Contemporary Accounting Issues in Nigeria’s Real Estate Sector, Challenges and the Way Forward

The real estate sector in Nigeria plays a vital role in economic growth, urban development, and employment generation. However, accounting practices in the sector have come under scrutiny due to increasing concerns around transparency, standardization, and compliance. As the sector continues to evolve—amid regulatory reforms, technological disruption, and complex financial structures—new accounting issues are emerging that require urgent attention.

This article explores key contemporary accounting challenges affecting Nigeria’s real estate sector, their implications, and potential solutions.

Lack of Standardized Accounting Practices

One of the foremost issues is the absence of uniform accounting standards across the sector. Many real estate companies, particularly small and medium-sized developers, do not fully adhere to International Financial Reporting Standards (IFRS). This creates inconsistencies in how income, costs, and property valuations are reported, making it difficult for stakeholders—including investors, regulators, and auditors—to assess the financial health and performance of firms.

Revenue Recognition Complexities

Revenue recognition remains a significant challenge, especially in projects with long-term development cycles. Developers often struggle with determining the appropriate time to recognize revenue from property sales, leases, or construction contracts. Under IFRS 15 (Revenue from Contracts with Customers), revenue must be recognized when control is transferred to the buyer, which can be complex in off-plan sales or installment-based transactions. Misapplication of these rules can lead to misstated earnings and financial misrepresentation.

Valuation and Fair Value Measurement Issues

Accurate valuation of investment properties and development projects is another persistent accounting concern. Many entities rely on subjective or outdated valuation methods that are not aligned with IFRS 13 (Fair Value Measurement). This leads to discrepancies in asset valuations, which affect balance sheets, taxation, and investment decisions. The lack of certified valuation professionals and market data exacerbates this issue, particularly in informal or emerging markets.

Weak Internal Controls and Governance

Real estate firms in Nigeria often operate with inadequate internal control systems, making them susceptible to financial irregularities, misappropriation of funds, and fraud. Common issues include poor documentation, weak audit trails, and lack of segregation of duties. These deficiencies undermine financial reporting reliability and increase the risk of regulatory penalties and reputational damage.

Inadequate Tax Reporting and Compliance

Many real estate businesses face challenges with tax reporting, especially in complying with capital gains tax, VAT, stamp duties, and land use charges. The complexity of Nigeria’s tax system and varying interpretations of tax laws across states create room for discrepancies and underreporting. Furthermore, poor bookkeeping and non-digitized records complicate tax audits and result in potential liabilities.

Absence of Digital Accounting Systems

Despite the growing adoption of digital tools in other sectors, the real estate industry remains largely manual and at most Microsoft excel support in its accounting processes. This hinders timely and accurate reporting, data analysis, and audit preparedness. The low penetration of enterprise resource planning (ERP) systems and cloud-based accounting platforms limits operational efficiency and transparency in financial management. The peculiarity of the income recognition complexity has made it difficult for real estate firms to use just any accounting package or ERP. Most small and medium scale real estate companies are not automated while few are semi-automated.

Challenges in Lease Accounting

With the introduction of IFRS 16, which requires lessees to recognize most leases on the balance sheet, many companies in the Nigerian real estate sector face implementation difficulties. There is often confusion over how to classify and account for lease arrangements—particularly in mixed-use developments and commercial property rentals. This results in inconsistencies in financial reporting and risk misstatements.

Lack of Skilled Accounting Professionals in Real Estate

Another pressing issue is the shortage of accountants with specialized knowledge in real estate accounting. The unique nature of the sector—such as project-based accounting, land acquisition complexities, and joint venture agreements—demands tailored expertise. Most of the available good accountants are not interested taking up a real estate work due to the circumstances surrounding the industry. However, training and continuing professional education on real estate-specific standards are still limited in Nigeria as the industry is not adequately regulated.

Conclusion and Recommendations

To improve accounting practices and enhance the integrity of financial reporting in Nigeria’s real estate sector, several strategic actions are necessary:

Capacity Building: Professional bodies and academic institutions should develop specialized programs and certifications in real estate accounting. Institute of Chartered Accountants of Nigeria (ICAN) and other accounting professional bodies in the country should develop trainings for the accountants of real estate as the sector is capable of reducing the unemployment and underemployment rate among the professionals.

Technology Adoption: Firms should embrace digital accounting platforms and automate financial operations to improve accuracy and compliance. The accounting software and ERP producer should come up with various packages tailored to suit the operations of real estate sector

Employment of professionals: Real estate companie should endeavour to engage professional accountants that will ensure proper documentation of all financial transactions and prepare reports that represent the true and fair view of their operation in line with the relevant International Financial Repotting Standards (FIRS)

Regulatory Harmonization: Agencies like FIRS, SEC, and CAC should collaborate to streamline reporting requirements and reduce tax ambiguities.

Valuation Reforms: There is a need for a standardized, transparent property valuation framework supported by trained professionals and reliable market data.

Stronger Corporate Governance: Companies should implement robust internal controls, risk management systems, and regular financial audits.

In conclusion, addressing these accounting issues is not only critical for financial transparency and investor confidence but also essential for positioning the real estate sector as a viable contributor to Nigeria’s sustainable economic development. As Nigeria continues to urbanize and attract both local and international real estate investors, improving accounting standards and practices will be pivotal. Stakeholders must work collectively to build a transparent, compliant, and professionally managed sector that supports long-term economic resilience.

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