CHALLENGES ASSOCIATED WITH VALUATION OF SPECIALIZED PROPERTIES IN NIGERIA

ESV AKANO ZACCHAEUS ADETUNJI

Valuing specialized properties in Nigeria presents several unique challenges due to the complex nature of such assets and the economic, regulatory, and infrastructural environment in the country. Specialized properties are those that are designed for a specific use and are not easily converted to other uses (e.g., oil and gas facilities, hospitals, religious buildings, airports, industrial plants, telecommunication infrastructure, etc.).
Below are the key challenges associated with their valuation:

1. Lack of Comparable Data

• Limited market transactions: Specialized properties rarely change hands, so there’s a lack of recent, comparable sales data.
• Opacity in pricing: Where transactions do occur, they are often private, making it difficult to obtain verifiable data for comparison.
• Heterogeneity: These properties differ widely in design, purpose, and scale, making comparisons challenging even when data exists.

1. Inadequate Valuation Expertise

• Shortage of specialized valuers: There are few valuation professionals in Nigeria with adequate experience or training in valuing complex or specialized assets.
• Lack of multidisciplinary approach: Specialized valuations often require collaboration with engineers, architects, and industry experts, which is not always readily available or utilized.

1. Technological Limitations

• Limited access to advanced tools: Valuation of specialized properties may require the use of sophisticated modeling tools (e.g., for cost estimation or depreciation analysis), which are often not readily available or used.
• Poor data infrastructure: Inadequate property databases, GIS systems, and property registries can hinder accurate assessments.

1. Regulatory and Legal Challenges

• Unclear or inconsistent land titles: Many properties, especially outside major urban areas, have unclear title documentation, which complicates valuation.
• Complex land tenure systems: Nigeria’s dual legal system (statutory and customary laws) can create ambiguities in ownership and rights, especially in rural or oil-producing areas.
• Taxation and policy uncertainty: Unpredictable changes in property tax laws or regulation can affect valuation assumptions.

1. Difficulty in Estimating Depreciation and Obsolescence

• Functional and economic obsolescence: Estimating these for specialized assets (e.g., a disused industrial facility) is complex and subjective.
• Technological changes: Rapid technological advances can render certain assets obsolete, affecting their value unpredictably.

1. Economic Instability

• Fluctuating currency and inflation: The naira’s volatility and high inflation affect cost-based valuation methods and make projections less reliable.
• Market uncertainty: Economic instability reduces investor confidence and affects demand, distorting the property’s real market value.

1. Environmental and Location-Specific Issues

• Militancy and insecurity: In areas like the Niger Delta, insecurity affects both the utility and marketability of specialized assets (e.g., oil installations).
• Environmental degradation: Properties in polluted or degraded environments (e.g., oil spill zones) may face drastically reduced value, but quantifying this effect is challenging.

1. Cost-Based Valuation Difficulties

• Challenges in estimating replacement cost: Due to inflation, currency fluctuation, and import dependency, estimating the current cost to replace a specialized asset is difficult.
• Inaccurate or outdated construction cost indices: These can distort cost-based valuation methods.

1. Limited Access to Financing and Insurance

• Lender uncertainty: Financial institutions may be reluctant to lend against specialized properties due to valuation uncertainties.
• Insurance gaps: Inadequate insurance markets for certain asset types can affect valuation, especially in risk assessments.
  Conclusion:
  Valuing specialized properties in Nigeria requires a nuanced approach that takes into account economic, legal, technical, and market complexities. Overcoming these challenges involves investing in professional capacity building, improving data availability, reforming land administration systems, and fostering greater collaboration among stakeholders.