore, a mega city is achievable. Some will argue that there are insufficient laws to deal with the issues highlighted above. But the laws exist. It is the efficiency of those laws that is lacking due to factors such as corruption, lack of political will and the lackadaisical nature of some which are inherent in our systems.

To achieve the much desired status, these concerns must be addressed holistically, continuously and aggressively. Amidst the current socio-economic challenges in Nigeria, investors require a highly incentivized and efficiently regulated business environment.

ADERONKE ALEX-ADEDIPE

STRACHAN PARTNERS