How developers are reviving off-plan sales — Property — The Guardian Nigeria News – Nigeria and World News

In a renewed effort towards reviving a once-thriving investors’ delight known as off-plan sales, private developers have introduced new strategies to woo off-takers and first-time home buyers by shopping for additional funding and ensuring infrastructure investments in schemes, reports VICTOR GBONEGUN.

Despite reeling under critical socio-economic challenges, housing developers are becoming increasingly innovative in reviving the once-thriving off-plan scheme to attract investors in the city centres.

Off-plan real estate refers to buying property at the design or construction phase before it is fully completed. The scheme allows property buyers to secure homes at current prices, avoiding the inevitable price adjustment caused by inflation, rising material costs, and market demand.

The property model offers flexible payment plans designed according to subscribers’ financial capacity and preferences, including post-handover payment plans, as well as offers an advantage for subscribers to invest in units in high-demand areas or emerging neighbourhoods.

Under the scheme, property developers showcase estate layouts and projects’ infrastructure and offer discounts and installment payments to prospective buyers. The housing projects are more attractive to diaspora investors and young professionals, especially young families and Gen Z who desire to own property early in life.

However, the scheme is not without its peculiar hiccups, which include delays in construction timelines and handover of projects because of funding shortfalls, logistical challenges, and regulatory delays, which have exposed investors to low returns on investments.

Additionally, developers are exposed to financial difficulties that prevent them from completing the project as promised; hence, projects are stalled or abandoned for years, while many of the completed properties don’t meet the promised quality standards in terms of materials, finishing, and deviations in property layout.

The Guardian gathered that stringent regulatory enforcement, property market price fluctuations, and the absence of necessary documents covering the off-plan property are some of the risks under the scheme. Most of the estates had in time past fallen under the hammer of the government or dubbed as illegal.

Findings revealed that in the past five years, some developers and their subscribers have had to approach the court in locations such as Lagos, Abuja, Port Harcourt, Ogun, and Ibadan over failure to honour agreements in off-plan sales. In some of the cases, the residential property is either not delivered or not delivered according to the terms of agreement and specifications.

Furthermore, the developers in most of the cases are forced to refund money, while the subscribers record losses on such investments. With persistent increases in the prices of cement, steel and other building materials, investing in off-plan helped investors to protect investments from future market fluctuations. The Guardian learnt that a critical measure to keep the scheme afloat is ensuring that substantial funds are available before launching an off-plan sale.

Many investors, it was gathered, are still embracing the scheme to stave off the lack of access to homeownership through the direct home purchase now considered as expensive and unaffordable.

However, The Guardian learnt that the new developers thriving in the scheme are those who are ready to invest in their projects with at least 60 to 70 per cent of funding as against those who will rely majorly on subscribers’ funds.

Also, many developers now focus on high-demand locations and implement effective marketing strategies that highlight the benefits of investing in such properties. These locations are in both the highbrow city locations and suburbs like Lagos, Abeokuta, Ibadan, FCTA, Enugu, Onitsha, and Kano.

Specifically, new strategies being deployed include investing in their estates’ infrastructure, ensuring a water-tight track record in the timely delivery of projects and standards, as well as offering attractive incentives to subscribers.

Expounding on the development, an estate surveyor and valuer, Mr Ayodele Odunuga, pointed out that developers have come to recognise that leveraging solely on off-plan as the core strategy for project development is not a smart initiative or sustainable.

He said developers who don’t have enough capital still consider off-plan as a part of their strategy to get funding to continue their developments. “Developers now prioritise having between 60 to 70 per cent of the development cost,” Odunuga said.

He said every developer now deploys a mix of off-plan sales and 70 per cent private funding to ensure projects’ completion. According to him, stockpiling is the name of the game in this uncertain time, as some developers, before starting their projects’ foundation, import materials needed for the projects using the bill of quantity to curb contract variations.

Managing Partner, REFIN Homes Limited, Mr Kazeem Owolabi, said off-plan strategy is essentially now for any developer, who can ‘think outside of the box’ emphasising that it has become difficult for developers because of the inability to determine the sales price as a result of the volatility of the building materials’ market, labour cost, and government policies, especially foreign exchange, and interest rate.

He said these factors are not stable these days. Although he said it might not be caused by the government, the government can still do a lot to stabilise the situation.

“For instance, if the Monetary Policy Rate (MPR), a benchmark interest rate set by the Central Bank of Nigeria (CBN) that influences borrowing in the financial system is set at 26 per cent, borrowing now will be at over 30 per cent interest rate.

“Any slight movement has a direct impact on construction cost, prices are affected and the houses are no longer affordable. Off-taking can only be done if the developer can project or forecast. In Nigeria today, there is no price control; everybody changes their prices at will. The price of paint per drum may be N26,000 today, but when you have planned with that, by tomorrow, it may change to N32,000.

“As you are buying, you are also adding that variation in the cost to the price of the housing units. If you have given out a price of N70 million for off-takers, by the time you are completing the project, the cost of producing the unit would have risen to N75 million.

“There are a lot of court cases because of such issues as most subscribers will insist that they will only pay the initial cost of N70 million agreed. By the time you do the valuation of the project, it might be N200 million, but they will want to pay N70 million,” Owolabi said.

Immediate past South West Chairman, Real Estate Developers Association (REDAN), Mr Debo Adejana, argued that while off-plan or off-taking is a financial strategy in funding projects, it’s not ordinarily supposed to be a stand-alone strategy.

He said that most developers experienced a huge failure with it, especially in Nigeria, because a lot of developers use it as their only finance strategy. He said off-plan is supposed to be used as a secondary financial strategy for projects, adding that developers now prioritise sources of funding that are independent of subscribers’ payments.

Adejana said: “Usually part of the risk management strategies of those who will fund a developer is to require that part of the project is sold. That is why developers require off-plan to test run the market before venturing into the development. So, the developer is not necessarily relying on subscribers’ future payment. If the developer is to rely on anything, it is their initial payment and next payment. The rest required to fund the project must be provided by the financiers.”

He disclosed that for those developers that used their funds to a greater measure on their projects and not relying on subscriber’s fund, what happen is that the subscribers will lose because when the project are completed and the subscribers failed to remit required payment, the developer can sell the housing units at the current rate to the next buyer and refund money with less charges and exit the project.

According to him, in a situation whereby the developer solely relies on off-takers’ money, such developer (s) will always have a problem. He said that the kind of revival being witnessed now is that developers are sourcing for funding elsewhere and require off-takers at the marketing stage.

However, Adejana said, “Default rate on contracts is high and the fact that somebody deposited an amount when you are starting a project and signed up to pay a certain amount either quarterly, monthly and others, does not mean the person is going to fulfill that. And when the person doesn’t fulfill it, a lot of time, there are no great consequences. So, the default rate on the side of the client is huge.”