Following a review of prices by the state government last month, the cost of obtaining a building planning permit has increased once more in Lagos' construction and real estate industries. This has prospective home builders and property developers worried that the Sanwo-Olu administration will usher in even tougher times.
The change follows a period of rising interest rates, rising borrowing costs, and inflation that dulled the appeal of real estate investments. Many property developers were compelled to consolidate their holdings, make investments in possibly more affordable assets, and realign their properties in order to adapt to changing consumer demand.
For instance, the exchange rate more than doubled, placing pressure on importers of construction materials and leading to high market costs. Local building supplies like wood, tiles, iron rods, and cement are currently extremely expensive.
Costs for home construction and renovation both increased significantly. The cost of financing real estate developments increased due to the increase in interest rates, which also decreased investor profits. In most areas of the city, landlords and property owners have naturally taken advantage of the situation to boost their rents.
The third revision of permit prices in two years, according to information obtained by The Guardian, may further impair the construction industry because it affects building assessment, special enhancement levy, and infrastructure development certification for fees and stages in all Local Government Areas (LGAs).
Prior to the increase, stage certification was 35% of building assessment, registration and application were N5,000 and N25,000 for all regions, respectively, and building assessment was N10,000 for one to 650 square meters and N4,000 for subsequent 1,000 square meters. If there is documentation of a prior permission, the remodeling fees are 25%; otherwise, they are 100%.
The rates, particularly given that they are made retroactive, according to town planners, would raise the entire cost of development and cause budgeting or financial plans to fall through. The revised rates will result in an increase in documentation costs of between 15% and 20% of the building budget's initial phase. In order to eventually amortize their investment, investors or developers will have to raise rents on the development, whether residential or commercial.
Additionally, as some developers might choose not to apply for planning permits due to the high cost, property sale prices will also be impacted. Even before the prices were raised, this was the circumstance. Many builders, especially single homeowners in LGAs like Badagry, Epe, Ibeju-Lekki, Ikorodu, and others, have erected structures without the necessary planning approvals.
The hike may encourage shady and subpar development operations, according to Nathaniel Atebije, president of the Nigerian Institute of Town Planners (NITP). "Developers will cut corners and obtain licenses through dishonest and corrupt means more than ever before, especially in Lagos where we lack the staff and resources to supervise developments.
“The frequent increase in approval fees is counterproductive to housing development in a country where the housing deficit is so high. The increase will create more difficulties for monitoring and control in Lagos,” Atebije said.
He absolved government planners of responsibility for the rise. "However, they can be forced to accept it if only so they can keep their jobs or positions. Recently, some experts have advised the government to commercialize all of its activities even though its purpose is to provide services to the public for social benefits.
Planning, in his view, is a social duty that the government owes to the people. "All classes of people should have equal access to organized space for living, working, and playing as this is a fundamental right of citizens. Anything outside of this is against citizens' rights. The least fortunate will have less prospects for a decent life if other states follow Lagos' example in this regard is decent.
He said: “Approval fees should be as low as possible to encourage developers to come up with genuine intentions to develop. All that government staff does in the building development process is to review development proposals and assess its compliance with established space and construction standards. In a situation where the cost of reviewing designs completes with the cost of conception and detailing the design shows that a basic error exists.”
Given the impending likelihood of urban sprawl and squatter settlements, Atebije predicts that the state will spend more money on urban rehabilitation initiatives in the future.
He suggested that the government support development by lowering permission fees and imposing taxes on the development once it is in use for the duration of the building. Increasing approval costs may not be as beneficial as property taxes, he added.
The head of the NITP Lagos chapter, Mr. Tayo Awomosu, criticized the government for this decision and warned that it will have a detrimental impact on the building industry. According to him, the new rate will significantly deter developers and builders because it will increase the cost of properties.
Awomosu said: “We have been looking at it and feel that it is a very bad decision because planning above all things, is a social service and not a commercial venture. Now doubling acceptance fees and other charges for planning permit is bound to negatively affect the construction sector.
“It is an arbitrary increase and does not conform to what is in the regulations. It is also retroactive because if you have filed your application five years ago and you have not received your permit, you will still have to pay the fee even if you have paid the previous assessment. You have to pay on top of that to match up with the current one. Any retroactive law is bad.”
He asserts that over time, the rate will hurt the construction industry because more people will disobey planning regulations. According to him, this could result in a degraded environment and prompt town planning officials to start pursuing illegal development throughout the state.
He said: “If it becomes difficult to match the pay, people may build without a planning permit. There will be more illegal development because marginal developers won’t be able to pay and they may feel it is better to develop illegally and face the consequences. Citizens will also be subjected to all kinds of sanctions and difficulties.
“We want more properties developed for people to be better housed. You can imagine that somebody wants to develop, which is an aspiration but the government collects its own money upfront. For the government to ask you to first bring money before a person can develop a project is a disincentive and will have long-term implications for the sector.”
The Lagos State's Physical Planning Permit Regulation 2019, according to Mr. Muyiwa Adelu, President of the Association of Town Planning Consultants of Nigeria (ATOPCON), stated how much the government should charge for a permit. He emphasized that imposing arbitrary and sudden charges is reckless and against the law.
He claimed that enforcing the fee throughout the state would have negative effects, particularly on the state's poor housing output, which might be made worse by the consequence of ending fuel subsidies.
Adelu suggested that the government reevaluate its position and said that while expansion is possible, it must be gradual.
The ATOPCON President said the new development might trigger increased activities of recalcitrant developers or persons, who will do everything to evade payment for permits, thereby encouraging illegality in all its forms including growth of illegal constructions in the state.
“The government does not even have enough manpower to monitor development in Lagos and how are they going to monitor those getting involved in illegal developments.
“Every citizen must have access to housing and if the government is not providing enough and the private sector is doing that, the government must not sniff life out of them. Beyond increment, the government must make life easier for the people” Adelu said.
Therefore, he encouraged the government to guarantee thorough stakeholder participation before implementation, promote equality of opportunity for all, and give suitable infrastructure in the state more consideration.
While attempts to reach the General Manager of the State's Physical Planning Permit Authority (LASPPPA), Mr. Kehinde Osinaike, proved fruitless because he did not return calls or messages sent to him, the Deputy Director, Public Affairs, Lagos State Ministry of Physical Planning and Urban Development, Mr. Muikaila Sanusi, stated to The Guardian that he does not have information on the matter.
Source: The Guardian