By Segun Oluyemo Lagos, Nigeria.
HOW TO USE IDLE PROPERTIES TO TACKLE RECESSION
It will be an understatement to say that the recession is biting very hard; no sector is spared and the real estate sector is not an exception. From my perspective as a Real Estate Practitioner, I believe that this sector is one of the most hit.
My reason for this is not far-fetched and it is based on the following factors:
1. Most people who were hitherto very rich and thus could afford to finance their real estate investments before are affected by the recession and thus reducing their ability to invest in this sector unlike before.
2. There is a general cash squeeze in the financial sector. The banks are hardly granting credits to those who are in need of it. Even the traditional beneficiaries like those in oil, telecommunication sector and trading activities, which the nature of their borrowing is short or medium in classification, are finding it difficult to access credit facilities let alone the real estate sector, which requires long term financing.
3. Equity gearing is also difficult for some of the investors because there is a general low saving ability at this time because of inflation investment involves huge capital outlay, thus most times you must be highly geared before you can finance investment in any class of property from your savings. For those who cannot afford such,, which has driven up the cost of living and thereby reducing the purchasing powers of the populace.
4. The hitherto surplus incomes, which are the veritable push for people to invest in real estate, are vanishing.
5. Also, most of the components of building are imported and we all know that this is very scarce at this moment and thus forcing the exchange rate to go North way.
The present state therefore calls for new thinking, outside the box in order to maximize the opportunities, which are abound in the recession.
Some people who own some properties or leased, have what I call “surplus” to requirements, either by way of tendencies to acquire as past times or passion for investment reasons or those who leased, when the staff or people who would accommodate the spaces were commensurate with them but now because of the development in the economy, perhaps downsized or resigned on their own with such vacancies not filled up yet.
This time requires the exploration and exploitation of several sources of getting incomes. In this regard, our surplus landed assets required to be turned to income generating assets instead of allowing them to lie fallow, irrespective of their locations, be Urban or Rural areas.
But before I suggest how the assets can be turned around to generate income, I need to discuss the various interests, which are subsisting in properties and can be held to create further lesser ones for the incomes generation by the holders of such.
The first is known as a Freehold. This was the title highest interest in the property and it was before the enactment of the Land Use Decree of 1978, but now known as Land Use Act. It was an absolute
one. The interest is still valid till today, but subject to the provisions of the Land Use Act. It can also be said that what the Act vests in the Federal Government, Governor of a State or the Chairman of a Local Government, to hold in trust and for the use of the citizens of the respective delineated boundaries of each level of Governance, is a Freehold. This opinion is borne out of the fact that the interests, which are creatable through the instrumentality of the Act are inferior in size and nature. They are not absolute.
The second is a Leasehold Interest. It is an interest that its end is determined from the first day, regardless of the length of time. It can be 999, 99 or 9 years; the fact is that there is a known date that it will expire by the effluxion of time. In other word, it is called a “Wasting Asset”.
The third is a Sublease, which is created by a Leaseholder for years lesser than his own. For example, the holder of 3 years’ lease can create a lesser interest of 3 years minus one day. The operating word is that he has what is called a Reversionary Right, which will be activated after the expiration of the sublease. Similarly, other inferior interests can flow out.
Again, all these interests can be assigned to some others who desire them. The assignees (those who are assigned the interests or bought the properties, as will be said in the local parlance), are put in the positions of the original owners that is, they assume or take over the rights and liabilities. By this, whether it is freehold, leasehold or other variants of lesser interests, there is no reversion. It must be know that legally, it is the interest in a property that is assigned or purchased and it must be additionally known that more than an interest may exist or be created in one property. Different values will be created according to the size of each holder.
Having thrown light to all these investment opportunities, I will progress to offer advice on how we can turn our idle or surplus portfolios to incomes. As I posited elsewhere in this article, it does not matter whether the property is in the rural or urban area; there are opportunities everywhere only the sizes of the incomes will vary. For example, the idle land and the vacant buildings in the rural area can be exploited thus:
i. It can be leased out to those who will use it for agricultural purpose. This time, the Federal Government is carrying out loudly its plans to make a lot of Nigerians go back to till the land. There are so many people who want to key-in into this but are being inhibited by land, especially those who migrated to the urban areas from some states yet want to remain in the towns and undertake the agriculture venture. The land can be advertised for the interested people to know about it.
ii. Such land can be sold outright and the proceed of sale can also be used to create further wealth through other investments.
iii. The vacant houses can be improved upon to attract the attentions of the likely migrants, who will be coming to lease land for agricultural purpose.
In case of the urban area or towns, the following actions can be taken:
i. Shared apartments: Tenants with bigger spaces, which may come about because the children have grown up and left their parents, can sublet out the surplus rooms.
ii. Shared Offices: Similarly, like in the example of apartments, the surplus spaces in the offices can be sublet to generate incomes. In the two examples, there are no legal restraints, only that the consent of the Landlords must be sought and obtained before undertaken them. The law says, the Landlord must not unnecessarily withhold his consent.
iii. Uncompleted Buildings: There are some buildings, which have been abandoned by individuals by the developers who do not have the financial muscle to complete them. Such buildings can be leased to some people who can turn them around rather than allowing them to depreciate further.
iv. For vacant land, it can be leased out for the following uses:
a. Car Parks: Purposed-built car parks are not vogue as an avenue for investment in real estate yet in Nigeria. The inadequate car parks in some commercial ventures vis-a-vis, the Government’s regulation and enforcement on ‘No Parking’ order on the roads, has opened this up to leverage on. There is no Government interference or prohibition on this use and much money is not needed to do so. If the owner of the land cannot run it by himself, he can lease it to individual, Companies, Corporate concerns, shopping complex, hotels, event centres etc for this use.
b. Event Centre: The laws on the restriction of the use of roads, public schools etc, for parties have thrown up opportunities to set up event centres and they are not location-restrictive, if the planning regulations are adhered to. The class and size will depend on the available resources and the class of clients/patrons, who the investors want to cater for. If the owners of the land do not have the resources, he can lease to whoever want to build such.
c. Joint Venture: Rather than the land resource lying fallow or idle, you can seek Joint Venture (JV) arrangement with developers, who will invest their money and you share the development, based on the agreed terms and conditions.
d. Cemetery: This may look odd to some people but it is a veritable real estate investment avenue because there is a scarcity of such, either in organized form or not.
e. Park: Park is becoming an attractive real estate investment option or avenue as the use of park to host events, relaxation centre for families, youths etc.
Wastage is one of our lowest points in this country; allowing properties to lay idle is one of this. But in this time of recession, when all avenues of getting incomes need to be activated and mobilised, the conversion of these idle properties can be harnessed through the various or different options mentioned above.