Why is Lagos Real Estate Expensive?
Real estate market has always buzzed with nonstop activity in the city of Lagos. Ada, a dynamic real estate agent, spent her days hustling, constantly on the move. “No time to dull,” she would say, juggling phone calls and meetings, knowing every deal counted.
One scorching afternoon, she met Mrs. Johnson, a hopeful homebuyer. As they toured a prospective home, Mrs. Johnson sighed, “Ada, these prices na wah o! How person go fit to buy house for this Lagos?” Ada nodded sympathetically, “Aunty, na so we see am. This market na jungle. But no worry, we go find something wey go fit your budget.”
Simultaneously, Mr. Okafor, a developer, sat in his office, examining blueprints for his latest project. “Baba, this land matter no be small thing o,” his assistant remarked. Mr. Okafor shook his head, “You no go understand. To get land and still manage all these regulations, na serious wahala.”
That evening, Ada, Mrs. Johnson, and Mr. Okafor crossed paths at Mama Sikira’s buka, a popular spot for good food and lively conversation. “Ehen, Mr. Okafor, I hope say your new project go affordable for people like Mrs. Johnson here,” Ada teased, lightening the mood. Mr. Okafor laughed, “Ada, we dey try our best. As dem talk, ‘Monkey no go leave him black hand for ground.’ We must balance cost and quality.”
Stark Reality
The stark reality today is that Lagos real estate is very expensive compared to other states in Nigeria. The anecdote above vividly depicts the dilemma faced by developers, agents, and clients. Everyone feels the heat.
Before diving into the specifics of Lagos real estate prices, let’s first discuss real estate in general and provide some context about Lagos. This will help clarify the current situation.
Lagos is the most globally recognized Nigerian city, even more so than Abuja, the capital. While Abuja is the administrative capital, Lagos is the economic heartbeat of Nigeria, comparable to New York in the US, Shanghai in China, or Tokyo in Japan.
Lagos, with its unique qualities, stands out as a beacon of opportunity in the real estate market. The reason is clear — Lagos has enduring value due to its constant population growth. This results in a never-ending demand for commercial and residential properties. The city’s real estate market is more than just buildings and plots. It’s a dynamic and ever-evolving landscape that fuels the dreams and aspirations of millions. In Lagos, every parcel of land tells a story of potential.
Now, back to the main point.
In recent years, there have been several changes in the Lagos real estate market. These changes have been bittersweet. On one hand, they’ve led to alarming property prices. On the other hand, they have boosted the booming Lagos real estate industry. After explaining these changes and why Lagos real estate is expensive, you can decide if you want to invest in Lagos real estate. You can also decide if you will invest in it in the future when you have the financial strength. This will help you determine if it’s worth it.
So, let’s go!
Naira: A Shadow of Its Former Self
The Nigerian Naira has been steadily losing its value over the years, affecting the prices of items across the country, especially since most goods are imported. Every small price hike is often attributed to the dollar.
The real estate market is no exception to these fluctuations in exchange rates. The cost of imported building materials and machinery, essential for construction, rises with the Naira’s devaluation against major foreign currencies. This increases the overall cost of housing. These fluctuations significantly impact different sectors of the real estate market, particularly the residential sub-market. House prices have surged, especially in key cities like Lagos. Rising construction costs, high borrowing costs, and the expense of acquiring land make it nearly impossible for developers to sell affordable homes. As a result, developers focus on deluxe and luxury projects, where they can charge a premium and recover costs.
Real estate developers like Mr. Okafor find themselves in an awkward situation, leading to increased property prices. The Cost-push inflation theory explains this situation. It describes how rising production costs and declining supply contribute to inflation. Currency devaluation raises the cost of imported construction materials, which developers then pass on to buyers, raising property prices. This framework helps explain why Nigerian developers increase property prices due to rising material costs caused by the Naira’s devaluation.
The high cost of acquiring land, along with construction costs, also contributes to high property prices in Lagos.
A 2021 research by Nairametrics analyzed four new projects in Banana Island, Ilasan, Yaba, and Surulere. Sale prices ranged from ₦21m-24m for a 2-bed apartment in Yaba to ₦620m for a 6-bed house in Ikoyi. Developers maintained profits between 15% and 36% and rental yields of 2% to 7%. The analysis showed land acquisition and construction costs contributed 22% and 64%, respectively, to the total development cost. For the Ikoyi project, the split was 53% and 47%. This difference is due to Ilasan, Yaba, and Surulere’s average land price of ₦78,000 per sqm being cheaper than Ikoyi’s ₦400,000 per sqm. Developers in high-cost areas aim to sell at higher prices, requiring greater construction costs.
Where is the Purchasing Power of the Citizens?
If we are to be sincere, we would see that the reason Lagos real estate looks expensive is because the purchasing power of most Nigerians is low. Taking a second look at my anecdote earlier in this post, you will see that Mrs Johnson does not have the purchasing power to get a house in Lagos. This is making it difficult for her agent, Ada. Mrs. Johnson is probably an average earner somewhere around the middle class.
Purchasing Power Parity (PPP) suggests that in the long run, exchange rates should move towards the rate that equalizes the prices of an identical basket of goods and services in any two countries. When a currency devalues, it implies that the domestic currency has less purchasing power compared to foreign currencies. For real estate, this means that the cost of imported construction materials increases, driving up overall development costs. This aligns with the observations in Nigeria, where devaluation of the naira has led to higher prices for building materials and increased property costs.
Estate agents are beginning to see this, a number of prospective buyers who can no longer afford Lekki Phase 1 for instance, default to buying similar-sized project in neighboring locations with Ikate being the first option. Even in the land market, a similar narrative has played out. For example, increasing land prices in Ibeju-Lekki and surrounding has forced prospective land owners to explore other locations, with Epe being the most nascent location typically considered. Where the buyer insists on buying a location but prices have gone up, the next approach is usually to downsize on their preferred property size.
Teeming Population vs Limited Affordable Housing
Lagos is densely populated and seen as a land of opportunity for many. However, this creates significant disadvantages. The teeming population leads to limited affordable housing, a constant problem for Lagos. Many areas are overcrowded, as affordable housing is out of reach. The absence of effective affordable housing policies and initiatives by the government contributes to this housing crisis. While the government has made efforts, such as the Lagos Home Ownership Mortgage Scheme (Lagos HOMS), these programs often fall short of meeting the vast housing needs. Without comprehensive and sustainable housing policies, the affordability gap continues to widen, making it difficult for low and middle-income earners to afford decent housing.
The number of housing units in Lagos cannot cater to the population. Data from the Pison Housing Group’s 2019 report states that the housing stock in Lagos is estimated to be 1.492 million units. With a population of 18 million people in 2019 according to the United Nations, and an average household size of 4.9, Lagos had over 3.8 million households. This indicates that up to 2.1 million households are without formal housing, presenting a supply gap of over 55%. Excess demand drives up prices. Landlords frequently increase prices and let out or sell to the highest bidder.
Migration to Lagos contributes to the teeming population. “Lagos is a paradise for Nigerian hustlers; the city never sleeps.” This statement reflects the relentless hustle and bustle of Lagos, where there are boundless opportunities for those willing to thrive amidst its chaos. Chimamanda Ngozi Adichie humorously captures the city’s relentless hustle: “Are you the first person to have this problem? You have to get up and hustle. Everybody is hustling, Lagos is about hustling.”
Every Tom, Dick, and Harry wants to be in Lagos. It is the magical city for hustlers, where anything is possible if you are hardworking and focused. It is the biggest market for local and foreign investors, leading to a flow of jobs and contracts. This naturally drives up real estate prices. In real estate, location is the most potent determining factor for price and value.
In an interview by The Punch, many Nigerians explained why they migrated to Lagos. Kingsley Osahon, a technology enthusiast at Gomycode, a tech hub in Yaba, Lagos, said Lagos offers many opportunities for young people who want to advance their careers. “Lagos has the highest number of headquarters of corporate organisations and business conglomerates, providing internships, entry-level jobs, and full-time jobs that help one develop career growth,” he said.
Founder of Headstart Africa, John Obidi, advised, “Move to Lagos if you want that progression.” He emphasized the unparalleled networking opportunities Lagos affords. “At some point, I needed to move to Lagos from Benin. It catalyzed my growth,” he said.
Chidinma Ocho, a customer representative with Access Bank in Magodo, relocated to Lagos after struggling to secure a job in Port Harcourt. “After I graduated, I left Port Harcourt for Lagos and got a job with Access Bank. It didn’t happen until I moved here,” she said.
This surge in professional migration has propelled the soaring cost of housing in Lagos.
Lagos: The Land of Promises With Boundless Potentials
Will Rogers famously said, “Don’t wait to buy real estate. Buy real estate and wait.” This quote underscores the importance of taking action in real estate investments, where time and patience can lead to substantial gains.
In line with Rogers’ wisdom, investing in Lagos real estate can yield impressive returns for you and your offspring. Thanks to its boundless potential and consistent growth, Lagos real estate appreciates over time. Imagine buying land now and seeing a 100% profit in the next twenty years.
The real estate market in Lagos, Nigeria, is vibrant and dynamic, reflecting the city’s unique strengths and allure. Lagos stands out as Africa’s most populous city and a hub of commerce, culture, and innovation. Its status as a coastal megacity offers a unique blend of urban and waterfront living, not common in many African cities. This mix of luxury waterfront properties and bustling commercial districts makes Lagos uniquely appealing.
Buyers in Lagos’s real estate market are diverse, ranging from local business professionals to international investors. The city’s robust economy, driven by its status as Nigeria’s financial center and a major African economic hub, attracts many. Foreign interest in Lagos’s real estate is high due to its potential for economic growth and development. Lagos is seen as a gateway to the Nigerian and West African markets, making it an attractive destination for foreign businesses and investors. This international attention adds a layer of dynamism to the market. Consistently rising property values in prime areas like Victoria Island and Ikoyi underscore this dynamism, highlighting the city’s resilience and growth potential.
A unique and positive feature of Lagos properties is the increasing focus on sustainable and smart city features. In response to urban challenges, new developments integrate innovative solutions like green energy and smart technology. This makes Lagos properties not just places to live but also investments in a sustainable future. Ongoing infrastructural developments, like the Eko Atlantic City project, are set to redefine urban living in Africa. Additionally, Lagos’s growing status as a tech and innovation hub attracts a skilled workforce, driving demand for housing.
Given these factors, investing in Lagos real estate seems worthwhile.
