Losing Money through Overseas Property Investment

 

For many Nigerians or anyone who can afford to do so, buying properties overseas is a thing of pride. Some even flaunt their foreign real estate investments portfolio as a kind of status symbol.

While a few buy properties abroad as an investment decision meant to yield returns, many buy in order to provide accommodation for their children schooling in foreign lands and for themselves whenever they come visiting. Yet, many others just tie down resources that could have yielded bountifully if carefully invested.

The regulated nature of property transactions in Europe, the United States of America and other developed economies makes returns on investment there less attractive.

It is cheaper to buy properties here because the returns are better. Property appreciates better here than in overseas countries because the business there is regulated. You can easily predict what rent will be in four years’ time here.’

Thousands of Britons buying properties abroad are losing a lot of money due to their preference for using high-street banks to convert and transfer their money to the acceptable currencies before they can purchase the properties.

While banks charge up to four per cent over the odds for currency exchange, other foreign-currency specialists offer a better deal because they deal in huge volumes every day. They offer commercial exchange rates, which are more competitive than retail rates from banks and bureau de change.

The situation in Nigeria is not exactly the same because most of the transactions involving offshore real estate investments never go through official channels.

Most of the financial transactions in the country are done under the table, as most of them are not official. Many Nigerians who want to buy properties abroad do not transact the business through the banks but through indirect means like the ‘black market’. At the end of the day, they end up paying more for the properties than if they had gone through the official channels.

The reason for this is not far-fetched. It is not easy to remit money from Nigeria to other countries because the process is too cumbersome and our people do not like to go through such a process; we are used to “cash and carry.”

Most Nigerians investing in real estate abroad may be losing up to N10 on every dollar due to their penchant for not going through the official channels, nothing that for a house overseas worth about N10million, the buyer could spend up to N12million due to the disparity between the official and parallel foreign exchanges for about N129 at the official rate, but sells for about N143 at the parallel market.

Not many Nigerians go to banks to get Basic Travel Allowance when they want to travel abroad. People don’t care about the difference the official and parallel rates because everything, you will discover that they are losing more.

The stifling bureaucracy at the banks as a major reason why Nigerians buying properties abroad prefer to patronize the parallel channels, as the process of buying foreign exchange through banks involves a lot of documentation. The end user is made to first apply, stating what the money is intended for and backing it with relevant documents before the bank goes ahead to bid at the next auction session.

Bureaucracy is a major problem in the banking sector. Apart from official rates, the banks also add some other costs. People will rather patronize the black market and save money because time is money. In the long run, it is cheaper to buy from the black market.

Nigerian remains the best place to invest in real estate for people who can speculate because of the many imperfections in the system, noting that, for those with big portfolios in the country, overseas investment in real estate may be attractive. A client bought a piece of land on Osborne area of Ikoyi some years back for N31million and sold it for N65million 14 months after. The same plot of land, he says, now commands a princely N135million.

But for those not given to speculation, Nigeria may not be ideal for real estate investment due to poor returns. The average yield (rent on value) is between 10 and 12 per cent, whereas interest rate is about 20 per cent thus, leaving a wide gap.