The Lagos state government recently enacted a Law: Lagos State Real Estate Transaction Regulatory Authority Law, which will curb activities of unscrupulous real estate agents and those who pose as estate developers to scam investors.
A lot of citizens have fallen victims to fictitious real estate investment opportunities that are non-existent in reality. Hence, this law will be enforced by the Lagos State Real Estate Transaction Department to avoid repeated occurrences.
Although, the department has now been upgraded to an agency called Lagos State Real Estate Regulatory Authority (LASRERA). The regulatory agency will coordinate, monitor and regulate the activities of practitioners in the real estate business in Lagos.
The regulatory process also appears to be one that will help recover more taxes from real estate transactions and practitioners. The government should track real estate transactions for tax remittance and inventory purposes. But with a process that improves real estate business efficiency.
Section 11 and 12 of the Code of Conduct states that;
(11) Agency fee(s) shall be as follows –
(b) Sale or Purchase of interests in Land and Buildings where two or more agents are retained by the owner/vendor for the sale, the fee shall be the 15 per cent of the total proceeds of the sale.
(12) A Licensed Real Estate Practitioner shall not prepare any legal document pertaining to any transaction handled by him but must be prepared by a Legal Practitioner and the fees shall not be more than 12.5 per cent of the total consideration.
This means that each principal in a transaction would bear a certain cost of at least 15% fee to realtors or brokers. The party who must also have an attorney will add an extra cost not more than 12.5%.
These closing costs are not the only cost associated with a real estate sale or a buy transaction. There are several other expenses associated with a real estate business or transaction. Any cost on a real estate transaction affects the asset value and a part of these costs recurs every time a piece of real estate is bought or sold.
There is an agelong deficit in housing inventory besides the over $900B dead capital. An increase in real estate transaction costs put a nail in the coffin of the already dead capital. This means the hope of resuscitating the dead capital is now almost zero.
Without a doubt, there is a need for proper inventory and records of real estate transactions. There must be other efficient ways to achieve an updated inventory, while also ensuring proper taxation where necessary.
For instance, in enforcing the land use charge in the year 2018, Lagos State embarked on an activity to capture the assessed value of properties in the state. The activity was carried out working with stakeholders in the state such as Estate Surveying and Valuation Companies. This shows that there can be a more efficient way to capture real estate transactions in the state without much increase in the transaction cost.
The 15 per cent fee as stated in Section 11b of the Code of Conduct would also appear as an incentive. To draft in for formal registration, more real estate professionals in the brokerage business. Although, this does not mean tax remittance will come naturally.
Going by the 27.5 per cent least added cost per sales transaction as suggested by the Code of Conduct, to an investor, there has to be a strong justification and value exchange for such fees. A real estate investor will prefer to reduce these fees as much as they can and in any ways possible; although, caution is advised here.
There are lots of creative ways to reduce transaction cost while getting the best value and also preventing falling victims of a scam.
A few ways to keep transaction costs low while still getting quality services are;
- Be real estate investment literate. Profitable real estate investing is not rocket science neither is it a walk in the park. For a first time or repeat investor, sufficient knowledge through education or experience is key.
- Set a clear real estate goal. A goal is a picture of the desired outcome with steps on how to get the desired outcome.
- Integrate teams and collaborate where possible on aspects of your real estate project or purchase regardless of your portfolio size.
- As a major decision-maker in your real estate purchase, you can leverage on relationships that you have built with experienced professionals where applicable.