Risk in Land Banking Practice Among Lagos Residential Estate Developers

Context and background Land banking involves acquiring large land parcels for future development or speculation, and has become popular among real estate developers in Lagos, Nigeria, due to rapid urbanisation and population growth. While offering high investment returns, it carries diverse risks, including regulatory, market, political, environmental, and financial risks. These risks are influenced by legal changes, oversupply, instability, degradation, and shifts in interest rates. Despite its increasing use and importance, little research exists on these risks, motivating this study to explore the risks faced by Lagos developers. Goal and Objectives: This paper assesses the risks associated with land banking by residential real estate developers in Lagos, to provide real estate investors with guidance on mitigating them. To achieve this aim, the study identified the risk factors in land banking practice; examined the likelihood of their occurrence; determined the severity of the risks to the land banking investment; and evaluated the risks associated with land banking practice. Methodology: This paper adopts a quantitative approach, using survey data from Lagos Real Estate Developers. The population comprises 251 registered developers, of whom 100 were selected via purposive and random sampling. Data were analysed using frequency, percentage, mean, and probability. Results: The study revealed that land banking practice in Lagos is very profitable. The average profit margin ranges from 21% to 40%. The study further revealed that the probability of occurrence of the identified risk factors ranges from 0.40 to 0.67, the impact of their occurrence ranges from 0.45 to 0.63, and the risk weights for all identified risk factors range from 0.19 to 0.41. However, the most critical risks include title risks, fund life completion risk, liquidity or exit risk, currency volatility risk, cash flow risk, location selection risk, and customer default risk. The least critical risk is natural disasters.