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Enhancing property ownership in Nigeria through Auction

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A property auction is a sales event (whether online or offline) where potential buyers place competitive bids on a property. People use auctions for real estate sales for several reasons.

The most common is that it provides an avenue to sell off assets to buyers with ready cash. Buyers prefer auctions because they provide access to a wide range of properties that in most cases are below market value.

Auctions also make it easier to sell properties that may be difficult to sell through other methods.

Across the world, auctions have helped countries in tackling major housing problems. Although the adoption of auctions is relatively low in emerging economies like Africa, it has the potential to curb major housing issues especially the housing deficit in a country like Nigeria.

In this article, we provide context to how auctions can be used as a veritable tool for enhancing home ownership in Nigeria. Before we dive in, let’s look at the global property auction market.

Property auctions have become increasingly popular in many countries around the world.  The popularity of auctions, especially for real estate transactions, varies across countries. Generally, auctions are more prevalent in countries like Ireland, Australia, and New Zealand.

In fact, estimates suggest that auction in New Zealand is around 60% of residential sales. on the other hand, countries like the US and Canada, Nigeria and many other African countries primarily lean towards open market methods when it comes to real estate acquisition methods.

 

While traditional property sales dominate the African region, the property auction market is gaining traction.

More than any other factor, auction offers a faster and potentially more transparent alternative for property sales. In terms of regional adoption, South Africa leads the continent with established auction houses and a longer history of utilizing auctions in selling various property types.

Including residential, commercial, and industrial properties. South Africa is the most developed economy in Africa and has a well-established real estate market, offering a wide range of investment opportunities.

The property market in South Africa is relatively more developed compared to other countries in Africa due to several factors. Including market maturity, economic stability, infrastructure and higher level of urbanisation.

Over the past half decade, Kenya has witnessed significant growth driven by factors like distressed assets and land disputes. Nairobi hosts prominent auction houses like Lamudi Property Auctions among others.

Ghana’s on the other hand, has also seen phenomenal growth in the past decade. The auction market has seen increasing popularity, particularly for land sales due to its transparency and efficiency.

Accra holds regular auctions by companies like Ghana Auctioneer Company. Compared to other countries mentioned, Nigeria is a still growing auction market.

Nigeria’s over 200 million population and 18 million housing deficit presents a huge opportunity.

The growing presence of non-performing mortgage back loans and foreclosures opens opportunities for Africa to enhance housing ownership through partnerships.

The continent’s rapid urbanisation rate has created more demand for properties.  These factors for instance have fueled the growth we see in the auction markets in countries like South Africa, and Kenya.

Across the continent, the opportunity for growth in the property auction market is enormous. In South Africa alone, Knight Frank estimates the market size of the auction market at $1.5 billion in 2022.

The average sales price for auctioned properties was estimated at $220,000 according to available data from High Street Auctions.  With over 1,000 transactions concluded annually, the growth projections for the African property auction market are generally positive.

Estimates suggest a potential reach of USD 5 billion by 2025. More than ever, Africa can leverage property auctions to solve the burgeoning home ownership problems.

Additionally, auctions can be used in solving much wider problems like land disputes, market illiquidity and gazumping.

Generally, auctions provide faster access to cash for sellers and attractive investment options for buyers. With online platforms and virtual auctions, opportunities for home ownership can be better disseminated, particularly in remote areas.

Africa’s real estate market is largely informal and unregulated. Property auctions can help formalize the property market in Nigeria by providing a transparent platform for buying and selling properties.

This, in turn, will help the overall development of the real estate sector.

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