The recent executive order signed by Babatunde Fashola, governor of Lagos State, cutting down land tax charges by 10 percent, promises to grow investment and increase the state’s revenue from real estate transactions and development significantly, analysts say.
The drop of land charges from 13 percent to 3 percent, the analysts observe, is quite remarkable. They describe it as not just attractive, but also the most innovative and forward-looking decision taken in the history of land administration in the state.
A few weeks ago, Lagos slashed its Consent Fees from 6 percent to 1.5 percent, while Capital Gains Tax, which was previously 2 percent, was reduced to 0.5 percent. Also, cost of Stamp Duty was reduced from 2 percent to 0.5 percent while Registration Fees have come down to 0.5 percent from 3 percent.
“The reduction in title perfection charges to 3 percent of property assessment values is a welcome and much awaited development; the expected positive effect on the broad spectrum of the local real estate market deserves a rolling out of drums, as previous exorbitant costs of title perfection was certainly a clog in the wheel of private real estate development”, Omorinsola Ipaye, a real estate investor and legal professional said in an interview with BusinessDay.
Ipaye, also the MD/CEO of K.Parkwood Property Services Limited, hopes that the reduction would stimulate private investment in the sector and bring about a reduction in overall development costs which would augur favourably for prospective end buyers and consumers of real estate.
The Lagos State government considers land as its own variant of oil, and so, more than any other state in Nigeria, rakes in a lot of revenue from this resource, which Chudi Ubosi, Principal Partner, Ubosi Eleh + Co—a firm of estate surveyors and valuers, estimates at 20 percent of the state’s total revenue.
“Much as we know that the state is making a lot of money from the real estate industry, I can tell you that they are just scratching the surface of real estate transaction”, Ubosi said, estimating that only about 30 percent of land transaction in the state ends up in Alausa for formalisation, as people try as much as possible to avoid those charges by just holding onto their titles.
Ubosi emphasised that 10 percent reduction of the charges was a plus for the real estate industry and also for the state, because it would bring much more revenue than before.
“This is good for everybody because it will encourage more people to go to government to formalise their documentation. This has the advantage of enabling the property owner to take his formalised document to a bank and get a loan facility and put money back into the system by setting up a business, or a factory and thereafter create jobs. The whole exercise has a multiplier effect”, he said.
Because virtually every state in Nigeria takes a cue from what Lagos does, Ubosi was optimistic that other states would follow suit, adding that, in the long run, it would be good for all stakeholders in the real estate business.
Ipaye however, warned that it was too earlier in the day to roll out the drums for this development, explaining that the executive order also comes with a new method of assessing property values. “Previously, property was assessed at rates determined by the state government, where such rates were significantly lower than open market price of properties”, she said.
According to her, “with the new order, a ‘fair market value’ approach is being adopted, where the new values are benchmarked against the market prices and subsequently the new values are the values obtainable in the open market, in which case there is no quantitative reduction or slash in costs; so what we have is a Greek gift”.
Adetokunbo Ajayi, managing director/CEO, Propertygate Development and Investment plc, agrees, stressing that “the new property registration fees as announced by Governor Fashola will translate into higher fees for property owners and intending buyers”.
Ajayi added that with the new order subjected to ‘fair market value’ of properties, it was likely that property owners would pay more, as the state had before now levied properties on out-dated values.
BusinessDay checks reveal that, before the new order, a square metre of land at Nicon Town, Lekki, was valued at N5,000 contrary to the market value in the estate where a square metre of land sells for about N160,000
Similarly, a square meter of land in Lekki and its environs was before the new order, valued at N5,000 per square metre as against current market value of N69,100 per square metre, according to Lamudi, an online real estate data provider.
In Victoria Island and Ikoyi, the state government values a square metre of land at between N20,000 and N50,000, depending on the area, which is far from the market rate of N360,367 per square metre for Victoria Island and N263,024 per square metre in Ikoyi, according to Residential Auction Company (RAC).