Development fee

Development Fee: A Scam by Many and a Great Tool by Few

Whether you are aware or not, apart from location, development is a driving force behind real estate value appreciation.

As the name implies, the development fee is a certain amount stipulated by real estate developers, meant to be used for the purpose of providing infrastructure such as tarred road, drainage system, electricity within a gated estate. Sounds fair, right? Well, that's where the controversy begins.

Prior to the recent saturation of the real estate industry by developers, it was and it is still a common practice for those who buy land from individuals and omo oniles to form landlords association with the primary aim of providing basic amenities within their street and neighbourhood, without waiting for the government.

These landlords contribute money to erect electric poles, buy transformers to ensure that there is stable electricity. In some cases, depending on their financial status, they pool resources together to fix the road connecting different parts of the street together. This is still a common practice in so many parts of the country.

Then came the real estate developers. They buy hectares of land and sell to individuals and corporate organizations in plots and in some cases, acres. They promise various infrastructure such as 24/7 power supply, interlocked roads, drainage system, among others. To be able to provide these facilities, the developers charge development fees depending on the infrastructure they promise.

Sadly, within the last five years, companies I would rather tag “advanced omo oniles” have sprung up as self-acclaimed real estate developers. While there are few genuine and focused players in the industry, the majority are just the real estate version of fraudsters who use the development fees paid by their subscribers to fund CEO/MD’s frivolous lifestyles.

Within the last four years, I have worked with almost ten real estate developers. I have come to the conclusion that, sooner or later, the subscribers will still have to come together to develop the estates themselves, thereby losing millions to the developers, who will be nowhere to be found. The land they bought is genuine and free from all forms of encumbrances. However, the development fee they paid to the developers will not yield any result.

Where are the estates launched between 2018 and 2019? This is 2023, no single block has been erected. Some developers have blocked all communication access to the customers. Few months ago, a realtor was arrested by the client. The client had paid development fee since 2019 but no single development has taken place. Not even a gate house has been built.

By the way, development goes beyond building gate houses. It entails the provision of ALL the facilities promised in the subscription form. If a developer charges ₦4m for development of an interlocked road, electricity, and drainage system, it is criminal for such a developer to provide earthen roads and put the blame on the rising cost of building materials.

On the flip side, I have seen very few real estate developers who continue to develop their estates to the point that within two years, their clients have started enjoying the value they paid for. Those who intended to build when they were subscribing are already building. Those who bought offplan apartments have already been allocated. As a matter of fact, some are already living within the estate. This will also favour those who bought lands for investment purpose. The faster the development in the estate, the more their properties appreciate in value.

As a real estate investor, it is your responsibility to do due diligence when approached by real estate developers or their agents. Watch one of their estates closely for at least six months before you have anything to do with the developers. The few genuine developers always ensure that value is added to the property on a monthly basis. In fact, some of them frequently have workers on site to execute one project or the other.

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