CONTRIBUTOR: Chibueze James
INTRODUCTION
The real estate market in Nigeria represents one of the fastest-growing sectors in the country as it is propelled by industrialisation, urbanisation, a growing middle class, and a surge in foreign investment. Thus, the term “real estate ecosystem” refers to the whole network of interconnected stakeholders, processes, regulations, and institutions that foster the development, management, ownership, sale, and regulation of real property. As important as the sector is, it contributes significantly to Nigeria’s GDP, said the contribution having steadily increased over the years. For instance, in nominal terms (that is, considering the current market value in 2024 without adjusting for inflation), Real Estate Services in the first quarter of 2024 grew by 126.71%, higher by 124.34% points than the growth rate reported for the same period in 2023 and also higher compared to the preceding Quarter. Thus, the contribution to nominal GDP in Q1 2024 stood at 8.80%, relative to 4.46% recorded in the first quarter of 2023 and 4.95% in the fourth quarter of 2023. In view of the foregoing, real estate plays a vital role in economic growth and development in Nigeria, as it contributes to the GDP, job creation, infrastructure growth, and enhances the quality of life for Nigerians.
Having highlighted the significance of the real estate ecosystem, it is pertinent to note that it is not without certain issues and challenges, which include illegal property sales, commonality of fake developers and unlicensed agents, money laundering risks, and limited access to legal remedies, among others. Accordingly, these issues will be examined, and recommendations will be proposed to improve the quality of services and operations generally within the real estate ecosystem.
KEY REGULATORS OF THE REAL ESTATE BODY IN NIGERIA
- REAL ESTATE DEVELOPERS ASSOCIATION OF NIGERIA (REDAN): REDAN serves as the principal self-regulatory organisation (SRO) for housing development in Nigeria. Comprising stakeholders from both the public and private sectors, it has been officially recognised by the Federal Government since November 2002.
- NIGERIAN INSTITUTION OF ESTATE SURVEYORS AND VALUERS (NIESV): NIESV is a nonprofit, voluntary, professional organisation set up in 1969 to cater to the interests of the landed profession in Nigeria. The law establishes the Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON) as the regulatory body for the profession.
- INSTITUTE OF MORTGAGE BROKERS AND LENDERS OF NIGERIA (IMBLN): IMBLN is charged with the responsibility of ensuring that the competence and conduct of practice of all Mortgage professionals and Real Estate Practitioners in Nigeria are of a sufficiently high standard to ensure professionalism in the industry.
KEY REGULATIONS OF THE REAL ESTATE BODY IN NIGERIA
- Land Use Act, Cap L5, Laws of the Federation of Nigeria 2004.
- Nigerian Urban and Regional Planning Act 2004.
- Federal Housing Authority Act 2004.
- Conveyancing Act 1881/1882.
- Property and Conveyancing Law 1959.
- Mortgage Institution Act 2004.
SYSTEMIC ISSUES UNDERMINING THE INTEGRITY OF THE REAL ESTATE SECTOR
- Illegal Property Sales by Fraudulent Estate Developers and Unlicensed Agents: An illegal property sale occurs when the transfer of ownership of land or a building is conducted without following legal procedures, or when the transaction involves fraudulent or unauthorised actions. There are various factors that contribute to the illegal sale of properties within the real estate ecosystem. They include the following:
- Forgery of title documents, where essential documents for land transactions are fabricated or falsified by fraudsters for the purposes of misleading innocent parties on the other side (such as buyers or mortgagees), to engage in the land transaction. For instance, documents like the Deed of Assignment, Certificate of Occupancy, and Survey Plan can be forged to mislead oblivious parties from engaging in such illegal land transactions.
- Multiple Sales of a Single Property, where a vendor sells the same property to multiple buyers, which consequently would lead to a dispute over said property.
- Misrepresentation of Ownership identity, where there is an impersonation of the rightful owners of the property.
- Fraudulent Government Approvals, where fraudsters create fake allocation letters, thereby misleading buyers into believing that they are buying properties approved by the government.
Thus, fraudulent real estate developers devise means or tactics to mislead their victims. They misrepresent projects as completed or nearing completion when, actually, construction has either just begun or has not begun at all. Real estate developers and unlicensed agents misrepresent ownership, forge documents, or market properties without legal authority, thereby deceiving unsuspecting buyers into transactions that lack a valid title or government approval.
What Factors Contribute to the Illegal Sale of Properties in Nigeria?
Factors that contribute to the illegal sale of properties in Nigeria can include the following:
- High rate of unemployment.
- Means of livelihood.
- Economic recession/difficulties.
- Expression of acts of ownership.
- Lack of measures to adequately protect transactions in real properties.
As much as these factors exist, stakeholders in the real estate ecosystem are encouraged to fight against these illegal activities so as to promote transparency among investors in real estate.
- Money Laundering Risk in Real Estate: Money laundering makes large amounts of money that are generated by criminal activity appear to have come from legitimate sources. Money Laundering through real estate is one of the oldest known ways to move and hide illicit funds. This is because a large amount of money can be laundered in one transaction. A pertinent question that begs for an answer at this juncture is, how does money laundering within the real estate ecosystem play out? It involves using illegally obtained funds to purchase properties such as land, thereby disguising the origin of the money. Perpetrators invest in real estate and convert money gotten through illegally obtained funds, such as those gotten from internet fraud (commonly known as ‘yahoo yahoo’ in Nigeria, where large sums are fraudulently acquired from victims).
Key Regulations Against Money Laundering in Nigeria
- Money Laundering (Prevention and Prohibition) Act, 2022: This piece of legislation is designed to combat money laundering by providing a comprehensive legal and institutional framework. It repeals the 2011 Act and introduces stricter measures, including restrictions on cash transactions and enhanced reporting requirements for financial institutions and designated non-financial businesses.
Key provisions of the act include the prohibition of cash payment on transactions exceeding N5Million or N10Million (or its equivalent) for individuals and corporate bodies, respectively. Also, there is an obligation imposed on financial institutions and designated non-financial businesses and professions to disclose transactions exceeding N5Million or N10Million (or its equivalent) for individuals and corporates, respectively.
This provision of the Money Laundering Act is very vital to this presentation because it directly affects dealers in real estate, estate developers, estate agents, etc., who are collectively referred to in the Act as designated non-financial businesses and professions.
The implication of the provision is that real estate dealers, developers, and agents must avoid accepting cash payments exceeding ₦5 million (individuals) or ₦10 million (corporates). They are also legally obligated to report such transactions to relevant authorities, as non-compliance may expose them to penalties. These measures aim to curb money laundering and promote transparency in high-value real estate dealings in Nigeria.
- Economic and Financial Crimes Commission (Establishment) Act 2004: This is another important piece of legislation that combats money laundering in Nigeria. The Act empowers the commission to investigate all financial crimes, including money laundering, advanced fee fraud, illegal charge transfers, etc. The implication of this for real estate stakeholders is that any suspicious or illicit financial activity, such as unexplained property purchases or large cash transactions, can attract EFCC scrutiny, leading to legal consequences, asset forfeiture, or prosecution.
- Terrorism (Prevention and Prohibition) Act 2022: This is also a key piece of legislation in Nigeria that indirectly supports efforts against money laundering by strengthening the framework for combating the financing of terrorism. While it does not directly focus on money laundering, it complements anti-money laundering efforts by addressing the funding sources of terrorism, which often overlap with money laundering activities.
Accordingly, enforcement of anti-money laundering laws is essential to sanitize Nigeria’s real estate sector, ensuring transparency, deterring criminal infiltration, and compelling real estate stakeholders to uphold compliance and due diligence in all property-related transactions.
- LIMITED ACCESS TO LEGAL REMEDIES
Circumstances abound where disputes arise between parties to a transaction in real property. These circumstances can make it difficult for stakeholders, for instance, buyers, tenants, lessees, etc., to seek legal redress where disputes arise. Thus, limited access to legal remedies is a significant challenge within the real estate ecosystem, as it may discourage investment in the sector and hinder its expected growth.
Common disputes that may arise within the real estate ecosystem include:
- Land disputes: which may arise due to diverse or multiple claims to the same property.
- Breach of contract: which may arise between real estate developers, agents, contractors, buyers, and other stakeholders.
- Tenancy disputes: common between landlords and tenants, which may arise due to breach of certain covenants or terms in their agreement, or may be a result of wrongful eviction.
- Unlawful acquisition and land-grabbing: usually perpetrated by persons called omo-onile.
The challenges that stakeholders encounter may stem from the following:
- Lengthy court proceedings and delay in the dispensation of justice.
- High cost of legal fees.
- Lack of awareness of the right to seek legal redress.
- Lack of awareness of the availability of Alternative Dispute Resolution (ADR) mechanisms.
- Difficulty in the enforcement of justice.
Thus, it becomes pertinent for measures to be put in place to ensure that all stakeholders within the real estate ecosystem get equal access to justice.
CONCLUSION
The real estate sector in Nigeria has witnessed a fast growth rate, driven by the need for urbanization and investment. The discussion presented in this work reveals key issues in the sector and shows the inter-relation between fraud, compliance, and legal enforcement. Notably, the prevalence of money laundering, land fraud, and regulatory lapses presents serious threats to transparency and investor confidence. Thus, strengthening legal frameworks, enhancing institutional enforcement, and promoting accountability among stakeholders are imperative for sustainable development in the real estate sector. Without these, the potential of real estate to contribute meaningfully to national economic growth may remain unrealized.
In view of the foregoing, the following recommendations are hereby proposed:
- Estate developers, agents, marketers, and all material stakeholders are encouraged to push for the enforcement of a professional ethics code to guide marketing practices, client engagement, and documentation, with penalties for breach.
- Stakeholders are encouraged to obtain a license and accreditation before they engage in practice, as this will foster credibility and transparency.
- Stakeholders are encouraged to continually promote the sensitization of the public on how to verify licensed/registered agents/developers and how to investigate title to land before a land transaction is carried out.
- Strict adherence to the Money Laundering Act and other relevant legislation is encouraged, and real estate professionals should undergo regular training on regulations and the consequences of non-compliance with these regulations.
- Developers and associations are encouraged to push for the establishment of specific ADR platforms (such as tribunals or panels under REDAN or professional bodies) to resolve disputes efficiently without recourse to long litigation.
- Stakeholders should seek the counsel of legal practitioners before engaging in transactions and should normalise using standardised contract documents when entering a contract, so as to be able to create a binding and enforceable contract.
