Owners and inflated valuation of their property
One of the most frustrating challenges for a real estate practitioner is getting the brief to sell property but the owner has an inflated view of what the property is worth.
Last month, the Kogi State Government went after two corporate behemoths – Dangote Cement and BUA Group. Dangote which has a cement factory at Obajana and mines in other parts of the state fought back with lawsuits, but Bua Group simply gave up its claims to a humongous 50,000 hectares of land. Quite simply, according to BUA, the land was not fit for purpose and so was of no value to it. The company cited lack of access and infrastructure as well as poor security in the axis. The Kogi State Government had overreached itself because it assumed the land was more valuable than it was.
This is a problem real-estate practitioners typically come up against: owners/landlords who have an over inflated view of how valuable their property is. Their expectation of the sales price or what the rent should be, is influenced by their mindset. They want 25%, 50% even some as high as 100% over the market value. These owners argue that their property is special because of the ‘level of finishing’, ‘size of rooms’ etc – factors are not relevant to the market price because like BUA, the market ‘values’ the property based on other parameters. How should a real estate agent respond to this kind of brief? An informal survey we sent out came with three different schools of thought.
The first group, which is in the minority (less than 5%) say that the brief should be rejected outright. The owner/landlord should be intimated with the market realities and if he is not ready to accept the market price, the Agency will refuse to market the property.
The second group (the largest at about 70%) say they will advise the owner/landlord but if he remains intransigent, they would put the property on their books but will market it only in a perfunctory manner.
The third group say they will take on the property and after advising the owner/landlord, market the property to the best of their ability. They will keep the owner/landlord informed of all the offers they receive in the expectation that he/she will begin to appreciate the correct market value after seeing real offers. But for how long will they continue to market the property if the owner/landlord does not ‘see reason’?
BUA RESPONSE TO KOGI ASSEMBLY
We are in receipt of your letter dated September 21, 2022 on the above subject matter. We wish to state for the records that BUA has yet to take possession of, and has never utilized the land due to the following reasons:
Lack of any Infrastructure: Since our invitation by the State in 2012 to invest through that lard, there has been no visible effort by the state and successive governments till date, to address the issue of access (ie, infrastructure, roads) that will enable us utilize the land for its intended purpose.
Currently, the land is only accessible by water and without the required investments and other enabling infrastructure, the venture will not be feasible.
Major Security Challenges: There has been a massive deterioration of security in, and around, the area for the past few years making it practically impossible to start any project there as an investor.
Outcome of Feasibility Studies: We conducted further feasibility studies on the land and found out that only about 30% of the entire land mass is suitable for our investment with the rest (66%) consisting of rocky, hilly and undulating areas which is not suitable for its intended purpose.
Finally, due to the reasons enumerated above, and the fallout associated with it, we hereby wish to indicate through this letter, and inform you that we are no longer interested in continuing with our proposed investment.
We wish to however state unequivocally that had we decided to proceed with the proposed project, BUA would have been happy to pay all dues and necessary compensation to the state and other stakeholders in fine with our obligations.
This is because as a responsible organization, we believe in the principles of equity, sustainable business practices, and fairness.
This has been the hallmark of our operations and engagements with communities and governments, everywhere we operate. Unfortunately. since the land cannot be used for its intended purpose and based on the foregoing, the Government of Kogi State may go ahead to revoke the land if it so wishes.
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