Thinking ‘outside the box’ on real estate investments

Gbenga Olaniyan is the Principal Partner of Gbenga Olaniyan & Associates (Estate Surveyors & Valuers) and the Chairman, Board of Directors of Estate Links Limited (International real estate Consultants). 

Olaniyan is a Fellow of Nigerian Institution of Estate Surveyors & Valuers (NIESV); Fellow, Royal Institution of Chartered Surveyors (RICS), International Institute of Rating and Revenue Valuation (U.K); the International Real Estate Institute (IREI) USA, and the International Real Estate Federation (FIABCI). As a qualified Estate Surveyor and Valuer. He studied Estate Management at the University of Lagos, graduating in 1987. 

The company, Gbenga Olaniyan & Associates is a professional firm of Estate Surveyors & Valuers, with basic services which encompass all the facets of the Estate Surveying and Valuation Profession. The sister company Estate Links Limited is a firm of International real estate consultants with with offices in Surrey, England; Philadelphia, USA and affiliates in South Africa

Mr. Gbenga Olaniyan challenges accepted real estate conventions in this interview

Question: At a recent event, you were quoted as saying: “Looking at the interest rate on a mortgage loan, it would seem as if the borrower is going to lose in the long run, but he is the gainer instead”.  Kindly expatiate

Unfortunately, the National Housing Funding (which gives a single digit interest rates) is not sufficient for the upper real estate investor in Nigeria because of the limits on funds that can be assessed. Such investor has to go for the more expensive loans averaging interest rates of 17% and 18%. However, (and this is the point many have missed), as long as the investor has a very strong and robust repayment plan and makes a well-researched and well-informed purchase, he will do well. This is because the capital appreciation will likely be far higher than the interest on the loan.

The rate of real estate appreciation in Nigeria in the right location far outpaces, the rate of inflation or the depreciation of the Naira. Not only that, it also runs higher than bank interest rates. An example is a town house in Oniru, Lagos that was bought for N85, 000,000 in early 2020.  Today, the property is worth N130, 000,000. The buyer borrowed N50, 000,000 from the bank but as you can see, his capital appreciation is N45, 000,000, well above his interest payments of about N7,500,000 per annum to the bank. So, as long as he has the means to service the loan, he will always be ahead. 

The advice is never to rely on rental income to service your loan. You would almost always have to augment the rent. You must have another source of income generation to service the loan apart from rentals from the property purchased if it is a “buy to let” investment.

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Question: How viable is it to invest in the real estate market now? 

Right now, it is extremely viable. It is perhaps the best way to conserve your wealth. Using the same example, I gave initially; real estate will give you a hedge against Naira devaluation. In the year 2000 a 670m² plot of land in VGC  cost N1.8M while in 2022, it is valued at about N90M. It is always more stable to invest in real estate as opposed to other types of investments. 

Question: What types of property and locations will you recommend?

Land banking is always a good investment, whether at the high end or the lower end of the market, irrespective of Naira devaluations or inflationary trends. 

The main challenge at the lower end of the market (Epe, Ikorodu, Badagry etc.) is that you must be very careful with the title of the land. People must always involve a property lawyer when buying property. 

Observing the market, one will come to the conclusion that the value of land rises faster and higher than the value of developed properties but for those who want a buy-to-let investment, location of the property is key. If I am buying to rent out today, I will be putting my money in places like Yaba or Surulere. These places are about to ‘explode; and I will tell you why. 

Rents in Surulere and Yaba have exceeded those in Ajah. Why? The traffic situation in Lekki/Ajah axis is going crazy! There are no signs that this is going to improve any time soon. As a result of this, people are moving to Surulere and Yaba. So, that area is an excellent place for any investor or developer to invest in now as rents are skyrocketing there as we speak, because of the demand created by people moving there in droves. For those who have more funds, you can never go wrong with Lekki Phase 1, Oniru Estate, Ikoyi and Victoria Island. 

You must also consider, what I called, the ‘‘feel Good’’ factor or the emotional factor. A new traditional ruler, His Royal Majesty, Oba Abdulwasiu Omogbolahan Lawal, Abisogun II  was recently installed at as the Oniru of Iru-land two years ago.  As a fall out of having a visionary leader, the entire estate is seeing drastic changes and infrastructural development. As a result, we have seen real estate appreciate by 100 per cent at Oniru! Things like this are also unforeseen factors that affect the real estate prices and one must always be on the lookout for such price affecting factors. 

Question: With the unending Naira depreciation, will you advise investors to look at foreign property investments compared to investing in Nigeria?

I will advise people to invest in both as there are advantages in both jurisdictions. Nigeria definitely should not be ruled out. As we have discussed before, Naira depreciation does not necessarily affect Nigerian real estate investment because the value of real estate keeps moving faster than inflation or devaluation of the Naira in the long term. Investments in stable economies such as the UK and USA are considered as a “no brainer” as they provide a good store of capital and annuity for rental income.

Question: Final thoughts….

While home ownership is good, a stake in real estate is what is paramount, whether you live there or not. I know someone who lives in a rented home at Ikoyi but has several real estate investments that are doing very well. Some people will find this imprudent but as long as his earnings from his real estate investments far exceeds his rents, this chap could be on the right track. He is taking only a small chunk of his earnings to pay rent on his home. Many business owners have no business owing the property where their business is located. They should invest that money in their business and rent an office or commercial space. Real estate investments should not be emotionally driven but must be strategic business decisions.