2 ACRES OF LAND IN IKEJA-GRA OR LEKKI PHASE 1?

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The Poser – How to make Property Development Decisions

 

 

Imagine a scenario where you are presented with an option to choose between 2 acres of land in either Ikeja GRA or Lekki Phase 1.

 

Most people will be tempted to just compare the value of land in both locations and choose the higher valued plots.

 

Not a savvy real estate investor. Any real estate investor who knows his onions will first consider in detail the various factors peculiar to each location. A decision will only be made based on the outcome of a thorough comparison of the feasibility and viability of these factors. This, in real estate parlance is known as appraisal.

 

An appraisal is an exercise carried out to determine the practicability and viability of a proposed investment project. This helps investors to determine the best use to which land can be put, as well as choose among alternative projects.

 

What are the factors? – Property Appraisal

 

What could I possibly do with 2 acres of land in either Ikeja GRA or Lekki Phase 1? Below is a list of just some of the options I may consider:

 

1.Speculate and Sell later: I may decide to choose either of the locations with the intention of hoarding it and selling them off later in the future, when the value is considerably higher.

 

2.Provide Amenities and infrastructure and sell off: I may also decide to repackage any of the plots in either location into a sites and services scheme with basic amenities such as power, road, drainages, water supply, security etc. and sell off plots to individuals who can develop at their own pace.

 

3.Develop and Sell off-plan: I may also consider the option of developing and selling off-plan.

 

4.Develop into a mini-estate: Alternatively, I may choose to develop the property into a mini estate with the intention of either selling off in units and/or leasing out to generate rental income.

 

This may either be self-funded or funded on borrowed funds from financial institutions or through a joint venture arrangement.

 

Working on the assumption that each of the above options is feasible or practicable in both locations, attention will then be shifted to determining which is more viable or profitable.

 

This will usually require that a detailed appraisal of all the available options be carried out after which a report is made on the findings and recommendation of the exercise.

 

Factors such as the building types best suited to each location and the cost of delivering the project from start to finish will be considered. Projected cash inflows and outflows of the proposed project in each of the locations, payback or breakeven period is another factor that must be considered, and cost of obtaining / repaying loans as well as statutory taxes.

 

It is only when all the important indicators are considered for both locations that an informed decision can then be taken.

 

Things to Consider

 

 

Beyond these indicators, some other indices that are worth considering aid decision making include:

 

1.The value or prices of land in each location

 

2.Cost of construction

 

3.Prices of buildings in each location

 

4.Average rental value of properties in each location

 

5.Vacancy rates in each location

 

See below our findings on these indices as a case study:

 

 

Land Value/Prices in Ikeja GRA and Lekki Phase 1

Source: Northcourt  - Nigerian Real Estate Market Outlook (H1-2020)

 

 

Estimated Cost of Construction - 4BR Detached Building (Sept 2020)

 

Source: Castles Lifestyle Magazine, Issue 34 (Oct. 4-10, 2020)

 

Average Prices of Properties for Sale in Ikeja GRA and Lekki Phase 1

Source: Nigeria Property Center/Property Pro

 

 

Average Rental Value of Properties in Ikeja GRA and Lekki Phase 1

Source: Nigeria Property Centre/Property Pro

 

Demand Trend/Residential Vacancy Rates in Ikeja GRA and Lekki Phase 1

Source: Northcourt  - Nigerian Real Estate Market Outlook (H1-2020)

 

Conclusion

From the data in the tables above, it can be deduced that:

1.       The Ikeja GRA plots may be a better choice if the intention is to sell off the plots and put the cash into something else.

2.       Also, going by the data on vacancy rates, properties in Ikeja GRA appearto be more in demand compared due to a lower vacancy rate of 15% as against the 20% vacancy rate recorded in Lekki.

3.       However, as earlier posited other variables such as bank lending rate, inflation rate, cost of marketing/advertising and professional fees will also have to be thoroughly considered before a decision is made.

4.       Turnaround time of a property on the market could also vary

This write is not about Ikeja or Lekki. It’s really about how to look at real estate and make the right choice irrespective of the location. Have fun as you go out to conquer the real estate world!

 

Please note that figures presented are averages and indicative. This write up is strictly the opinion of JV Pulse and readers should validate the information independently and make their own conclusions thereof.