Everything you need to know is included in our Nigeria Property Pack
Nigeria's economic potential and diverse property options are drawing the interest of foreign real estate investors.
However, as you might know already, this property market can be tricky, especially if you're not from around here. You might encounter unexpected issues and difficulties along the way.
Our community of property purchasers, in conjunction with our nearby experts, has identified a multitude of problems. We've listed them all in our Nigeria Property Pack.
This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.
Is it safe or risky to invest in real estate in Nigeria?
Scams in Nigeria's real estate sector are, unfortunately, not uncommon. One of the most prevalent is the issue of 'double allocation,' where a single property is sold to multiple buyers.
This situation often arises due to inadequacies within the property registration system.
For instance, a case in Lagos State involved a property developer who sold lands to various buyers with fake documents.
The situation escalated to legal disputes, which took years to resolve, illustrating the risks and the sluggish pace of the judiciary in property matters.
Foreigners face particular issues that stem largely from a lack of familiarity with the local system and, at times, from an assumption of comparable regulatory standards to their home countries.
A specific example of this would be the purchase of coastal properties.
Nigeria's Coastal and Inland Shipping (Cabotage) Act limits the use of coastal lands, impacting certain property rights. A foreigner unaware of such legislation might invest in beach front property only to find their development plans severely restricted.
Moreover, some mistakes in the Nigerian property market can indeed be very costly. Consider the compulsory land acquisition by the government, where land can be repurposed for public use under the Land Use Act.
There have been instances where foreign investors have purchased land without realizing it was under government acquisition, leading to a complete forfeiture of both the land and the capital invested.
When it comes to legal protection, while there are regulations in place, the efficiency of their enforcement is not always guaranteed. The Nigerian legal system's protection of property rights can be unpredictable.
Foreign investors have sometimes found that contracts and property rights are not as robustly enforced as they are in countries with more mature legal systems.
Transparency in the property-buying process in Nigeria has been a significant concern.
The World Bank's Ease of Doing Business report has consistently ranked Nigeria lower in terms of property registration. This is indicative of the bureaucratic red tape and lack of a clear, streamlined process for property transactions.
In terms of resolving disputes, the Nigerian judicial system is often perceived as inefficient due to delays and a backlog of cases.
A high-profile case involving a multinational company that had its property compulsorily acquired by a state government without prompt compensation is a testament to the complexities and delays that can mar the system.
Foreign buyers must engage in extensive due diligence, which goes beyond the standard checks. This includes not only verification of title and seller authenticity but also an understanding of local laws and customs.
It may be wise to partner with local experts and invest time in learning about specific local issues, such as the 'indigenes vs. settlers' problem, which has seen indigene communities claim rights over lands even after they have been legally sold to non-indigenes or foreigners.
Government support and regulation in the Nigerian real estate sector have aimed at improving the investment climate.
For example, recent reforms to the mortgage sector and the introduction of the Mortgage Refinance Company were intended to increase liquidity in the housing market.
However, the impact of such initiatives is often diluted by implementation challenges.
Buying real estate in Nigeria can be risky
An increasing number of foreign investors are showing interest in Nigeria. However, 90% of them will make mistakes. Avoid the pitfalls with our comprehensive guide.
Avoid these pitfalls when purchasing property in Nigeria
The concept of the Omo-Onile system
One significant pitfall specific to buying residential property in Nigeria, especially for foreigners, is overlooking the importance of verifying the property's status under the Omo-Onile system.
This is a phenomenon unique to Nigeria, particularly in regions like Lagos. The term "Omo-Onile" refers to indigenous landowners or local landholding families.
When you're considering buying property, it's crucial to understand that even after purchasing land from the government or a private entity, you might still face demands from the Omo-Onile.
These demands can range from payments for the foundation-laying ceremony to various other development stages of your property. Failure to recognize and address these customary practices can lead to harassment, additional unplanned expenses, or even construction disruptions.
Although it might seem like an informal practice, the influence of Omo-Onile is deeply rooted in some communities. To navigate this, you should conduct thorough due diligence. Engage a local lawyer or a reputable real estate agent familiar with the area's customs.
They can help negotiate and manage Omo-Onile-related issues, ensuring smoother property acquisition and development.
The risks of "Governor's Consent"
Another specific pitfall when buying residential property in Nigeria, particularly for foreigners, is the risk of falling for "Governor's Consent" fraud.
In Nigeria, particularly in states like Lagos, it's essential to obtain Governor's Consent for any land transaction after the initial grant from the government. This is mandated by the Land Use Act of 1978.
You must ensure that the property you're purchasing has valid Governor's Consent. Some sellers might present fake documents or claim that Governor's Consent is pending, intending to defraud unsuspecting buyers.
Without this consent, the sale of the land is not legally binding, which could lead to significant legal and financial troubles.
To avoid this, you should conduct a thorough verification of the land documents. This includes checking the Governor's Consent to ensure it's authentic and properly registered. Engaging a competent local lawyer who is well-versed in Nigerian land law and the specific procedures in the state where you are buying the property is crucial.
They can verify the authenticity of the Governor's Consent and ensure all legal requirements are met.
This issue is particularly prevalent in fast-developing and high-value areas where land transactions are frequent and land values are high.
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"Right of First Refusal" clause and its risks
A less commonly known but significant pitfall in buying residential property in Nigeria, especially for foreigners, is the underestimation of the implications of the "Right of First Refusal" clause in property lease agreements.
This is particularly relevant if you are buying property in urban centers like Abuja or Lagos.
The Right of First Refusal is a legal provision that can be embedded in lease agreements.
It gives the lessee (the tenant) the first opportunity to buy the property if the landlord decides to sell. If you are planning to buy a property that is currently leased, it's essential to check whether such a clause exists in the existing lease agreement.
Ignoring this can lead to legal complications where the lessee might claim their right to purchase the property, potentially invalidating your purchase or leading to a legal dispute.
To avoid this pitfall, you should request and review the lease agreement of the property you intend to purchase. Ensure that your lawyer pays close attention to any Right of First Refusal clauses.
If such a clause exists, you need to ascertain that the lessee has been given the opportunity to purchase and has declined before you proceed with the transaction.
The issues of traditional land ownership systems
Another specific and often overlooked pitfall in buying residential property in Nigeria, especially for foreigners, is the complexity surrounding traditional land ownership systems, particularly in areas outside major cities like Lagos or Abuja.
In many parts of Nigeria, especially rural or semi-urban areas, land ownership and transactions are deeply rooted in traditional and communal systems, which might not align with formal legal frameworks.
You should be aware that in these areas, land might still be under the control of local chiefs or community leaders, known as the "Baale" in Yoruba land or "Igwe" in Igbo land.
These traditional rulers often have significant influence over land transactions. Buying land without their consent or blessing, even if you have all the legal documents in place, can lead to disputes or rejection by the local community.
To navigate this, it's vital to engage with the local community leaders and understand the traditional land ownership norms.
This includes paying respect to the Baale or Igwe and possibly participating in local customs or ceremonies as part of the land buying process.
A local real estate agent or lawyer who understands these traditional systems can be invaluable in facilitating these interactions and ensuring that all parties are respected and acknowledged.
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The problems regarding "Family Land"
Understanding the intricacies of "Family Land" ownership in Nigeria is a specific and often overlooked challenge, particularly for foreigners purchasing residential property.
In many Nigerian communities, especially in regions like Ibadan in Oyo State, large expanses of land are owned collectively by extended families, rather than individuals.
In the context of Family Land, the head of the family or a designated family elder typically oversees land transactions. However, a key pitfall is that a sale can be deemed invalid if it's done without the consent of the majority of the family members.
This means that even if you purchase land from the family head or a representative, other family members can contest the sale, leading to protracted legal disputes.
To navigate this, you need to ensure that the family consensus is clearly documented and that all necessary family members' approvals are obtained before proceeding with the purchase. This often involves more than just a written agreement.
It might require attending family meetings or participating in traditional consensus-building processes.
The concept related to "Statutory Right of Occupancy"
In Nigeria, especially for a foreigner, a unique and critical pitfall to be aware of when buying residential property is the challenge posed by the "Statutory Right of Occupancy."
This is particularly relevant in states like Rivers and Delta, where the Niger Delta region has specific land ownership complexities due to the oil-rich land.
The Statutory Right of Occupancy is granted by the state government under the Land Use Act of 1978. This right is often misunderstood or overlooked by foreign buyers.
Even if you buy land from an individual or a community, the ultimate ownership of all land resides with the state government, and the government can revoke this right for public interest purposes, which include environmental protection or oil exploration activities in the Niger Delta region.
Before purchasing property, you must ensure that the seller has a valid and current Statutory Right of Occupancy.
This involves not just reviewing the document but also checking with the relevant state land registry to confirm its authenticity and current status.
Additionally, be aware of any state-specific regulations or potential government interests in the area, particularly in regions with natural resources like oil.
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"Excision" land risk
A unique and significant pitfall in buying residential property in Nigeria, especially for foreigners, is the risk associated with "Excision" land.
Excision is a process where a portion of land is legally released or excised from government-acquired land. This is particularly relevant in states like Lagos, where rapid urbanization and development have led to complex land ownership statuses.
The challenge with Excision land is that while it is legally released to the indigenous landowners, the process of formalizing and documenting this release can be fraught with complexities and delays.
As a foreigner, if you purchase a piece of Excision land without thorough due diligence, you may find yourself in a situation where the land is still technically considered government land due to incomplete documentation or processing delays.
Before committing to a purchase, you must ensure that the Excision process is complete and verified.
This means not only checking the Excision documentation but also confirming with the state's land bureau or ministry that the Excision is fully processed and recognized.
It is crucial to engage with a local lawyer or a reputable real estate consultant who has experience dealing with Excision lands in the specific area you are interested in.
"Community Development Associations" or CDAs
Another nuanced and specific pitfall when buying residential property in Nigeria, especially for foreigners, involves the complexities surrounding "Community Development Associations" (CDAs).
This is particularly prevalent in states like Edo and Ogun, where local communities have formed CDAs to manage and regulate the development of their areas.
CDAs in these regions often have a significant influence on property development and management. They may impose certain rules, regulations, or development standards that are not immediately apparent to outsiders. For instance, there might be specific construction guidelines, mandatory development fees, or community levies that you, as a property buyer, must adhere to.
Before purchasing property in areas governed by CDAs, it's important to understand the extent of their influence and the specific regulations they enforce.
Failure to comply with CDA regulations can lead to conflicts, fines, or even disruptions to your property development plans.
To navigate this, you should engage with the local CDA and understand their rules and requirements.
It's advisable to have a local real estate agent or a lawyer who can facilitate these discussions and ensure that you are fully informed about any obligations or conditions imposed by the CDA.
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"Certificate of Occupancy" vs "Customary Right of Occupancy" risks
A particularly unique and challenging aspect of buying residential property in Nigeria, especially for foreigners, is navigating the intricacies of the "Certificate of Occupancy" (C of O) versus "Customary Right of Occupancy."
This is especially relevant in the Federal Capital Territory (FCT) of Abuja and other areas where traditional land ownership intersects with federal and state land policies.
In Nigeria, a Certificate of Occupancy is issued by the state government and is a formal recognition of your right to occupy land.
However, in areas where land was traditionally owned, the locals might only have a Customary Right of Occupancy, which is recognized under local customs but might not have been formally registered with the state government.
The pitfall here is purchasing land based on a Customary Right of Occupancy without realizing that this right may not be formally recognized by the state government. This can lead to legal disputes, especially if the state government later decides to issue a formal Certificate of Occupancy for the same land to another party.
Before you finalize any property purchase, it's crucial to verify whether the land has a formal Certificate of Occupancy or just a Customary Right of Occupancy.
In cases where only a Customary Right is available, you need to be cautious and consult with a local real estate lawyer.
They can guide you through the process of converting the Customary Right into a formal Certificate of Occupancy, ensuring legal clarity and protection for your property investment.
"Land Use Charge" or LUC
An additional and unique challenge when buying residential property in Nigeria, particularly relevant for foreigners, is understanding and dealing with the "Land Use Charge" (LUC).
This is especially pertinent in Lagos State, where the Land Use Charge Law was revised and implemented to consolidate all land-based rates and charges under one bill.
The Land Use Charge is a property tax that combines ground rent, tenement rates, and neighborhood improvement levy. It's calculated based on the market value of the property and is an annual obligation for property owners.
A common pitfall for foreign buyers is underestimating or being unaware of this charge, leading to accrued debts and legal issues with the state government.
Before purchasing property, you must inquire about the current status of the Land Use Charge on the property. It's important to know if there are any outstanding debts or if the previous owner has consistently paid this charge. Failure to address this can result in you inheriting the unpaid bills, which can be substantial depending on the property's value and location.
To avoid this, ensure that your real estate agent or lawyer includes the verification of the Land Use Charge status as part of the due diligence process.
They should confirm that all past dues are cleared or negotiate for the seller to settle any outstanding charges before completing the transaction.
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