REAL ESTATE BOOM IN NIGERIA
By Paul Ndiho
Nigeria is becoming an increasingly popular investment destination thanks to a growing consumer market and growth of over 6 percent. It’s a combination that is producing a new wave of property buyers.
It’s not quite Washington .D.C or London but this area of Nigeria’s Commercial capital is on the up. Investors are clamoring to buy in Lagos, despite big risks in some areas. The construction and real estate sectors are growing at more than 10 and 12 percent respectively, a boom for foreign and Nigerian construction firms. Launched five months ago, Lamudi real estate firm currently has over 200 different sellers on their website and 34 premium partners.
Allie Morse, managing director, says Nigeria represents the perfect storm for real estate investment owing to its huge population and rapid urbanization.
“I think that people really understand that property is an incredible opportunity for investment here in Nigeria. Nigeria is an incredible economy that is booming, there are so many opportunities here and I think a lot of people if and when they have the resources, they want to invest in property because they understand that it’s an asset that has real value.
A successful real estate investment in Nigeria can earn an internal rate of return of 30 to 35 percent, while rental income yields in cities like Lagos and Abuja can easily reach 10 percent, developers and estate agents say. Yet, new quality housing has been slow to materialize because of a lack of building expertise and financing. But several well-financed new developments are rising.
“In the commercial sector, our clients are becoming a lot more sophisticated and they are demanding more purpose built commercial buildings so we have seen a move from residential conversions to buildings which are specifically designed for offices. In the residential market, we’ve seen a huge demand for good quality residential properties.”
Analysts say that the best opportunities remain in Lagos and Abuja, where purchasing land is less risky and more middle-income workers with disposable incomes want to live.
Property in Lagos, a heaving metropolis of around 20 million people, can be among the most expensive in the world with two-bedroom flats costing more than 1 million US dollars in upmarket areas.
Despite this demand, investors are taking on high risks. Developers and buyers both struggle to get financing inside Nigeria where lending rates are typically around 25 percent.
“In England, I own my own property, I bought it not outright obviously, I had a mortgage and getting the mortgage was very simple, easy, hassle free; in Nigeria, it’s not the same and in Nigeria, the interest rates are crippling if you can get it, you know so you have to go through the hassles of getting it and then you’ve got this huge interest to pay in a short time span as opposed to England where you can spread it for 20 years or 25 years.”
Nigerian banks do not like giving out mortgages because reliable information about buyers and land is scarce, while there is no secondary market to offset the risks. The government says it is trying to fix this.
“There are rumors of a credit rating system which is likely to be implemented for individuals, also the fact that we have a burgeoning pension fund industry means that banks will soon get access to long term finance which is often one of the problems preventing them from giving out mortgages which are in effect long term loans so there are a number of things which are changing in our market which will soon make it more convenient and financially attractive for banks to actually provide mortgages to people,”
Developers are also battling with costs, which they say are three times higher than in South Africa, because of woeful state infrastructure and high import costs due to rampant corruption. But with a population of 170 million – more than Russia – and an economy growing at a rate of 6% Nigeria’s potential is being noticed.