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Eko Atlantic, Ikoyi, Lekki are some of the most profitable property locations

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It cost N502 million more to buy a real estate property in Eko Atlantic in April 2021 than at the beginning of this year.

From an average of N179.17 million in January 2021, the cost of an apartment in Lagos coastal city that is being built on Victoria Island adjacent jumped 280.2 percent to N681.25 million in April, as analysed from data by the Nigerian property Centre (NPC), a property website in Nigeria with listings for sale, rent, and lease.

The trend was the same for the price of houses in some other highbrow locations in Lagos- Ikoyi, Lekki, and Victoria Island. The average price of houses in Ikoyi was up by N39.63 million in April. The prices in Lekki added N7.95 million and N7.72 million in Victoria Island. The four locations reported an average price increase of 76.81 percent in the review period.

This means that investors and landlords who own properties in the location are likely to get more returns on their investments. It’s, however, bad news for potential homeowners as they will be paying more, one of the reasons Nigeria has one of the world’s lowest homeownership rates.

Demand is the driver of the property prices in those locations, Chudi Ubosi, principal partner, Ubosi Eleh & Co, a real estate company, said.

With rates on fixed income instruments returning negative inflation-adjusted return, Ubosi said “investors are putting their money in real estate and that has been driving prices in the last nine months.”

Tosin Ajose, Lead Advisor, DEAL HQ Partners, and a real estate practitioner, agrees, saying, “investors are looking at alternative investment assets away from fixed income instrument amid Nigeria’s high inflation rate.”

Ajose said it is perhaps, the key driver of the property prices in the locations.
With Nigeria’s 18.17 inflation rate in March, the highest in four years, the real return on the federal government less risky short term debt instrument depreciated further when compared to March 2020 when the inflation rate stood at 12.26 percent.

While inflation-adjusted return on the shorter 91-day and 182-day bills were -9.77 percent and -8.48 percent, respectively in April 2020, the real return on the bills dropped further to -16.17 percent and -14.67 percent in the comparable month of 2021, thanks to Nigeria record-high 18.17 inflation rate.

The trend was the same for the longer 364-day bill. From a -6.96 percent real return on investment last year, the bill gave investors -8.42 percent in the same period of this year.
As the interest rate is trying to play catch up, inflation is moving upward too, Yinka Ademuwagun, Research Analyst, FMCGs, United Capital Plc said.

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“The real return is still clearly negative because inflation is rising faster. If inflation was still at, say, the 11 percent that reported before the border closure last year, then we would have been fine,” Ademuwagun said.

However, the recent uptick in the yields on the short-term government instrument is helping to comfort investors against the rate at which the high inflation rate is impacting their returns.

“While the rising inflation has broadened negative real return, it’s comforting to know that yield on fixed income instruments is also on the rise which will bridge this gap,” Ayodeji Ebo, Head, Retail Investment, Chapel Hill Denham, said.

After hitting a four-year-low of near-zero percent in 2020, yields on the federal government risk-free treasury bills climbed to more than 16 month-high, as compiled from Nigerian Treasury bills primary market auction Results for April 28, 2021.

“I don’t see any other high-yielding local instrument that is close to dollar-denominated asset aside real estate,” Ajose said.

Return on investment on apartments in real estate properties on the island, according to industry analysts, is quite significant. In Victoria Island, the return on the different apartment sizes is estimated at 2.7-3.7 percent per annum for 1-bedroom; 7-10 percent for 2-bedroom; 6.1-10 percent for 3-bedroom; 6.1-9.2 percent for 4-bedroom duplex and 3.75-6 percent for 4-bedroom terrace.

In Ikoyi, it is 9 percent for 1-bedroom; 5.4-8.6 percent for 2-bedroom; 5.3-8 percent for 3-bedroom; 4.5-8.3 percent for 4-bedroom duplex and 4.8—5-4 percent for 4-bedroom terrace.

With the recent increase in the demand for the properties in the locations, industry players are optimistic that return could go above 10 percent by the end of 2021.

On average, rental values in Victoria Island as of the end of 2020 stood at N1.5 million per annum for a 1-bedroom apartment; N3.5 – N8.5 million for 2-bedroom; N5.5 – N15 million, and for 3-bedroom.

In Ikoyi, it is N4 – N5 million per annum for 1-bedroom; N6.5 million for 2-bedroom; N10 million for 3-bedroom, and N10 – N25 million for a 4-bedroom apartment.

Breakdown of the NPC data showed that, while the average property prices in the up-market neighbourhoods in Lagos, Nigeria commercial city have been on the rise since January this year, the cost of acquiring residential properties in the Mainland axis of Lagos State has been relatively stagnant.

Analysis of data shows that the average prices of 1-bedroom to 3-bedroom, units that are in high demand in Eko Atlantic, Ikoyi, Lekki, and Victoria Island have been relatively stable in the mainland at about 3 percent.

While some of the property locations in the Mainland axis reported an average price increase of over 5 percent in the review period, analysis of the NPC data shows that locations like Oshodi, Agege among others declined in the review period.

There was an average price increase in Surulere, Ogudu, Yaba, and some other locations.
Even though a location like Yaba with an average price increase of 10 percent was higher than Victoria Island with 5.4 percent, the value of the increase was more in Victoria Island as it was higher than Yaba’s by over N1 million.

Before the price surge in the locations in the Island axis of Lagos, home for luxury real estate, the property owners in the area had suffered a setback. The challenges fuelled by the pandemic reflected in over-supply interspersed with falling demand and widening vacancy rate, which, as at the end of 2020, was estimated at 40 percent for residential properties.

Some of the locations on the Island axis of Lagos are described by industry analysts to be “promising destinations,” especially with property development that is considering smaller-unit apartments.