ACQUISITION OF PROPERTIES: THE CHALLENGES, SOLUTION AND USEFULNESS.

BEING THE EXCERPT OF THE LECTURE I DELIVERED ON 29TH AUGUST, 2015 ON "ACQUISITION OF PROPERTIES: THE CHALLENGES, SOLUTIONS AND USEFULNESS" AT THE INVESTITURE CEREMONY OF THE PRESIDENT OF ROTARY CLUB OF OTA...BY: OLUSEGUN OLUYEMO.

Objective: The lecture highlighted the menance of the Land Grabbers, whose activities have been criminalised in Lagos State.

I considered so many topics before I finally chose this topic “Acquisition of Property: The Challenges, Solutions and Usefulness. I deliberately chose this topic because of the preponderance of vexatious issue of “omo Onile” syndrome, which is tending to discourage a lot of people from acquiring properties. I am a victim just 3 days ago in Ijoko, just less than 2 kilometres away from this location. Three sets came to collect “owo omo onile” ( Omo Onile’s money) for sinking a borehole. A week ago, I have to pay another Omo Onile in Egbeda for the internal renovations of one of the properties we are managing at that axis. Yes this challenge is there and there seems to be any solution to it but this should not stop sny of from acquiring properties of our choice and heart.
Like every challenge, this is surmountable and we will stop at nothing to nip it in the bud. With political will, the Government can curtail it with legislation: I can recall that the Government of Lagos State enacted an edict during Babatunde Fashola’s administration, making it a crime for the “Ajagungbales” to take over anybody’s land, either contracted to do so, without any legal basis.

There are other challenges, which are discussed elsewhere in this paper and the practical solutions are proffered.

WHAT IS PROPERTY?
In this paper, I want to refer to it as “land and building”, which is owned by you and I. Usually, what we buy is interest, which can be leasehold, freehold or any other inferior title that can confer ownership.

Property, though can be movable or immovable, this lecture is dealing with the “real estate”, which is the immovable type and “acquisition” can as well be an “investment” too.

WHAT IS ACQUISTION?
Acquisition by the Oxford Advanced Learner’s Dictionary means “the act of buying something”. The something here is the “purchase of property”, whether it is vacant land or build-up land, which will be seeing as ‘land and building’.  It should be noted that you can also acquire through inheritance or gifts though no exchange of money will be involved in this except for the documentations.

Acquisition of property may be for any of the two purposes: personal occupation and or investment reason.

Personal Reason:

Here it is believed that it will be occupied by the buyer or the owner. It adds to his social status while not discounting the economic implication because the money he used to acquire this property could have been spent on another investment opportunity or avenue. Yet there is still an economic value because the rent that he will use for alternative accommodation can be channelled into other needs. Besides, is the social status symbol, which ownership of property confers on one in our society here. One is seen as fulfilled, successful and rich.

Investment Reason:
This is purely for the purpose of generating incomes like another business concerns. It can be in terms of rents, either monthly or yearly (or whatever arrangement is made) or sales.

For any of the reasons, hard earned incomes will exchange hands and nobody will be disposed to lose such, even if they are stolen from the Government coffer. It is not easy!

CHARACTERISTICS OF PROPERTY
These are basically six and they are:
i. Immobility:
Most (though not all) properties are immobile. If you like your house but not the neighbourhood, chances are you will have to leave your house behind.

ii. Durability:
It is often said that because buildings can stand for centuries, then real estate is durable.

iii. Illiquidity:
Property cannot be easily converted to cash. It can take a long time to buy or sell a property.

iv. High Transactional Costs:
Purchasing a property involves high capital outlay in terms of the basic cost and the other incidental transfer costs.

v. Heterogeneous:
Every individual property is unique on its own.

vi. Consumption and Investment Attribute:
Property is a unique investment proposition, for it serves both as an investment and as consumption good.

There are certain attributes too such as emotional/sentimental attachment and ability to create so many interests in a particular property, which different persons holding these interests. For instance, there can be a freeholder, who can lease to a leaseholder (number of years certain); this leaseholder can in turn create a sublease interest and so on and so forth.

All these characteristics make property unique on its own and define the advantages it has over and above comparable investments in shares, bonds, gold etc.

ADVANTAGES OF ACQUISTION OF PROPERTY:
The above-listed characteristics defined the advantages, which are accruable to acquisition of property and these are enumerated below:

i. The immobility gives assurances to the lenders that if a borrower disappears, his property cannot.
ii. Because property, especially land is indestructible, this increases the tendency to invest in it.
iii. Property, in most cases, appreciates in values: rental and capital values.
iv. It provides a hedge against inflation. Rather than slipping in value like what we shares, stocks and other investments are experiencing during this economic doldrums, it can be stable or even increase, In prime areas, for example, it can appreciate. This is what is going on in Banana estate, Ikoyi, Ikeja GRA, Ilupeju, to mention but a few.
v. As an investment portfolio, there is always a continual demand for real estate.
vi. Property is better suited for long term ownership than short term flipping or trading.

GENERAL PROBLEMS:
i. Fixed nature:
Land is immobile; it cannot be moved from one location to another. When some tenants have issues with their landlords, you hear them bemoaning their fates and make statement that if it had been possible to move their own properties, they would have done so and be saved whatever the experience is.

ii. Illiquidity:
It is not easy to convert property to turn into cash unlike some other forms of investments because usually, the capital outlay is very big. To source fund is always not easy too.

SPECIFIC PROBLEMS BESSETING ACQUISITION
i. Finance:
a. The high transactional costs limit the number of people who can acquire property to those who have the means, albeit, there are some who are striving to have just anything over their heads. Access to finance is very difficult as only few can satisfy the usual terms and conditions. The structure of finance is also a key issue. Most of the lending is short-term in nature, which skews against property financing, which requires a long-term arrangement.
b. The almost non-existent of mortgage lending is one of the Achilles heels too. This would have guaranteed long term lending at a low interest rate.
c. The Government restrictive legislations are another hindering factor. These manifest in the procurement of title to land, subsequent transactions like mortgage, assignment, sub-lease etc. Time is wasted to obtain c of O, get title perfected known as Consent. Getting Building Approval is another source of hindrance; time is wasted on it and it is also costly.

ii. Title (interest) Issue:
It is in not all cases that property has registered title, which can easily be searched to confirm the veracity of the claims of those claiming interests. Registration makes the identification of claimants easier to solve. Unregistered interests allow unscrupulous elements to lay claims for what they do not own. This is one of the reasons why the so-called “Omo-Onile” or “Ajagungbale, in the local parlance thrive very well. This is not to suggest that transaction on such property without registered title cannot be carried out; the buyer must exercise great caution and be well advised.

iii. Litigations:
These are products of multiple claims or multiple interests in a property. With our legal system, it is always tortuous and expensive. Some known land cases were prosecuted for more than 30 years, starting from the High Court through the Supreme Court. Even in terms of ordinary tenancies, getting possession from delinquent tenants may take some years in the Court. Incomes may be lost for the period of holding-over.

iv. Violence
Some ownership disputes did resort to violence that caused bodily injuries to some people and loss of lives to many. The sentimental/emotional attachment coupled with the violent dispositions of “Omo-Onile or Ajagungbales are usually the causative agents.

v. Scarcity:
Land is finite in supply, and while the overall supply of land does not change, the type of available land does, as buildings are constructed and destroyed over time. This is also due to the fact that property cannot be transferred from one point to another.

SOLUTIONS:
The highlighted challenges can be surmounted with the practical solutions that I enumerated below, either singularly or combination of some of them, depending on the peculiarity of the issues that are involved.

i. Do not be in hurry to conclude any transaction. Whatever is meant for you will not be taken away by anyone. Being in hurry may make you forget what might be considered as minute but which may be very vital and significant.

ii. Engage the services of the requisite professionals such as Estate Surveyor and Valuer and Lawyer; while the former will advise and guide you on the issue of value, the latter will undertake the due diligence on the nature of the interest you want to buy, which is embedded in the title documents as well as preparing all the legal documentations. You may also need to widen the scope of the professionals to include, the Structural engineer, Building Engineer and or Land Surveyor, where and when the magnitude of the property involves a highly complex and sophisticated building. The Land Surveyor, through his charting and Geometric Survey can determine if the land is really in existence or not. All the information that will be gathered through this process is vital.

iii. Do not shy away from being advised with the Valuation of the subject property. This will assist you in making the best informed decision. It is better than the rule of the thumb.

iv. Combining the social search with the legal search will go, a long way, in exhausting and tracking out all the areas of doubt because what legal search may not unearth can be detected through the social one. For example, I have gone to a newly completed building where I did not know that somebody was buried inside one of the rooms. It was when I went back there and spoke with somebody within the neighbourhood that this fact came out. This may look innocuous but it may also has its negative effect on the marketing and getting tenants to occupy the property.

v. For investment purpose with the intention of getting streams of incomes, make sure that the pre-investment appraisal is done, whether it is a completed property or not. The investment you intend to undertake is suppressing another that you would have done in another area of opportunity. So the need to ensure that you are investing wisely is key that is where the returns on investment will significantly be attractive.

vi. Make sure all the necessary documentations are executed before parting with your money. It is easier to do when money has not changed hands and vice versa. Also make sure that the “Indemnity Clause” is included. This is part of your “Insurance” against any adverse claim that the legal search may not detect.

vii. It is better to buy a vacant property, where you do not have the plan to continue with the occupiers as at the time of purchase. This should be made a condition precedent or very tight arrangements should be made to avoid the bottlenecks that are usually associated with obtaining vacant possession after the consummation of the transaction. Make sure all the agreed options are well documented and signed by all the parties. It is a way to avoid the arduous and tortuous path of possession issue aftermath the conclusion of the transaction.

viii. During the time of inspection, make sure you are not tricked to inspect the “fence” alone, insist and get inside the premises and carry out your inspections. A sincere decision to sell will address the issue of the occupied or tenanted property from the first day such is made. How, you may wish to ask? The Vendor ought to give the occupier the “first option of refusal” and if he cannot buy, he has been put on notice that the owner wants to sell and the sale will include internal inspections, which he will need to avail his cooperation. It may be guided inspections of limited areas of the property. But it helps as it builds confidence as well. It is another form of search.

USEFULNESS OF INVESTING IN PROPERTY:

Despite all the issues that I raised above, which may scare anybody out of his/her wit and see investment in property as a suicidal proposition, property investment still remains the best, when you consider the unique attributes with some points I will highlight below:

1. Property has value because of the following elements:
i. It has demand value,
ii. It has utility value,
iii. It has scarcity value, and
iv. It has transferability value.

2. Because it has value, it has can thus be used for transactions such as:
i. Borrowing of money to finance projects because it can be used as collateral.
ii. It can be disposed to raise capital for projects.
iii. It can be used as means of getting periodic incomes in form of rents.

3. Because it is durable,  it has the potential of increasing in value, it remains the best for pension planning due to the guarantee of regular of incomes and it hedges inflation and generates stream of incomes

CONCLUSION:

In conclusion, property remains the best form of Investment because of the high sensitivity of the other forms of investment to the vagaries of the economic problems and indices, the worst of which is diminutions of values or complete loss of values. What we need to do in order to avoid the problems, are: the need to be very cautious and the need to engage the professionals in land and building matters before we consummate any transaction. A little cost, which will be incurred in this regard, will save a lot in terms of money, time and harrowing experience. It is better not to be Kobo wise and Naira foolish.

Once again, thanks for the honour and thanks for listening.

Rotarian (ESV) Olusegun Oluyemo
Past President, Rotary Club of Lagos Central &
Chief Executive Partner,
Segun Oluyemo & Associates