Despite its small land area estimated at 3,577 square kilometers or 0.4 percent of Nigeria’s total land area, Lagos, the country’s commercial nerve centre, can be described as a real estate construction site. An unconfirmed report has it that Lagos accounts for 62 percent of the entire construction activities in Nigeria as against Abuja’s 22 percent and about 18 percent in Port Harcourt.
Real Estate Developers Association of Nigeria (REDAN), an umbrella body of all housing developers in Nigeria, estimates that 300,000 new housing units are constructed annually in Nigeria, noting that Lagos alone accounts for more than 10 percent of these units.
With all these going in its favour, Lagos, contrary to expectations, still has a housing deficit that is second to none in the whole country. A Pison Housing Company’s report on ‘The State of the Real Estate Market in Nigeria’ estimates Lagos housing deficit at three million units.
Several factors have been fingered for this situation, including investors’ yield appetite, sales versus rent dynamics, rapid population/urbanisation growth, infrastructure challenge, land cost, among others.
Investors’ yield appetite
This is a major factor given that a typical investor is more interested in projects with a higher yield and more rapid capital appreciation. The high-end properties typically have higher profit margins. They are also long-term investments, and are generally perceived as more stable during economic downturns.
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For some other developers, the motivation can be prestige and branding. Developing high-end properties can enhance a developer’s prestige and brand image. Creating luxury properties can attract attention, media coverage, and recognition in the industry, which can benefit the developer’s overall business. For this reason, houses for the low to mid-income home seekers are hard to come-by and where they exist, they are largely unaffordable to this class of people who really need housing, hence the deficit.
Sales versus rent dynamics
Typically, Lagos is a rental market where over 80 percent of its over 20 million population lives in rented accommodation, according to the state’s commissioner for housing, Moruf Akinderu-Fatai. Though this is a huge opportunity for build-to-let investors, it is a serious demand-supply mismatch.
According to a recent report by BuyLetLive, an online property marketing and research firm, the sell-rent ratio for properties listed in Lagos is a reverse of a home seeker’s expectation. Here is a city where more than 50 percent of residential projects listed on the firm’s platform, as of July 2023, were for sale, while less than 40 percent of properties listed on the platform were for rent.
This data confirms the mismatch in the sell versus rent dynamics in Lagos. However, a good argument against this position may be that rental transactions close faster than sales and are, therefore, frequently delisted. From the firm’s trend analysis, it was discovered that the number of properties listed for sale in Lagos far outweighed the number of properties listed for rent and the reason for this is not far-fetched.
“80 percent of people looking for houses in Lagos are looking to rent and not buy as they cannot afford to buy. In essence, over 50 percent of developments in Lagos are built to be sold, while 80 percent of people who need properties in Lagos are looking for houses to rent. This is a clear paradox,” Martin Uche, a senior researcher at BuyLetLive, noted.
Population /urbanization growth
Lagos is said to be the most stretched housing market in Nigeria with more than 10 percent of the country’s estimated 200 million population. Since its creation in 1967, the city has experienced exponential population growth and this is exacerbated by rapid urbanization.
People from rural areas and other regions of Nigeria migrate to Lagos daily in search of better economic opportunities. This migration has continuously increased the demand for housing, worsening the supply deficit. Over the years, the demand for affordable housing in Lagos has consistently outpaced the rate of construction by a wide margin, leading to a shortage of affordable housing supply that has continued to widen. Lagos today is a densely populated city with limited land for new construction, especially within the metropolis.
High land cost
In Lagos, land is gold and to an average state government official, land is an equivalent of oil. So, land attracts premium price more so as it is very scarce in the city centre where it is needed most. The city is expanding and so, available land is becoming scarcer and more expensive, making it challenging for developers to build enough housing units to meet the rising demand for affordable housing. Land cost, more than other inputs, makes it unrealistic to build affordably and close the gap in most locations.
Infrastructure challenge
Inadequate infrastructure, such as roads, water supply, and sanitation, hinder new housing developments. Infrastructure cost is high in Lagos, estimated at 40 percent of total construction cost. Developers are therefore hesitant to invest in areas with poor infrastructure, limiting the growth of affordable housing supply. This too, contributes significantly to the reasons for the growing deficit.
