In the 1980s, the global real estate sector experienced a significant shift, a shift that transformed a neglected sector into a successful business enterprise.
Overnight, people and businesses recognised the incredible prospects real estate investments offered and dived into its wholesale. Gradually, the sector evolved, gaining recognition as an economic powerhouse and, eventually, as a global asset class.
Victims of real estate fraud are often left with legal justice as the best compensation. However, these legal battles are notorious for their protracted nature, consuming precious time and resources
In Nigeria, real estate investment — encompassing the acquisition, management and profit-oriented sale or rental of properties — has today become a popular avenue for individuals and businesses to secure properties for residential and commercial purposes or even as a means of capital preservation, given real estate’s tendency not to depreciate.
However, the real estate sector in Nigeria has been plagued by several fraudulent practices, one of which is the oversubscription and non-allocation of land by real estate companies. Oversubscription occurs when these companies sell more land or property units than they own or have legal rights to. Commercial real estate is said to be “oversubscribed” when the investor funds collected exceed the total equity sought by the sponsor. Put simply, demand exceeds supply.
Conversely, non-allocation refers to the failure of real estate companies to provide land to buyers who have made payments or entered into agreements. Consequently, victims often find themselves nursing the burns of financial loss, frustration, and legal disputes.
Hence, it becomes imperative to possess a comprehensive professional knowledge of Nigeria’s real estate market before venturing into it. This article thoroughly explores the issue of these specific forms of real estate fraud, examining its causes, implications, and potential remedies.
Causes of Oversubscription and Non-Allocation:
The causes of oversubscription and non-allocation in Nigeria’s real estate sector can be attributed to the following factors:
a) Absence of a Well-Structured Regulatory Framework and Enforcement Mechanisms
The real estate sector in Nigeria lacks the crucial support of a robust legal framework, leading to the exploitation of buyers by unscrupulous companies. For the extant laws, there is no rigid enforcement system capable of acting as a preventive measure. Hence, stakeholders in the industry act with little to no fear of consequences.
b) Insufficient Documentation and Title Verification
With no existing laws prescribing the mandatory registration and documentation of land documents, the initiative is left to discretion. Consequently, there are no viable means of verifying pre-existing interest in the land, creating a fertile ground for oversubscription.
c) Greed and Unethical Practices
Some real estate companies engage in fraudulent activities driven by greed and a desire for quick profits. They deliberately oversell land or fail to allocate plots to buyers while diverting the funds for personal gain.
Implications of Oversubscription and Non-Allocation in Nigeria
The implications stemming from the oversubscription and non-allocation of land are profound and encapsulate dire circumstances like financial loss, legal battles, trust erosion, and socioeconomic impacts.
a) Financial Losses
The aftermath of oversubscription and non-allocation leaves buyers grappling with profound financial setbacks. These individuals, who have invested their hard-earned money in real estate projects, are often denied the land they rightfully paid for. This situation not only jeopardises their savings but also undermines their confidence in the real estate market.
b) Legal Battles and Disputes
Victims of real estate fraud are often left with few remedial options, the pursuit of legal justice offering the best compensation. However, these legal battles are notorious for their protracted nature, consuming precious time and resources. The financial burden on victims is further exacerbated as they navigate complex legal processes, making recovery a strenuous and exhausting journey.
c) Diminished Trust and Investor Confidence
The pervasive nature of oversubscription and non-allocation practices has cast a shadow of doubt over Nigeria’s real estate sector. This shadow extends domestically and internationally, eroding trust and diminishing investor confidence as potential investors become wary of sinking their resources into a sector fraught with uncertainties. Consequently, the growth trajectory of the entire industry faces impediments.
d) Socio-Economic Impact
The repercussions of fraud within the real estate sector permeate beyond individual victims. The larger economy bears the brunt as well. Discouraged investments, diminished employment opportunities, and a compromised economic growth trajectory collectively amplify the magnitude of the issue. The sector’s vitality as a driver of economic development is stifled, exerting far-reaching consequences on Nigeria’s overall prosperity.
Combating Oversubscription and Non-Allocation
Addressing the complex challenges of oversubscription and non-allocation necessitates a multifaceted approach encompassing regulatory, procedural, and awareness-building efforts. Below, we consider some of these approaches:
a) Strengthening Regulatory Framework
A robust regulatory framework will go a long way in countering fraudulent practices in the sector. This framework should impose strict penalties for offenders and include mandatory registration for real estate companies along with regular operational audits to deter unscrupulous practices.
b) Enhanced Oversight and Monitoring
The establishment of specialised agencies or task forces dedicated to investigating real estate companies serves as an incredibly powerful deterrent for unscrupulous industry practices. These agencies should institute swift and effective response systems, which will go a long way in safeguarding buyers in the sector.
c) Public Awareness and Education
Empowering potential buyers with the knowledge to make informed decisions is vital. Public campaigns, seminars, and the distribution of educational materials can enlighten buyers about real investment risks and the importance of due diligence.
d) Improved Title Verification Processes
Modernising land title verification systems can significantly reduce multiple ownership claims. Leveraging digital solutions, more stringent land registry procedures, and promoting title insurance can collectively bolster the transparency and efficiency of land transactions.
e) Collaboration and Information Sharing
A concerted effort by government bodies, real estate associations, and consumer protection agencies is also paramount. By pooling resources, intelligence, and information, these entities can better identify fraudulent real estate companies and coordinate actions against them.
f) Consumer Protection Measures
Most times, in real estate transactions, consumers are the primary stakeholders in need of protection. Hence, instituting protective measures for them is important. For instance, mandating escrow accounts to hold funds until land allocation can shield buyers from fraud, providing recourse against deceitful activities.
g) Punitive Measures and Prosecution
Holding perpetrators of real estate fraud accountable through thorough investigations, prosecution, and appropriate penalties sends a resounding message against fraudulent activities.
h) Collaboration with International Partners
Nigeria can draw on the experiences of international counterparts that have successfully combated real estate fraud. By forging partnerships, sharing best practices, and seeking technical assistance, the nation can adopt proven strategies tailored to its unique context.
Embracing these comprehensive measures will help Nigeria create a transparent, accountable, and investor-confident real estate industry, paving the way for growth and resilience.
In conclusion, the journey of Nigeria’s real estate sector from obscurity to prominence has been marred by the menace of oversubscription and non-allocation, casting a dark shadow over its potential. This article delved into the root causes of these fraudulent practices, their profound implications, and outlined a roadmap towards a more transparent and investor-friendly real estate landscape.
It is evident that the absence of a well-structured regulatory framework, coupled with insufficient documentation and unchecked greed, has provided fertile ground for unscrupulous activities. The fallout from oversubscription and non-allocation is far-reaching, impacting not only individuals facing financial losses and legal battles but also tarnishing the reputation of the entire industry.
However, the path to redemption lies in a multi-pronged approach. Strengthening the regulatory framework, bolstering oversight, and monitoring, and enhancing public awareness are crucial steps in eradicating fraudulent practices. Modernising title verification processes and encouraging collaboration among stakeholders will enhance transparency and efficiency. The implementation of consumer protection measures and punitive actions against wrongdoers will restore faith and deter potential fraudsters.
Moreover, Nigeria can draw inspiration from international success stories and forge partnerships to tailor strategies to its unique context. By embracing these measures, Nigeria can transform its real estate sector into a beacon of transparency, accountability, and investor confidence. This transformation will not only invigorate economic growth but also safeguard the dreams and aspirations of countless individuals and businesses, solidifying the sector’s position as a pillar of Nigeria’s prosperity.
Marvis Oduogu is a Team Lead at Stren & Blan Partners and supervises the Firm’s Real Estate and Construction Sector. Favour Etagbemukwe and Lois Iheanyichuwku are Associates in the Firm’s Real Estate and Construction Sector.
Stren & Blan Partners is a full-service commercial Law Firm that provides legal services to diverse local and international Clientele. The Business Counsel is a weekly column by Stren & Blan Partners dedicated to providing thought leadership insight on business and legal matters.