A Foreign Investor's Guide to Real Estate Investment in Nigeria

Nigeria’s real estate market is one of the most dynamic and rapidly expanding sectors, fueled by the nation’s rapid urbanization, demand for luxury housing in major cities, and growing middle class. The market is anticipated to grow at a compound annual growth rate (CAGR) of 7.10%, reaching a total volume of US$3.41 trillion by 2029.[1] This continued growth makes Nigeria’s real estate sector a compelling investment destination for foreign investors.

This article serves as a guide for foreign investors exploring opportunities in Nigeria’s real estate market.

REAL ESTATE INVESTMENT VEHICLES IN NIGERIA

A foreign investor can participate in Nigeria's real estate market through several avenues. Below are some investment vehicles:

1.     Direct Property Purchase

2.     Real Estate Investment Trusts (REITs)

3.     Joint Venture Investments

4.     Agricultural Land Investment[2]

This article focuses on sharing insights on how to invest through direct property purchases, REITs, and Joint Venture Investments.

DIRECT PROPERTY PURCHASE

This refers to the process where an investor buys property, such as land, residential homes, commercial buildings, or industrial properties, intending to hold, develop, or rent out the property for long-term returns. This method involves the investor having full ownership of the property, allowing them to benefit from capital appreciation, rental income, or future resale profits.

The regulation of foreign land ownership in Nigeria is governed by each state’s Acquisition of Lands by Alien Laws, while land ownership within Nigeria is primarily regulated by the Land Use Act of 1978.

The Land Use Act vests all land within each state’s territory in the Governor, who holds it in trust and administers it for the use and collective benefit of all Nigerians, under the Act’s provisions. [3]  Although the Land Use Act restricts land ownership in Nigeria to Nigerian citizens, it does not repeal any existing laws regarding foreigners’ rights to own land. As a result, foreigners can acquire land in Nigeria under certain conditions.

The conditions for foreign ownership of land in Nigeria are outlined in the Acquisition of Lands by Aliens Laws (ALAL) of each state. This article will focus on the requirements outlined in the ALAL of Lagos State.

Section 1 of ALAL, Lagos State provides that:

“An alien may not acquire any interest or right in or over a land from a citizen of Nigeria unless the transaction under which the interest or right is acquired has been previously approved in writing by the Governor.”

Based on the foregoing, foreign investors can only acquire land if they have obtained written approval from the Governor of the state where the land is located except when the interest sought is for a term of less than three (3) years, including any renewal options.[4]

Furthermore, a foreign investor cannot transfer, sell, or otherwise dispose of rights in land acquired in Nigeria to another foreigner without first obtaining written approval from the Governor.[5]

It is important to note that the maximum period for ownership of land by a foreigner in Nigeria is 25 years.[6]

REAL ESTATE INVESTMENT TRUSTS (REITs)

These are companies that own, operate, or finance income-producing real estate. [7]REITs allow investors to pool their capital to invest in large-scale real estate projects, offering an accessible way to invest in real estate without directly purchasing property.[8] Foreign investors can use REITs to invest in Nigeria’s real estate market by buying shares in these companies.

Before the introduction of REITs, real estate investment was limited to the direct purchase of property. REITs provide a vehicle for individuals to invest in real estate without directly purchasing or managing properties. It is important to note that in the REIT scheme, the fund manager holds legal title to the properties while the investors possess an equitable title and beneficial interest through the trust.[9]

Foreign investors looking to invest in a Nigerian REIT should first ensure that the REIT is duly licensed by the Securities and Exchange Commission (SEC) and registered with the Corporate Affairs Commission (CAC). Additionally, it is important to research the reputation and track record of the fund manager, the REIT’s investment portfolio, and its historical performance to ensure it aligns with the investor’s goals.

 Furthermore, foreign investors should ensure that all necessary approvals and documentation that will allow them to invest and repatriate dividends are obtained.

JOINT VENTURE INVESTMENTS

This involves a partnership between a foreign investor and a local entity, typically a Nigerian developer or real estate company, to pool resources to invest in real estate. This arrangement allows foreign investors to access the Nigerian real estate market without directly handling the complexities of property acquisition, management, and compliance with local laws, although it is fraught with risks.

To ensure the success of a joint venture, foreign investors must conduct thorough due diligence on the local partner, including their financial stability, integrity, compliance with local law, and track record. To secure your investment, it’s advisable to execute a partnership agreement with the local partner. The terms of the partnership should include provisions on ownership structure and rights to the property, profit-sharing percentages, roles, and responsibilities of partners, amongst others. It Is crucial that the process of the joint venture investment complies with Nigerian laws and protects the interests of both parties.

HOW TO INVEST IN NIGERIA’S REAL ESTATE MARKET

1.     Identify the Investment Vehicle: Before investing in the real estate sector, it’s important to identify the investment vehicle that suits your needs and matches your risk appetite.

2.     Engage the Services of a Seasoned Legal Practitioner: Hiring an experienced real estate lawyer is essential for navigating the investment process in Nigeria. A skilled lawyer will guide the investor through complying with the legal requirements for the chosen investment vehicle. This could range from ensuring all approvals and necessary documents are in place to conducting due diligence on vendors/local partners/REITs. Also, only licensed legal practitioners can draft the required legal documents for conveyancing, making their involvement crucial from the outset.

3.     Conduct Due Diligence on the Property and Investment Partners: Before proceeding with a land transaction, thorough due diligence is necessary. This includes verifying the authenticity of the investment partners and the investment, verifying ownership of the property and ensuring the land is free from legal issues, and inspecting relevant documents such as title deeds and survey plans. A physical inspection of property locations and office locations of investment partners is also necessary. For REITs, ensuring that all necessary approvals and documentation which allow for foreign participation in the investments and repatriation of funds are obtained as well as researching the reputation and track record of the fund manager, the REIT’s investment portfolio, and its historical performance is critical to protect your investment.

4.     Execution of necessary legal documentation: When investing in real estate in Nigeria, executing appropriate legal documents is crucial to securing your interests. For direct purchases, the primary document is the Deed of Assignment, which transfers ownership from the seller to the buyer. This document must define the property, purchase price, history of title, and indemnities against adverse claims, amongst other terms. For investments through Real Estate Investment Trusts (REITs), the focus shifts to the Subscription Agreement, which governs the relationship between the investor and the fund manager. This document should transparently outline the investment terms. The Joint Venture Agreement (JVA) must be executed in joint ventures. This agreement should define the roles and responsibilities of each party, the capital contributions, profit-sharing arrangements, and mechanisms for dispute resolution, amongst other key terms

5.     Obtain State Governor’s Approval: This is a key requirement to enable foreign investors to purchase land in Nigeria legally. The investor at this stage must apply for the Governor’s approval. The application process varies from state to state as such legal guidance is necessary for navigating the application process.

6.     Compliance with relevant laws: Compliance with Nigerian laws is crucial when investing in real estate to ensure the validity of transactions and avoid legal disputes and penalties.

CONCLUSION

Nigeria’s real estate market presents a wealth of opportunities for foreign investors.  However, navigating the complexities of land acquisition, regulatory requirements, and market dynamics can be challenging without the right legal guidance. Whether you want to invest directly, through joint ventures, or via Real Estate Investment Trusts (REITs), having a trusted legal partner is essential to safeguarding your interests and optimizing your investment.

At La Peritum Law Practice, our team of experienced real estate lawyers is dedicated to guiding you through real estate investment in Nigeria. Please email us at enquiries@laperitum.com or click here to contact us directly.

[1] Statista Market Insights, July 2024 https://www.statista.com/outlook/fmo/real-estate/nigeria  <accessed Nov. 15, 2024>

[2] Best 7 Ways To Invest in Real Estate in Nigeria, 2024 by Duo https://duo.mixtafrica.com/ways-to-invest-in-real-estate/  <accessed Nov. 15, 2024>

[3] Section 1 of the  Land Use Act 1978 Cap L5, Laws of the Federation of Nigeria 2004

[4] Section 1 – 3 ALAL, Lagos State

[5]  Ibid

[6] Regulation 4(9), Acquisition of Land by Aliens Regulations.

[7] Portfolio Investment: Definition and Asset Classes – Investopedia https://www.investopedia.com/terms/p/portfolio-investment.asp  <accessed Nov. 15, 2024>

[8] What is a real estate investment Trust (REIT)? MRI Investment Software https://www.mrisoftware.com/blog/what-is-real-estate-investment-trust-reit <accessed Nov. 15, 2024>

[9]  Section 509 (1) Securities and Exchange Commission Consolidated Rules and Regulations (2013); Real Estate Investment Trusts (REITs) In Nigeria : A Legal Guide, Marcus Okoko & co https://www.mondaq.com/nigeria/fund-management-reits/1285980/real-estate-investment-trusts-reits-in-nigeria-a-legal-guide <accessed Nov. 15, 2024>