An Appraisal of Sale-Leaseback Transaction in Nigeria Property Market

Abstract

As investors are in dire need of finance for real estate investment, it is becoming more important for investors to have a better understanding of sale-leaseback as an alternative mode of finance. This paper aims to explore perceptions of sale-lease back transaction, its awareness, level of adoption and importance to real estate finance. Sale-lease back benefits both the seller/lessee and the buyer/lessor. In a typical sale-leaseback, a property owner sells real estate used in its business to a private investor or to an institutional investor. Simultaneously with the sale, the property is leased back to the seller for a mutually agreed-upon time period, usually 15-20 years. Sale-leaseback may include either or both the land and the improvements. Lease payments typically are fixed to provide for amortization of the purchase price over the term of the lease plus a specified return rate on the buyers investment. Sale-leaseback often includes an option for the seller to renew its lease and occasionally, repurchase the property. Sales-leaseback is an alternative mode of finance and needs to be adopted, particularly with the on-going economic crunch. The banks can use it to increase and stabilize their capital base while still retaining the property and location for another 20years and possibly repurchase the property. Interview guide and questionnaire was used to elicit information from Estate Surveyors and Valuers, real estate financiers and real estate investors. The information collated shows that investors in Nigeria lack the awareness of sale-leaseback as a method of real estate finance which could be adduced to cultural differences, government policy and insecurity of title. The paper therefore recommends that government should develop a workable institutional framework and enabling environment to promote sale-leaseback transaction.

Keywords- Nigeria; Property finance; Sale-leaseback