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Experts see opportunities in Lagos land cost reduction

By on January 13, 2015

In a move aimed at reducing the cost of land acquisition and ease the process of land documentation, the Lagos State Government last week reviewed the charges on land transactions, but the development has not been entirely welcomed by stakeholders, who are rather examining the long-term effect of the policy.

While some have commended the move as a welcome development, which will ease land transactions in the estate, others have expressed doubt on what the outcome of the policy will be, noting that it may complicate the already cumbersome process of land documentation in the state.

On Monday, Governor Babatunde Fashola stated in an executive order No. EO/BRF/001 of 2015 that with immediate effect, consent fees should be reduced from six per cent of the value of the property to 1.5 per cent, while Capital Gains Tax, which was previously two per cent, should be reduced to 0.5 per cent.

Others included the reduction of the cost of stamp duty from two per cent to 0.5 per cent and registration fee from three per cent to 0.5 per cent.

The executive order also stated, “Unless otherwise indicated, the valuation of landed property for the determination of tax and other charges payable shall be by reference to the statement of fair market value produced by relevant professionals, adopted by the state government and published from time to time in the official government gazette.”

Fashola had remarked that the order was intended to improve the internal management of the state government not to create any rights or benefits, substantive or perpetual, enforceable at law or in equity by a party against the state, its departments, agencies or entities, its officials, employees or experts, or any other person.

According to him, it is expected that if the government plays a role by reducing the cost of setting up business, it has made a huge impact by enabling private enterprise to thrive.

“In that way, hopefully, we will provide employment opportunities to businesses that will be formed as a result of this policy intervention,” the governor was quoted as saying.

With the new order, the cost of land transactions has been reduced to about three per cent when taken together.

A property lawyer, Mr. Bello Kazeem of Bello Kazeem and Co. Legal Advisors, said the reduction was a laudable development as some of the expectations in expanding businesses in the state’s enterprise zone and the free trade zones could only be achieved through the reduction of the cost of land transactions.

He said, “This means that there will be more investment in housing and this will have a spiral effect on the economy as land transactions will now be pocket-friendly and take immediate effect.

“The cumulative effect of this is that it will enable private enterprises and local investors to thrive.”

According to him, the cumulative cost of land transaction in Lagos was 30 per cent of the value of the land/property before 1999 and 13 per cent from 2005 to 2014, adding that the reduction as announced by Fashola was a strategic policy intervention and the hallmark of a responsive government.

“The government has done its part; developers can no longer complain about the cost of real estate business. They should rather reciprocate so that the objective of the reduction will not be defeated,” Kazeem said.

The Assistant National Secretary of the Nigerian Institution of Estate Surveyors and Valuers, Mr. Victor Ayeye, said the policy would encourage more investment in property adding that the problem of perfecting property title in Lagos was so high that people had been discouraged and left their properties without the relevant documentation.

He added, “Many people are having property that they can’t turn into wealth because they have not perfected their title in terms of changing ownership because the cost was very high. It will still go lower; the government can be better and make it insignificant such that people can change ownership easily

“Some people have property for instance now but because of the high cost of consent people still use the name of the original owners and as such the new owner cannot approach the bank to take loans that could help change the economy.”

Ayeye also stated that since the state government said the right professionals would determine what the right values of properties were, estate surveyors as professionals empowered by law to determine the value of landed property should be consulted so that the problems of assumptions and undervaluation which would make people pay higher, would not arise.

“By Decree 24 of 1975, Cap 111 of 1990, estate surveyors and valuers are the only people that can fix value; the government should make sure that people get certificate of valuation from estate surveyors and valuers, certified by the Estate Surveyors and Valuers Registration Board of Nigeria and licensed by the Financial Reporting Council of Nigeria. They should be the ones who determine the current value and there will be no sharp practices. But if none of these is put in place, people can fix any value they like and this will cause more problems for the sector,” he noted.

The Immediate Past President of NIESV, Mr. Emeka Eleh, also noted that the policy would provide more liquidity in the property market as more land transactions would be done with better transparency in the system.

“It is a good thing and should even be lower than what it is; it should not be a punishment to transfer land. This will help land surveyors in Lagos, create liquidity in the market and even create more revenue for the government because many people will perfect their title unlike before when people didn’t bother,” he said.

Similarly, an estate surveyor and Partner, Herbert Onodingene and Partners, Mr. Herbert Onodingene, said the order would spur growth, which had been retarded in the sector for several years.

He noted that Lagos ranked high in the class of cities with high cost of land transactions in the world, competing with metropoles like Paris.

Onodingene said, “In Ikoyi and Victoria Island, for instance, to get consent on land is so outrageously expensive that when people consider what they have to pay, they would rather put their money in other sectors of the economy, which is not good for the sector.

“Some of us that are into property development have invested so much in the past few years and with what is happening in the oil sector, it won’t get better but with this policy change, things may begin to change. Though it may not be immediately felt, because housing is not a short-term investment where you put in money and get returns immediately; it is a medium and long-term investment but with benefits.”

However, there are developers who also think that the policy change may not be as good as it sounds when considered from other angles apart from the change in percentage points.

The Managing Director, Propertygate Development and Investment Plc, Mr. Adetokunbo Ajayi, said unlike in the old regime when there was stipulated value for land across the state, the new development would take cognisance of the market value of landed properties, which would make investors to pay higher.

He said, “In a place like Lekki Phase One, the value of land is N10,000 per square metre; so, for 1,000 square metres, which is the typical plot size, you have N10m as the consent fee. Before now, the consent fee was about 11 per cent of the value of the property; but now, they want to be looking at the actual value of the land and take the valuation from there.

“So, if you have a land with a market value of about N100m, you will be paying more than what you were paying before for consent; that means a typical value now is going to be higher than the previously stipulated value.”

According to Ajayi, the new regime of charges will bring about a situation where land transactions will no longer be predictable but subject to the opinion of the valuer.

“This will bring about bottlenecks and unintended corruption. Initially, the value of land was known for all areas in the state, but now, valuation can be influenced. Anyone can influence the value of land by asking the valuer to undervalue it; this will bring about sharp practices,” he noted.

He added that ultimately, the consumers in whose favour the government made the policy, would pay more.

Ajayi said, “It is typically the buyer that pays for consent; so, what will happen now is that if a property valued at N10m initially has an actual market price of N50m, the buyer pays more despite the lower percentage. Invariably, people who are buying land will have to come up with more money and pay more under the new regime.

“The total property cost is not just the money you pay to a developer; you must also consider what you pay to perfect your title. So, the end users are not benefitting in any way; rather, the government will benefit in terms of revenue coming to it. If for instance a property was N10m and is now valued at N120m, even if they give you N30m discount, you are still going to pay more.”

He added that some people could exploit the new regime, while government officials and consultants might begin to take undue advantage of their clients.

According to him, the government can make the policy effective by making proper arrangements to check sharp practices.

“Sharp practices will definitely arise with consultants and government officials acting as middlemen. So, the government must check this; if not, we may be going back to where we were before the reduction,” Ajayi said.

 

[Punch]