Real Estate In Nigeria: The Past, Present, And Future State Of The Industry

  • by Inyene
  • 3 years ago
  • Blog
  • 1

 

Over the years, the real estate industry in Nigeria has experienced rapid expansion in the urban cities and has contributed massively to the Nigerian GDP. The pandemic affected various sectors globally, with the real estate sector in Nigeria suffering the most, radically altering the predictions of the industry’s growth in the long term. Many wonder what the real estate industry in Nigeria looked like before the sudden expansion of the industry. Let’s look at a brief history.

A Brief History Of The Real Estate Industry In Nigeria

The Institutional and Legal Framework

The institutional and legal framework guiding land ownership and land use was different in various parts of Nigeria. The Northern region of Nigeria used a paternalistic Maliki law, which was common in that region in the 19th century. The South employed the more customary method of inheritance to operate land ownership and use of land. Before independence, the British land laws were imposed in the South and operated alongside the customary land laws. This created several conflicts because of multiple sales of lands under different laws, titles overlapped, etc., amongst many other reasons.

The Land Use Decree of 1978 under the military regime (now the Land Use Act in a democracy) sought to unify the Southern dualistic system because the cost and time of taking land disputes to court increased. The decree intended to put all land rights in the hands of the government at both the state and local levels was an adaptation of the Northern paternalistic system.

Housing Finance Policy

Finance for the real estate sector was a challenge, and the government sought to ease this constraint by formulating new policies to stimulate growth in the housing market. The 1992 Housing Fund Act and the Federal Mortgage Bank of Nigeria (FMBN) were mandated to provide funding for social housing as the primary government-sponsored institution financing real estate. However, over time the Federal Government’s ruling on Housing and Urban Development (2002/2006) expanded its role to accommodate lending for housing and estate development loans to real estate developers.

The Present State Of The Real Estate Industry In Nigeria

Globally, the highest price rises in real estate have been recorded in countries like India (284%, 2001-2011), Russia (209%).  However, in Nigeria, house prices are estimated to have risen by 400%-500% in the last decade.

This hike in housing prices has created a housing deficit in urban cities like Lagos, Abuja, and Portharcourt. The demand for low-cost, affordable quality houses and luxury secure housing stems from the income inequality in the income class, and there are no efforts to close this growing gap. In 2018, the housing deficit was estimated to be about 17 million.

Constraints To Housing Supply

  1. Access to Finance: Primarily, mortgages for individuals who hope to own houses are not available. Hence, they are left with the option of high rental fees.
  2. Ease of Legal Proceedings Surrounding Housing: World Bank ranks Nigeria 185th out of 189 countries in the Ease of Doing Business. This makes every process of obtaining a housing property be daunting. In a survey, 22% of individuals involved in the real estate market mentioned the difficulty to obtain title deeds as a primary challenge.
  3. Access to Cheap and Quality Building Materials: The cost of building a house in Nigeria is extremely high at an estimated $50,000, compared to South Africa at $36,000 and India at $25,000. Poor road and transportation infrastructure increases the logistics cost involved in getting building materials to the site. This cost is ultimately transferred to consumers in the real estate markets.

Growth and Profitability

Local House Price Variations In Present Day Nigeria

Most of the houses in the urban cities in Nigeria are above the income of the average Nigerian, considering the economy and per capita income of individuals. Still, the cost of houses in Nigeria is one of the most expensive in Africa.

Abuja: In Q1 of 2020, the price of a four-bedroom house was 200 million NGN Naira, while a five-bedroom building had an asking price of 365 million NGN Naira. Abuja is still experiencing a further increase in costs, including housing costs.

Lagos: Lagos has become the most expensive city in West Africa because of the high cost of living. In Ikoyi, a three-bedroom apartment is valued at 150 million Nigerian Naira, roughly $307,000 (USD). An average five-bedroom apartment in Lekki is valued at 70 million NGN Naira.

For the cost of other areas in Lagos, see the table below:

AREANGNUSD
Ibeju Lekki24,970,00064,869
Ajah41,940,000108,955
Gbagada54,140,000140,649
Surulere44,370,000115,268
Yaba54,470,000141,506

Source: Global Property Guide

Final Thoughts

It was not until 2013 that efforts were made by The National Bureau of Statistics to properly capture the operations of the real estate sector through The Real Estate Survey. This survey did not cover the real estate sector as a whole but aimed to provide a point for Nigerians to understand the composition of the Nigerian real estate sector.

According to World Bank statistics, the housing deficit in the real estate market of Nigeria is estimated to grow by an additional 20% every year. It is expected that 700,000 houses have to be built annually to keep up with the demand, and yet, barely 100,000 buildings are erected annually. This is mainly because of the lack of funding needed to build these houses.

Despite all these challenges that the sector faces, it has created several employment opportunities for Nigerians, added to the country’s GDP, and increased the Foreign Direct Investment (FDI) through luxury housing facilities development such as Eko Atlantic.

Picture by: Avi Werde @pho_2_graph

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