Fresh insights have emerged on how the new tax law in Nigeria benefits home buyers, renters, and investors in the real estate sector of the country’s economy.
Beyond reducing the cost of building materials and improving access to affordable housing across the country, the tax law also helps significantly in easing home purchase, rent and various tax burdens on both individuals and institutions.
Part of the high points of the new tax law, especially as it relates to real estate, is increased transparency in assessment and collection. The law has removed subjective rule in determining expense deductibility. Deductible expenses are those that are wholly and exclusively incurred in generating profits.
The benefits of the new law cut across most operators in the real estate sector, including home buyers and renters, developers and construction firms, as well as investors and real estate investment trusts (REITS) which are solely investors in rental properties.
Homebuyers and renters benefit from this law through value added tax (VAT) exemption on land and property sales, including interest in land and rent of residential properties. This has the potential of lowering construction cost and, by extension, house prices.
Yomi Olugbenro, Partner & West Africa Tax Leader at Deloitte, added that there is also cost savings from capital gains tax exemptions on the disposal of personal residential property.
Olugbenro spoke at a Continuous Development Programme hosted by the Royal Institute of Chartered Surveyors, Nigeria Group, in Lagos, with the theme, ‘Nigeria Tax Acts: Implications on Real Estate, REITs, and Construction.’
He pointed out that stamp duty exemption on lower-rent leases of less than NGN 10 million monthly is another benefit, adding that benefits in kind (BIK) valuation for an individual is now subject to a maximum of 20 percent of annual salary.
For developers and construction firms, the good news is also in the lower costs on input materials due to VAT exemption on real estate. In Nigeria, input materials are quite expensive because they are largely imported and so the removal of VAT is a huge relief.
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There are also cost reliefs by lower with-holding-tax (WHT) rates from 2.5 percent based on rental value to 2.0 percent for local contractors, while foreign contractors pay 5 percent.
Olugbenro, who is a member of Presidential Fiscal Policy & Tax Reforms Committee, hopes there will be increase off-take in commercial properties due to new BIK valuation rule for individuals coupled with potential tax planning scheme for management staff.
In the new tax regime, according to him, investors and REITs are to enjoy WHT exemption on dividend distributions from REITs which improves returns and attracts investor capital.
“There will be lower tax burden for small developers and exemption thresholds encourage investor participation in the real estate sector. VAT exemptions from real estate sales and lease transactions reduce transaction costs for REITs acquiring income generating properties,” he revealed.
Akindele Afolabi, CEO, Adamakin Investment and Works Limited, agrees with Olugbenro, stressing that the new tax laws will make a significant impact in Nigeria’s real estate sector.
He highlighted the role of tax reforms in unlocking the economic potential tied to real estate, pointing out that the laws will not only generate revenue, but also enhance mortgage accessibility and improve property investments.
“The real estate business in Nigeria is a locked-down wealth. If every state can ensure land titles are registered in their respective land registries, it will improve financial systems, attract investments, and strengthen mortgage insurance,” the CEO noted.
