CHAPTER ONE

1.0     INTRODUCTION

Proper financing is all-important to successful
property investment and development. Various forms of finance on varying terms
from diverse investing agencies are available to the property market. The
principal field where various forms of investment finance are employed is that
of development where every loan has to be specially tailored for an individual
scheme and the particular stages within the scheme.

Since property development in particular involves huge
capital expenditure, finance is therefore an essential input, the nature of
which is to provide capital to enable the enterprise operate commercially. The
cost and availability of finance for real estate development can influence the
viability of such project.

Inspite of the importance of development finance in
property development, there is dearth of information on the amount of funding
that takes place, by whom, or the method used. Though this is not unexpected
given the general characteristics of development funding: there is no central
agency or institution to co-ordinate the business of property funding.

          In the
hierarchy of man’s needs, housing has been ranked second and as a result of
this; housing provision has become a paramount conerstone of the policies of
various governments both at federal and state levels since independence in
Nigeria. The consequences of the rapid rate of urbanisation are most visible in
the rapid deterioration of urban housing resulting in urban housing poverty
especially as there is no proportionate increase in the number of housing stocks.

The house occupies a very unique position in the life
of all human beings and stands out as one of the basic necessities of human
beings after food as there is the innate desire of every man to own a decent
house. It is the most single noncommercial investment or consumer of income.

For most working Nigerians, the earning capacity is
generally low and makes it practically impossible for the average Nigerian to
save towards owning a house. In addition, the dwindling economic fortunes in
Nigeria which dims the capacity of individuals to own a house.

The economic boom periods of the 1970s also
contributed to the housing problems in Nigeria.

During this period, there was surplus capital, the
economic climate then was favourable for the development of real estate and the
prospect of gain was over blown and so were the rate of development. The oil
boom brought in an era of urban development, which was beyond all expectation
and thus led to a massive surge in property development. Financial houses
readily obliged developers’ loans, as they perceived minimum risks.

However, with the crash in oil prices in the early
1980s, the economy was thrown into crises and recession thus set in which badly
affected the real estate sector. Since real estate investment and development
requires huge capital outlay, there is always the need for real estate investors
and developer to source for fund. This capital is usually higher than the
equity capital of such aninvertor and the only way out of this predicament is
to source for found through other means apart from his personal savings.

Which other sources of finance apart from equity
capital are available to the real estate investors? What problems are being
encountered in getting funds through these various sources?

1.1   BACKGROUND
TO THE STUDY

Real estate has continued to play a significant role
in man’s evolution. It is not a coincidence that food, shelter and clothing
believed to be the three essentials that sustain mankind, also have some
linkage to land. Food grows out of land while shelter is affixed to it, and
man’s clothing is made largely from what grows out of land. Indeed, whether in
ancient times or today’s modern system, land constitutes a significant index
for man’s wealth, and as economic activities have assumed more sophistication
over time, land has continued to play a central role in their development
(Lewis , 1994). There is hardly any business venture that does not require to
be supported by some form of real estate: from the small business that requires
real estate as offices from where its business can be organized, to the major
venture that needs it for its factory.

Consequently, through some very robust and well
thought out land policies comprehensively address challenges that are encounter
in the real estate sector. This is not exactly the situation here in Nigeria
and the result is that there is a myriad of problems in the real estate sector
(Adewale, 2000). In the course of this study, the researcher will provide an
overview of real estate investments in Nigeria and its associated challenges.

Real estate investment is intrinsically connected to
the economic development and well being of any nation, thereby necessitating
some intervention by prudent governments. Such interventions vary in degrees,
depending on the nation. In Nigeria, individual could rarely lay claim to any
part of it as owner and therefore could not alienate it without the consent of
the head.

Proper financing is all-important to successful
property/real estate investment and development. Various forms of finance on
varying terms from diverse investing agencies are available to the
property/real estate market. The principal field where various forms of
investment finance are employed is that of development where every loan has to
be specially tailored for an individual scheme and the particular stages within
the scheme. Since real estate and property development in particular involves
huge capital expenditure, finance is therefore an essential input, the nature
of which is to provide capital to enable the enterprise operate commercially
(Ratcliff, 1999). The cost and availability of finance for real estate
development can influence the viability of such project. It is necessary to
examine the nature of real estate investment in Nigeria with a view of finding
solutions to the associated challenges.

1.2   STATEMENT
OF THE PROBLEM

In recent times, research on real estate investment
has been on the front burner has it is the major source of housing for man. In
the hierarchy of man’s needs, housing has been ranked second and as a result of
this; housing provision has become a paramount cornerstone of the policies of
various governments both at federal and state levels since independence in
Nigeria. The consequences of the rapid rate of urbanization are most visible in
the rapid deterioration of urban housing resulting in urban housing poverty
especially as there is no proportionate increase in the number of housing
stocks.

During the period of economic boom in the 1970s in
Nigeria, there was surplus capital, the economic climate then was favorable for
the development of real estate and the prospect of gain was over blown and so
were the rate of development. Due to the recent drop in the prices of crude oil
world wide and corruption, government has not been able to invest in real
estate. Overpopulation and urbanization has led to massive increase in property
development.

Financial houses readily obliged developers’ loans, as
they perceived minimum risks.

Since real estate development requires huge capital
outlay, there is always the need for real estate developer to source for fund.
However, this study will examine the scope of real estate in Nigeria and its
associated challenges with a view of making useful suggestions on the way
forward for real estate in Nigeria.

1.3   OBJECTIVES
OF THE STUDY

The following are the objectives of this study:

1.  To provide
an overview of real estate investment in Nigeria.

2.  To examine
the challenges associated with real estate investment in Nigeria.

3.  To identify
the way forward for real estate in Nigeria.

1.4   RESEARCH
QUESTIONS

1.  What is the
level of real estate investment in Nigeria?

2.  What are the
challenges associated with real estate investment in Nigeria?

3.  What is the
way forward for real estate in Nigeria?

1.5   HYPOTHESIS

HO: Real estate investment has no challenges in
Nigeria.

HA: Real estate investment has several challenges in
Nigeria.

1.6  
SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1.  The findings
from this study will educate the general public on the benefit of real estate
investment and its associated challenges which will form the basis for guidance
in decision making.

2.  This
research will also serve as a resource base to other scholars and researchers
interested in carrying out further research in this field subsequently, if
applied will go to an extent to provide new explanation to the topic.

1.7  
SCOPE/LIMITATIONS OF THE STUDY

This study on real estate investment and its
associated challenges in Nigeria will cover the extent of real estate
investment in Nigeria looking at the factors that has facilitated or hindered
it. It will also cover the challenges associated with real estate investment in
Nigeria.

LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to
impede the efficiency of the researcher in sourcing for the relevant materials,
literature or information and in the process of data collection (internet,
questionnaire and interview).

Time constraint- The researcher will simultaneously
engage in this study with other academic work. This consequently will cut down
on the time devoted for the research work.

1.8   DEFINITION
OF TERMS

Investment: an investment is a monetary asset
purchased with the idea that the asset will provide income in the future or
appreciate and be sold at a higher price.

Real estate: property consisting of land or buildings.

REFERENCES

Adewale, J.R. 2000: Real Estate Investment Analysis.
Lexington Books.

Lewis, M.G. (1994): When Real Estate Becomes Big
Business: Mergers, Acquisitions and Joint Ventures. Cahners Publishing.

Ratcliff, R.U. (1999): Real Estate Analysis. McGraw
Hill, New York.

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