By ESV Eddy Igbinedion
Compensation valuation in Nigeria under compulsory acquisition is predominantly based on the cost method, with emphasis on physical structures rather than land value. The increasing pace of infrastructural development in Nigeria, particularly in urban centres such as Abuja and Lagos, has intensified the use of compulsory land acquisition.
Under the Land Use Act (1978), compensation is largely limited to unexhausted improvements, thereby making structure valuation the core determinant of compensation outcomes.
However, reliance on the cost method as the dominant approach raises critical concerns regarding adequacy, fairness, and professional consistency. This write-up interrogates the structure-only valuation paradigm and provides empirical and policy-based insights into reform. It adopts a doctrinal and practice-based approach, combining a review of statutory provisions, analysis of professional valuation methods, and illustrative valuation modelling.
The cost method in practice as it applies to structures is:
Value equals replacement cost new (RCN) minus depreciation. A typical compensation scenario reveals the market value of a 4 bedroom duplex standing on a 250m2 plot of land to be #60M due to location and demand. Compensation based on cost method is giving #33,750,000. This reveals an undervaluation gap of #26.25M ( 43.75 per cent).
In several acquisitions along the Abuja Airport corridor, compensation focused strictly on structures and crops, and there is no recognition of land value appreciation due to proximity to the city centre. Then, valuation disputes arose due to outdated construction rates and arbitrary depreciation estimates.
The affected property owners received compensation significantly below open market expectations, resulting in resistance and delayed project timelines.
During expansion and development projects in the Lekki-Epe corridor, rapid land appreciation ( due to urban expansion) was ignored in compensation, and structures were valued using generalised rates despite high-end finishes and commercial adaptability
The key issue here is valuing a commercial property generating rental income purely on cost basis, excluding income capitalisation potential.
Critically analysing the practice, and with regards to determining the gross floor area ( GFA) of buildings/structures in an area, it’s common practice to assume uniformity across buildings, and ignores design efficiency and utility. Enumerated Above are limitations of GFA.
There is instability in the construction rates: no national benchmark, there is high inflation distortion, and regional inconsistencies.
With regards to the applied depreciation, there is no standardised model, over-reliance on valuer judgement, which often leads to conservative bias.
The cost method fails to capture location value, demand dynamics, and income potential.
To address these systematic issues, institutional and technical reforms must be put in place. This implies that valuation standards should be enforced by estate surveyors and valuers registration board of Nigeria ( ESVARBON).
Peer review for compensation valuations ( professional practice) should be made mandatory by Nigerian Institution of Estate Surveyors and Valuers ( NIESV).
Besides, NIESV/NIQS should establish a national valuation database ( data systems)
Under technical reform,
national construction cost index, standardised depreciation models, and component-based costing approach should be introduced to correct rate inconsistency, depreciation subjectivity, and GFA limitations, respectively.
The market value of land should be recognised, compensation for relocation, inconvenience (disturbance), and economic displacement/ cultural and social considerations be considered.
Furthermore, a blended approach ( adoption of hybrid valuation model) should be institutionalised:
Compensation value= cost value+market adjustment + income consideration.
The evidence from Abuja and Lagos clearly demonstrates that structure-only valuation leads to systematic undervaluation. While administratively convenient, the cost method in isolation does not satisfy the principles of equity, adequacy, and transparency. Globally, compensation frameworks are evolving towards participatory valuation, market-reflective approaches, and livelihood restoration. Nigeria must align with these trends to maintain professional relevance and social justice.
The dominance of Structure-based valuation using the cost method in Nigeria ‘s compensation practice is no longer sufficient. Its limitations, particularly in a dynamic and inflationary economy, necessitate urgent reform.
Estate Surveyors and Valuers must lead this transformation through technical innovation, policy advocacy, and ethical practice.
By ESV Eddy Igbinedion
Compensation valuation in Nigeria under compulsory acquisition is predominantly based on the cost method, with emphasis on physical structures rather than land value. The increasing pace of infrastructural development in Nigeria, particularly in urban centres such as Abuja and Lagos, has intensified the use of compulsory land acquisition.
Under the Land Use Act (1978), compensation is largely limited to unexhausted improvements, thereby making structure valuation the core determinant of compensation outcomes.
However, reliance on the cost method as the dominant approach raises critical concerns regarding adequacy, fairness, and professional consistency. This write-up interrogates the structure-only valuation paradigm and provides empirical and policy-based insights into reform. It adopts a doctrinal and practice-based approach, combining a review of statutory provisions, analysis of professional valuation methods, and illustrative valuation modelling.
The cost method in practice as it applies to structures is:
Value equals replacement cost new (RCN) minus depreciation. A typical compensation scenario reveals the market value of a 4 bedroom duplex standing on a 250m2 plot of land to be #60M due to location and demand. Compensation based on cost method is giving #33,750,000. This reveals an undervaluation gap of #26.25M ( 43.75 per cent).
In several acquisitions along the Abuja Airport corridor, compensation focused strictly on structures and crops, and there is no recognition of land value appreciation due to proximity to the city centre. Then, valuation disputes arose due to outdated construction rates and arbitrary depreciation estimates.
The affected property owners received compensation significantly below open market expectations, resulting in resistance and delayed project timelines.
During expansion and development projects in the Lekki-Epe corridor, rapid land appreciation ( due to urban expansion) was ignored in compensation, and structures were valued using generalised rates despite high-end finishes and commercial adaptability
The key issue here is valuing a commercial property generating rental income purely on cost basis, excluding income capitalisation potential.
Critically analysing the practice, and with regards to determining the gross floor area ( GFA) of buildings/structures in an area, it’s common practice to assume uniformity across buildings, and ignores design efficiency and utility. Enumerated Above are limitations of GFA.
There is instability in the construction rates: no national benchmark, there is high inflation distortion, and regional inconsistencies.
With regards to the applied depreciation, there is no standardised model, over-reliance on valuer judgement, which often leads to conservative bias.
The cost method fails to capture location value, demand dynamics, and income potential.
To address these systematic issues, institutional and technical reforms must be put in place. This implies that valuation standards should be enforced by estate surveyors and valuers registration board of Nigeria ( ESVARBON).
Peer review for compensation valuations ( professional practice) should be made mandatory by Nigerian Institution of Estate Surveyors and Valuers ( NIESV).
Besides, NIESV/NIQS should establish a national valuation database ( data systems)
Under technical reform,
national construction cost index, standardised depreciation models, and component-based costing approach should be introduced to correct rate inconsistency, depreciation subjectivity, and GFA limitations, respectively.
The market value of land should be recognised, compensation for relocation, inconvenience (disturbance), and economic displacement/ cultural and social considerations be considered.
Furthermore, a blended approach ( adoption of hybrid valuation model) should be institutionalised:
Compensation value= cost value+market adjustment + income consideration.
The evidence from Abuja and Lagos clearly demonstrates that structure-only valuation leads to systematic undervaluation. While administratively convenient, the cost method in isolation does not satisfy the principles of equity, adequacy, and transparency. Globally, compensation frameworks are evolving towards participatory valuation, market-reflective approaches, and livelihood restoration. Nigeria must align with these trends to maintain professional relevance and social justice.
The dominance of Structure-based valuation using the cost method in Nigeria ‘s compensation practice is no longer sufficient. Its limitations, particularly in a dynamic and inflationary economy, necessitate urgent reform.
Estate Surveyors and Valuers must lead this transformation through technical innovation, policy advocacy, and ethical practice.
