How investors are navigating the deficit in residential real estate

The residential segment of the real estate sector is the fulcrum around which other segments, including retail, office, industrial, and hospitality, revolve. Its importance to human existence and business is quite significant. Whether the story is about the billionaire, the company executive, or a truck pusher, he needs a residence.

In Nigeria, demand for residential real estate is strong, especially in the rental submarket. It is a seller’s market where demand significantly outstrips supply. This contrasts sharply with the property market in Britain, where the buyer owns the market.

Worsening mismatch of supply and demand in Britain punishes sellers and and hurts house prices. There is a glut of homes for sale in the South Western part of the country. The housing market is being flooded with supply, showing a 13 percent jump in the number of homes available for sale in the last 12 months.

Nigeria’s story is different as house prices—sales and rentals—are on an almost yearly increase. Investment interest is high despite its low return on investment of about 4-5 percent compared to commercial real estate and student housing, where returns are as high as 7-10 percent and 18-22 percent, respectively. Investors generally consider delivery numbers and off-take rate, which are higher in residential real estate.

Expanding population and fast-paced rural-urban drift are key drivers of demand for residential real estate. Concerns are however, mounting that, if urbanization is not checked, over 60 percent of the estimated 230 million population will live in cities by 2030.

Though they can pose significant social challenges in an economy, if not properly harnessed, growing population and urbanization are a measure of investment opportunity in real estate, and in Nigeria, it is quite huge, as reflected in the country’s housing deficit.

The Housing Deficit

The housing deficit in Nigeria is, increasingly, becoming a nebulous concept, an enigma and a hard nut, defying various levels of efforts at cracking it. From 17 million units in 2006 when the United Nations made the first attempt to estimate it, the deficit has ballooned to 28 million units, according to World Bank estimates. This is a significant percentage of the continental (Africa) deficit, estimated at 97 million units.

Ahmed Dangiwa, an architect and Nigeria’s former Housing Minister, says this deficit requires the country to invest N5.5 trillion and build about 550, 000 housing units annually for the next decade to bridge the gap. This, on the flip side, underscores the size and value of opportunities in this sector.

At individual, private, and public sector levels, efforts are being made to close this gap, but their best efforts, so far, are not good enough. Industry experts estimate the country’s annual output at 50,000 units, a far cry from the minister’s estimate.

At the private sector level, there’s only so much investors can do because they are faced with persistent challenges ranging from escalating costs and limited financing options. Moreover, majority of them favour luxury real estate which is a narrow market, serving a few large-wallet buyers. Houses on offer are largely unaffordable by those who need housing, hence widening the deficit.

This explains why the luxury segment of the market has supply glut, while the mid-income and affordable housing market is reeling in a supply-demand imbalance, lending credence to the observation by Shehu Osidi, CEO, Federal Mortgage Bank of Nigeria (FMBN), that “Nigeria has houses it does not need, but needs houses it does not have.”

Investment in luxury residential real estate is so huge that findings by Estate Intel, an online property research platform, show that in Ikoyi, a highbrow neighbourhood in Lagos, there are about 1,157 residential development starts at various stages of completion.

These private investors are defying the odds, such as surging construction costs in the last 24 months, with inflation increasing the prices of cement, reinforcement (iron rods), finishing materials and labour by over 25 percent, leading to abnormal rise in house prices and rental rates that unsettle tenants and discourage new developments.

At the public sector level, in relative terms, efforts are yielding results or so they seem. The federal government’s interventions in both the supply and demand sides have been quite encouraging, more so with the government’s Renewed Hope Agenda on Housing.

Buoyed by this Agenda, the Ministry of Housing and Urban Development has made appreciable strides in addressing the supply side. Under this agenda, over 10,112 housing units are currently under construction nationwide, 77,400 homes are to be built across Nigeria’s 774 local government areas; 14 states plus the Federal Capital Territory are actively engaged in various stages of housing development. About 3,112 housing units were launched in Karsana District in Abuja early this year.

On the demand side, FMBN is catalysing homeownership, making housing finance affordable and accessible to a greater number of Nigerians than before, and also delivering affordable housing for low-income earners.

Between May 2023 and April 2025, the apex mortgage bank disbursed over ₦73 billion in housing finance, delivering 2,542 new homes across the country, and benefiting over 30,000 Nigerians through various housing loan products. These include 1,285 beneficiaries of NHF mortgage loans worth ₦11.75 billion, 1,140 beneficiaries of Rent-to-Own housing scheme valued at ₦15.06 billion, and 27,911 recipients of Home Renovation Loans, totaling ₦15.35 billion.

Industry watchers are worried that, in spite of these efforts and interventions, housing situation in the country remains dire, with a widening deficit of 28 million units. Homeownership level in the country is very low at 25 percent as against 84 percent in Indonesia, 75 percent in Kenya, and 56 percent in South Africa.

According to a Pison Housing report, over 80 percent of the population lives in rented accommodation, spending over 50 percent of their income on house rent. This is blamed on overpriced houses and limited access to mortgages due to poverty and the high cost of funds.