A Free Zone is a specially designated region, clearly demarcated and administratively considered to be outside the Customs Territory of the host country, having special regulatory and fiscal incentive regimes to enhance its competitiveness.
The concept of free trade zone is an economic development model that employs generous incentives – such as free land contributions, tax breaks, import and export duty waivers, profits repatriation etc. to attract foreign investment. Usually, the incentives that apply in the areas designated as “free trade zones’ do not apply to the rest of the economy.
Free-trade zones which in some other countries are referred to as “special economic zones” are testing grounds for the implementation of liberal market economy principles. Nigeria has about 33 special economic zones established in the country, with only about 15 fully operational free trade zones, and each zone with its own specifics and specialty. Since the establishment of these special economic zones in Nigeria, the nation has enjoyed the benefits of the creation of more job opportunities, business options, manufacturing options, a higher rate of cross-border trading and increased foreign exchange earnings among others.
Impact of FTZ on the Real Estate Sector (Case Study on Lekki Free Trade Zone)
The establishment of Lekki Free Trade Zone will not only enhance infrastructure development in both the free trade zone and Lagos state (dubbed as Africa’s fastest growing business market) but will also promote the development of the overall real estate market in the surrounding environment. Such impacts are primarily reflected in the following aspects:
1. Office market: The FTZ will phenomenally increase the demand for office space from enterprises that will be attracted by the investment environment of the region. The region is expected to rise and relieve the substantial office supply pressure Victoria Island and Ikoyi axis of Lagos. Demand for office space is often driven by foreign oil and gas companies, manufacturing companies, financial institutions which seek to locate facilities close to the ports and free trade zone axis.
2. Residential market: The free trade zone is expected to create additional employment opportunities in the rising service sector. These job opportunities will boost continued rise in urban population within the region which will result into correlating the increase in the demand for residential spaces surrounding the FTZ and equally improve the infrastructure of residential communities. Lagos Island which is home to the Lekki Free Trade Zone consists of three sub locations which are Ikoyi, Victoria Island and more recently the Lekki-Epe Axis and will soon be joined by Eko Atlantic City, will experience increased demand for residential spaces by expatriates, specialists, foreign investors among other. The Hospitality Tourism and Leisure real estate sector would also benefit from special economic zones.
3. Retail market: A projected increase in the demand for retail properties that will service office and residential communities in the FTZ is expected to be driven by the population and income growth in the area. The tariff advantages found in the free trade zone will also boost availability and demand for imported goods thereby creating additional high-end consumption across the Lekki-Epe Region, and accordingly promote the upgrading of retail market and development of new malls.
4. Industry and Logistics Market: There is an expected growth in demand from service sector companies for high-quality facilities will outpace the current supply. The growth and development of trade in the FTZ will also significantly raise the need for capacity and efficiency of logistics facilities, driving demand for higher quantity and quality of logistics properties.
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