Nature of the Real Estate Sector in West Africa
West Africa is characterised by informal economies with strong parallel or alternative economies depending on financial flows in local3 as well as foreign currencies. Generally, there is high unemployment and low direct productive investments. Since the purchase or sale of a property is one of the largest single transactions a family or individual may undertake, changes in property prices have a substantial impact on the decisions taken by potential buyers and sellers of property relevant to mention that the West African real estate sector comprises land developments in residential, commercial, industrial and institutional properties as well as agricultural real estate. The typologies exercise revealed that participants in the sector are mainly real estate developers, appraisers, architects, quantity surveyors, land surveyors, lawyers, notaries, the banks and other financial/non-financial institutions, and individual property owners/developers.
According to the Knight Frank Africa report, the urban sector of the real estate market in West Africa has in the past few years seen an upsurge of redevelopment schemes comprising mainly residential and commercial properties erected by the private sector. In the central business districts of cities across the region, there have been many conversions from residential to commercial properties and the development of new high-rise offices and shopping centres.
Property values have appreciated tremendously in of the potential for both rental and capital resale over the same period. There seems to be a new wave of interest in property acquisition and ownership, possibly due to more money being in the hands of people who want to invest in real estate, as well as remittances in foreign exchange from members of the West African diaspora who are interested in investing in and owning properties in their home countries. Despite this, it is puzzling that the significant growth of the real estate sector in major West African cities in recent years does not seem to be correlated to ratios of banking mortgages.
The real estate sector is of great importance to the economy of the region in general and to the financial market in particular because of the large monetary transactions involved. It is not uncommon, however, to find residential, commercial and agricultural real estate businesses lumped together as a single activity and carried out by one agency or agent without distinction, even though the business transactions may differ in each case.
In some of the countries, there are legally registered real estate developers and surveyors who are part of incorporated and self-regulated organisations (SROs) such as Real Estate Developers Associations, who also perform agency roles in the sale of their developed properties to their clients. There is also a multitude of uncoordinated and untrained groups of estate agents who perform more of the agency work and who are not legally registered with any organised group. A number of participating countries do not even have any kind of associations or bodies that group real estate agents/agencies, developers and builders together.
A glance at the West African real estate business shows that the lack or inadequacy of appropriate internal control mechanisms, policies, training and audit systems, among other things, makes the sector attractive to criminals. It is believed that this may be attributed to the small size of the businesses, and to the products and services available or proposed by each agent or agency.
Some participating countries have as few as two registered real estate agencies and a myriad of unregistered small agencies and freelance agents with no specific business locations but who perform agency work, i.e. the leasing, buying and selling of real estate.
Property markets are segmented according to location, family and ethnic groupings. Prices depend on the property’s location, and on the buyer or seller. Because of the lack of reliable data, it is not easy to monitor and explain the variations in prices. This is also true when ascertaining the volume of cash transactions conducted outside the financial sector in relation to the real estate business, because of the informality of such transactions and the attendant poor record-keeping. Understanding the factors that underlie the pricing of property in the region is therefore crucial.
It should be mentioned that investment in the sector offers advantages both for legitimate and law-abiding individuals and businesses and for criminals who may abuse the system. The facility that the sector provides for obscuring the true origin of funds and the true identity of the beneficial owner of the property, which are the key elements of the money laundering process, make the sector very attractive for misuse by criminals.
Considering the largely informal and cash-based nature of the economies of the region, it is very difficult to give figures on how much money is laundered through real estate, especially as the use of cash payments leaves no paper trail for audit. Reported cases and prosecutions in some countries show that the real estate sector has the capacity to absorb illicit funds that run into billions of US dollars annually, with about N22.6 billion (US$180 million) recorded in Nigeria alone during the period January 2006 to March 2007.