High Cost of Land Acquisition and Property Development on Real Estate Transaction

ESV Kennedy Anene

There is no doubt that in the past few years, Lagos state has been experiencing rapid growth and there has been a tremendous demand for land, which is an essential component for every urban development and growth. The increase rate of individuals and corporate needs in major parts of Lagos to another has therefore generated a high demand for land development.

However, investment in real estate involves a large investment cost, which is the acquisition cost, unlike the investment of probably small sums in some other investment vehicles. In recent times, the increasing cost of landed property and building materials is of great concern to the real estate sector and the property developers. The cost of asset acquisition in the country has displayed a vertical increase in recent times as the costs of various building components have continued to rise making real estate transactions more difficult and abandoned.

The high cost of acquiring land has also affected the rate of development in terms of adequate residential accommodation but gives more possibility for joint venture partnership. The high cost of housing units for the increasing population of the state, also has an effect on the practice of Estate Surveying and Valuation firms taking cognizance of the coming out of the era of covid-19.

Exorbitant Rental Value The cost of acquiring land for development purpose usually has a direct bearing on the value of completed development by way of rent. Though investment in real Estate takes real to recouped the capital invested but, since the primary objective of a development is to make a project, then they invariably transfer the huge cost they borne during acquisition of land to the completed development i.e. the structure by charging exorbitant rents. This is one of the major reasons why the rental of most buildings in Lagos is too ridiculous to afford, making real estate transactions difficult and providing lots of accommodation vacant and void.

Effect on Capital Value The value of property is very much on the high side as a result of high cost of land, which transfers into high rent and the final capital value. Every developed property supplies two different markets: the investment market in which the financial institution acquires prime property as long-term assets and the user market for occupiers.
The relationship between the demand and supply always affects the rent levels in the user market and yields capital values in the investment market because the upward pressure of the demand tends to increase in rents, in the user market and the declining yields in the investment market, hence capital value rise. So, property only changes hands amongst the rich therefore limiting the number of people in the markets and this makes the real estate transaction not competitive.
High Cost of Building Materials The cost of building materials increases as the cost of acquiring land increases. As a result of this, some developers may end up using materials that are not of good quality for building, some don’t think of the quality of the materials but they based their work on the quantity of the materials needed for the construction. These have led to the collapse destruction of many building at the middle state and this posing threat to real estate transactions
However, the increasing cost of landed property and building materials is of great concern to the real estate sector. The cost of asset acquisition in the country has displayed a sharp increase in recent times as the costs of various building components have continued to rise. Real estate Investment requires the input of the professionals like Estate Surveyors and Valuers to advise deeply before embarking on any real estate related investment, doing this, an expert opinion would be expressed on how to have a better investment which will service the economy.
ESV Kennedy Anene is a Lagos based Estate Surveyor and Valuer.