Introduction
The Nigerian residential real estate market is projected to reach a transaction value of $15.32 billion in 2024, with an expected annual growth rate (CAGR 2024-2028) of 9.21%, leading to a market volume of $21.70 billion by 2028. Despite these impressive numbers, the industry is beset with challenges that hinder its full potential. This article explores how blockchain technology could not only resolve these issues but also unlock the untapped potential of the sector.
The Nigerian Real Estate Industry
The Nigerian real estate sector is fraught with challenges that make transactions daunting. Almost all land transactions, except for short-term rentals, heavily depend on reliable record-keeping. Failures in this area create significant issues, crippling the industry’s growth.
Unreliable record-keeping at state land registries is a major issue. The reliance on manual records makes the system prone to errors, manipulation, and losses. Registering land transactions is a complex, tiring process that often requires multiple visits to the registry, pressure to pay inducements, and overall discouragement. This inefficiency not only leads to unreliable records but also fosters a breeding ground for fraudulent middlemen who exploit the cumbersome process.
Due to unreliable records, conducting due diligence on land is challenging. Essential information, such as property ownership and encumbrances, is either unavailable or untrustworthy, creating an environment ripe for fraud. This lack of reliable records limits land transactions to basic rentals, sales, and limited mortgages, all carrying significant risk. Homeowners are unable to leverage their properties beyond a single secured loan at any time as second mortgages over a property are rare. Furthermore, more sophisticated transactions like real estate secondary markets, securitizations, and mortgage refinancing, are rare in Nigeria due to investor wariness.
Blockchain Technology
Blockchain is a digital ledger of transactions distributed across a network of computer systems. Once validated, these transactions cannot be altered, reversed, or deleted, making the system tamper-proof.
As an electronic ledger, blockchain technology offers a shift from manual, paper-based record-keeping to a more secure, efficient system. It ensures easy retrieval of information, comprehensive access to all property-related transactions, safety in record-keeping, and reliability. Blockchain’s core features—trust, transparency, and immutability—are precisely what the Nigerian real estate industry needs to solve its fundamental issues.
However, blockchain technology offers much more than just reliable record-keeping.
Beyond Record-Keeping: Additional Value of Blockchain
Blockchain’s infrastructure can support numerous features, such as smart contracts and electronic payments, enabling transactions to be conducted directly on the blockchain. For Nigerian real estate, this means that sales, leases, and mortgages can be executed on the blockchain, leveraging smart contracts for automation.
This would streamline processes, allowing for immediate issuance of electronic Deeds of Assignment, governor’s consent, and Certificates of Occupancy with just a few clicks. Records and proof of property ownership would be created automatically and accessible to all authorized users, reducing fraud, corruption, and the need for middlemen, and thus lowering transaction costs and disputes.
Moreover, the blockchain infrastructure can facilitate sophisticated financial transactions, such as creating real estate tokens. These tokens could be sold to investors, enabling retail investors with limited capital to own shares of properties, thereby increasing liquidity and diversifying investment portfolios.
Government and Administrative Benefits
For the government, blockchain simplifies land administration, reducing revenue leakages as fees and taxes (such as Stamp Duties and Capital Gains taxes) can be collected seamlessly through embedded payment features. The technology also fosters an ecosystem where stakeholders—developers, investors, regulators, banks, and homeowners—can interact, creating a vibrant real estate industry.
Conclusion
Blockchain technology, even in its basic form, addresses the fundamental challenge of unreliable land records in Nigeria. However, its potential extends far beyond simple record-keeping. The optimal use of blockchain involves moving all land transactions to this infrastructure, utilizing features like smart contracts, electronic payments, and token creation to create a comprehensive ecosystem for real estate transactions and administration in Nigeria. This would revolutionize the industry, making it more efficient, transparent, and secure.
Authors
Ugochukwu Obi; Partner, Perchstone and Graeys
Omolade Afonja; Intermediate Associate, Perchstone and Graeys