Lagos’ doubling of building permit discourages investment

Investment interest in construction and real estate business in Lagos may suffer considerable set back following the decision of the state government to raise building planning permit rates by 100 percent, experts have said.

The experts note that the increase is an additional burden on a sector that is already under intense pressure from a galloping inflation, high cost of funds in terms of high interest and exchange rates, and rising cost of building materials.

The last 12-24 months have seen many property developers rethink their products offerings by down-sizing portfolios, investing in assets at potentially cheaper levels and repositioning properties to meet changing consumer demand that reflects present realities.

The present increase, which is the third in two years, is expected to impacted negatively on the construction industry because it affects building assessment, special enhancement levy, infrastructure development charge and stage certification in all local government areas (LGAs).

“Doing business, especially real estate, in Lagos is becoming tougher and tougher as the state government is making cost of getting necessary permits and approvals increasingly unaffordable and difficult to access due to the encumbrances on the way,” Gbadebo Olugbemiga, a real estate consultant, said.

Olugbemiga noted that, among other things, the rates increase would after house prices just as it would affect government revenue as, according to him, some developers might not apply for planning permits due to the high cost, adding, “even before the rates were increased, many developers, particularly single dwelling owners in such places as Badagry, Epe, Ibeju- Lekki, Ikorodu and others have put up buildings without planning permits.

Lagos was, before this time, charging N10, 000 for building assessment for one to 650 square meters and N4, 000 for subsequent 1,000 square meters for all areas, while stage certification is 35 per cent of building assessment while registration and application are N5, 000 and N25, 000 respectively for all areas. The renovation fees are 25 per cent with former permit and 100 per cent if there is no proof of former permit.

Town planning experts are of the view that the new rates would add to the overall cost of construction, disrupt budgeting or financial plans, particularly as the rates were backdated.

According to them, the new rates would also spur an increase of between 15 and 20 per cent on documentation, which is part of stage one of the construction budget, adding that, ultimately, investors or developers would have to increase rents on the development, whether residential or commercial, in order to recoup their investment.

Nathaniel Atebije, president, Nigerian Institute of Town Planners (NITP), was reported to have said recently that the immediate implication of the rates hike was that it might encourage illegal and poor construction activities, explaining that developers would, more than ever before, cut corners, get permits through fraudulent and corrupt practices, especially in Lagos, where there aren’t enough personnel and equipment to monitor developments.

“The frequent increase in approval fees is counterproductive to housing development in a country where the housing deficit is very high. The increase will create more difficulties for monitoring and control in Lagos,” Atebije said.

He said planners in government employee were not responsible for the increase, pointing out that such planners might, however, be coerced into accepting it, so that they could keep their jobs or positions. “Government, which is to provide services to people for social benefits, has been, in recent times, guided by some consultants to commercialise all its activities,” he said.

The president described planning as a social service, which the government owed its populace. According to him, “planning is a fundamental right of citizens to be given organised space to live, work and play; and this should apply to all classes of people. Anything outside this is inconsistent with the rights of citizens. If other states follow the steps of Lagos in this matter, then hope for the less privileged will be depleted in terms of living in decent environments.”

Atebije advised that approval fees should be as low as possible to encourage developers to come up with genuine intentions to develop, adding, “all that government staff does in the building development process is to review development proposals and assess its compliance with established space and construction standards.”