Knowing the 3Cs critical for profitable investment in luxury real estate

As the year draws to an end and the world expects patiently the turn of a new year, many important investment decisions are being made in different locations and at different levels of society.

One asset class that readily and easily comes to mind is real estate which, in relative terms, is a reliable store of value and a good, dependable hedge against inflation, especially the type that Nigeria is in.

To many investors in this asset class, the luxury segment is a major attraction and the reason is not far-fetched. Apart from the uncommon fulfillment it gives, investing in luxury real estate also offers good returns on investment.

But there are much more to investing in real estate that meets the eye, according to experts and major players in that space. “Real estate is not about friendship. It is not an emotional conversation. It is a commercial transaction,” Udo Okonjo, CEO, Fine and Country West Africa, says.

Okonjo, a trusted estate advisor and a wealth strategist to top Nigerian business leaders and corporate investors, says there are 3Cs that are critical for buying or investing profitably in luxury real estate. These, according to her, are credibility, creativity and collaboration.

Okonjo explained to BusinessDay that credibility is an over-aching recommendation for intending investors, especially those who are investing in an apartment building for personal use. This, she added, was critical because of construction failures as was the case with the 21-storey tower that collapsed in Ikoyi in November 2021 in which investments and lives were lost irretrievably.

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She said that investors should do their due diligence thoroughly and also ask a lot of questions. “Look at the profile of the developer; check his track records– has he done it before, does he obey regulations, who are his contractors, builders and other professionals,” she advised.

Creativity, she also explained, is important because the world is changing fast. So, investors should be creative and not stick with old mindset that this is what people were buying before and so go ahead to do the same in a changing world.

“They have to take into consideration the upcoming millennials. If you are thinking only about the old people and not the young ones, then you are not thinking creatively. The millennials have their different lifestyle which must be considered and incorporated in the design of buildings,” she said.

Another critical factor for consideration by entry level investors is collaboration. Okonjo advises that instead of thinking price, investors should think of quality and long term value.

She explained that to preserve their investment, investors shouldn’t be thinking of far-flung locations where properties take a long time to appreciate. Instead, they should think of better locations and assets so that, in the long run, they have better value to extract.

“At development level, it is the same thing. Instead of thing being a supper developer that has this 20-floor building and you don’t have enough money fund it well, it is better to get into collaboration that gives a better funded and built asset that gives good return and deliver something that is qualitative,” she said.

Okonjo noted that luxury real estate is fast evolving, especially in the Ikoyi and Victoria Island Lagos axis where there is, clearly, a rise in tall buildings, including the Belmonte, Cuddle by Cardwell, Bourdillon Height, 27 Bourdillon and others.

Whether as residential or commercial buildings, she said that luxury real estate doesn’t come cheap as the average price for residential spaces in this segment ranges from below $2,500 per square metre to $4,500 per square metre.

“These are asking prices. What is typically achieved is somewhere in the middle which is about $2, 850 – $3,500, but when you are talking about exclusive spaces like the penthouse, they range from $4,500 upwards.

“It is important to recognize that in the luxury segment, there is no desperation; most of the developers are ready to wait and work with their target audience; so you find that the typical timeline for the delivery of most of these projects is about 4-7 years. This segment is actually for patient investors,” she said.

“One of the key characteristics of this type of investors is that they are patient and very selective of the clients that they admit into the property; some of them hold these properties for a long time while waiting to attract the right investors,” she added.

Okonjo dismissed the high vacancy rate in this market segment, pointing out however that those buildings that are vacant remain so because “they are not of good quality or they are not built to the demand or specification of the market.”