Efforts to boost middle-income home ownership in Nigeria


Nigeria’s real estate sector has traditionally been defined by an abundance of demand and relatively limited supply, whether in residential, commercial or retail space. The boom in the country’s economy in the years following the global financial crisis of 2008 led to a surge of investment in Nigeria and attracted a range of businesses, leading to a shortage of grade-A office space.

Although a flurry of construction activity ensued, supply could not catch up with demand, and rental prices in Lagos have subsequently matched those of London and New York City. Since 2015, however, the situation has changed for some segments. In the office market, for example, supply is beginning to catch up or even outstrip demand. The real estate sector continues to account for around 7% of GDP, but the return on investment for developers is far less than it was five years ago, as Nigeria’s first recession in 25 years hit in 2015.

By The Numbers

According to the fourth quarter 2016 report from the National Bureau of Statistics (NBS), real estate GDP – measured as the sum of fees and commissions for services rendered – fell 9.27% compared to the same quarter the year before, making it the lowest-performing non-oil sector of the economy. Overall, the industry was down 6.86% in 2016, compared to positive growth of 2.11% in 2015 and 5.12% in 2014.

Residential, commercial and retail markets were all impacted in 2016 by factors such as falling rents, tighter consumer budgets and foreign exchange risk. The industrial segment was the sector’s single bright spot, avoiding negative returns by seeing steady rental rates in a market that gained little to no new supply. Industry players say the effect on the country’s metropolitan areas varied, but the availability of city-by-city figures is limited; the NBS gathers data on real estate transactions, yet the market suffers from a lack of up-to-date data.

The broader economy had begun to recover from the recession by the third quarter of 2017, holding promise for a rebound in the country’s property markets. “Before the drop in global oil prices in mid-2014, the real estate market was one of the shining stars of the Nigerian economy, attracting inflows of foreign direct investment,” Erejuwa Gbadebo, CEO of Cluttons Nigeria, an international chartered surveyors and property consultancy firm, told OBG. “In 2016 the macroeconomic conditions worsened considerably and, following years of bullish growth, Nigerians were not prepared. In 2017 economic conditions remain tough, but the attitude has changed, and the government and the private sector are working to bring growth back to the economy, and to the construction and real estate sectors.”


Nigeria has more than 10 urban areas where the population exceeds 1m people, including large metropolises such as Kano and Ibadan. However, in terms of commercial, retail and high-end residential property, Lagos sees the greatest volume of activity. From an estimated population of 763,000 in 1960, the south-west coastal city is now home to over 21m people and is expected to double in size in the coming 15 years, according to the Population Reference Bureau, a US-based think tank.

The recession has had a major impact on the pipeline of projects in Lagos. Cluttons Nigeria noted that economic turbulence in 2016 resulted in a significant decline in completions and transaction activity in Lagos, the country’s main business and commercial hub. In this sprawling metropolis, three areas – collectively known as the islands – hold the majority of high-end commercial and residential real estate. Ikoyi, on the edge of Lagos Lagoon, remains the city’s most affluent neighbourhood, while over the last 20 years Victoria Island has become a major business hub, with most major Nigerian and international firms basing their headquarters on the island. Finally, the 80-km-long Lekki Peninsula, which stretches east from Victoria Island, has been converted from a sandbar into the newest focus of construction, with a free trade zone, numerous residential gated communities and plans for an international airport.

Office Space

During the foreign investment boom following 2008, commercial property developments in these exclusive neighbourhoods were the first to benefit, seeing soaring rental prices and demand for new grade-A office facilities. In 2016, however, demand for office space fell, even as projects began to open for tenants. According to the “Commercial Outlook Report” by Cluttons published in late 2016, during the first nine months of the year real estate transactions in Ikoyi and Victoria Island saw contractions of 17.6% and 20%, respectively. The average annual rental costs in these areas fell from $910 per sq metre in 2014 to $700 per sq metre in Ikoyi in 2016 and $600 per sq metre on Victoria Island.

Cluttons estimated that a total of 37,000 sq metres of office space entered the Lagos market in 2016, down 42% on the initial expectation of 63,900 sq metres. However, the rate of new openings shows no sign of slowing over the course of 2017 and 2018. Three new grade-A office developments came on scene in Ikoyi in 2017 – Desiderata Tower, Kingsway Tower and Alliance Place – while the completion of Madina Tower on Victoria Island added a total of 30,000 sq metres to the market. In 2018 nearly 35,000 sq metres are due to open for business, mainly thanks to the Harbour Point and Trinity Tower complexes, both on Victoria Island.

Foreign Exchange

The sector is greatly exposed to foreign exchange risk, which has had an impact on cash flow for landlords and tenant demand more broadly. In June 2016 the Central Bank of Nigeria decided to remove the currency peg, which saw the naira fall in value from just under N200:$1 to around N315:$1 in early 2017. With many high-end developments priced in dollars, the effects of this rapid depreciation suppressed demand and renters asked to pay in local currency. “In 2014 a typical three-bedroom luxury apartment in Ikoyi or Victoria Island cost around $50,000 per year to rent, or N7.5m at the exchange rate then of 150 naira to the dollar,” Gbadebo told OBG. “Falling demand means that in 2015 the same apartment  may have fetched only N5m and by 2016 only N3.5m. If you take into account the naira-to-dollar depreciation, you can see the landlord’s problem. Three years ago he was earning $50,000 for his property, now it might only fetch the equivalent of around $12,000.” 


In line with markets across the continent, Nigeria is undersupplied in terms of retail real estate. According to a March 2015 report published by PwC entitled “Real Estate: Building the Future of Africa”, rising consumerism in Africa would allow the continent’s buying strength to grow from $860m in 2008 to $1.4trn in 2020. Nigeria was highlighted as being particularly attractive for retail projects due to its stable economy, growing middle class and shortfall of existing retail space. The report noted that 10 major shopping mall projects were under development at that time in Lagos alone.

However, the segment has been the hardest hit by the slowdown in the Nigerian economy, with high unemployment, low consumer confidence and the naira’s depreciation making imported goods more expensive. Meanwhile, service charges and utilities – such as expensive air conditioning systems run on diesel – also remain costly for shopping complexes.

Over the course of 2016 the average price of diesel rose 19%, from N164 ($0.58) per litre to N196 ($0.69). “We’ve seen some malls slash rental prices simply to get tenants trading and paying off service charges,” Gbadebo told OBG. “In some malls rental prices for space have fallen below the combined cost of service charges and utilities.” In Lagos, average rents at Ikeja City Mall and Circle Mall fell by 9.4% and 1.9%, respectively, in the first nine months of 2016, with both charging $720 per sq metre annually, compared to $900 at Palms Mall on Lekki Peninsula.

Nevertheless, developers remain bullish about the long-term outlook of the Nigerian retail segment, with several projects having opened over the course of 2016 and many more planned. In August 2016 the 22,000-sq-metre Lekki Mall, developed by South African investment group Novare, opened its doors, and in December 2016 the 7500-sq-metre Asaba Mall was inaugurated along the Niger Delta. According to South African research and property management firm Broll, this pushed the total retail space in the country over 500,000 sq metres.

The development of malls in secondary cities, such as Asaba, and the move towards mixed-used developments are two key drivers for the future growth of mall complexes. With a steady stream of projects in the pipeline, including the 30,000-sq-metre Twin Lakes Mall in Lagos, total retail space is expected to surpass 700,000 sq metres by the end of 2018.


The growth of the retail segment over the last decade has created strong demand for well-managed warehousing space. According to Cluttons, the industrial segment was the only one not to experience a decline in rental values during 2016, with average annual rates varying from N600 ($2.12) per sq foot in Ikorodu and Abule Egba to twice that in Ikeja and up to N1400 ($4.94) in Ilupeju, closest to the country’s port infrastructure.

Geoffrey White, CEO of Kuwaiti firm Agility Logistics, said that following the opening of a logistics facility in Accra, Ghana in June 2016, the region now has the storage and distribution complexes in place to conduct efficient business. “The fast-moving consumer goods market [in Africa] is really strong and currently very underserved,” he told local media. “Moving goods for that sector is fundamental to our growth story and we are very bullish.”

In Nigeria, domestic firms are taking to the segment. “The country’s well-run warehouses are  typically owner-occupied operations and we have seen little foreign investment in that area,” Gbadebo told OBG. “However, over the course of 2016, logistics and the industrial segment have become one of the go-to asset classes for local real estate investors.”


The high-end residential market has seen similar challenges to those described in other segments. The recession has led to foreign firms scaling down expatriate staff numbers in the country which, when combined with the continued opening of new luxury residential units, has led to a surplus of supply. Given the expensive and complex nature of acquiring land and the rising costs of construction, there has been little incentive for developers to build residences for middle-income earners. However, with vacancy rates of luxury apartments ranging from 40% to 60% in areas of Lagos, according to Gbadebo, that trend could change.

According to a 2016 report by local firm MCO Real Estate, the “sweet spot” for residential development has moved away from the over N60m ($212,000) high-end projects to the N12m-50m ($42, 400-177,000) segment, with flats and terraced houses being the layouts in most demand.

Still, the path ahead may require an even bigger shift. “The sector needs to move from the luxury segment to affordable mass housing,” Vinay Mahtani, CEO of Churchgate, a local property development firm, told OBG. “There is an 18m shortfall in houses in Lagos. The challenge is to service this demand in an environment that is less than enabling. Resources from the Federal Mortgage Bank of Nigeria (FMBN) are limited and there is little access to capital for middle-income, would-be home buyers.”

Red Tape

One barrier to expanding the market for lower- and middle-income buyers is the high cost and red tape involved in registering a property, which means margins for developers in those segments are tight, leaving little incentive to build. Under Nigeria’s Land Use Act of 1978, all land belongs to the government. Land can be leased for a period of 99 years following the granting of a certificate of occupancy by the state governor, and then the property must be registered at the State Land Registry, where significant delays are common.

“The most serious challenges confronting real estate investors in Nigeria occur at the registration stage,” Genevieve Henshaw, tax advisory attorney at Stillwaters, a local law firm, told OBG. “Given the heavy investment in property over the last decade, the registries don’t have the capacity to deal with applications in a timely manner.” Foreign investors must form a locally registered company in order to lease land and register their property.

When speaking about the current hurdles, the process has indeed improved significantly compared to a decade ago in terms of bureaucracy and transaction costs. “The government has streamlined the process, reducing the volume of paperwork and stamps required for real estate transactions,” Henshaw said. “In addition, the overall cost of buying and registering has fallen from 15% of the value of the property to around 3%.”

One of the consequences of the complexities and costs involved in buying property has been growing demand for professional property consulting services. “In the past, appraisals and valuations were overly optimistic. Now we are seeing investor demand for increased due diligence and certified surveyors to help them identify the true status and value of their property,” Gbadebo told OBG.

Policy Drive

To date, government attempts to increase home ownership among the middle class have had a limited impact, although recent efforts suggest a new impetus could be on the horizon.

The National Housing Fund was established in 1992 to gather 2.5% of Nigerian workers’ salaries to go towards the provision of affordable mortgages through the FMBN. Under the scheme, the bank provides mortgages at a maximum rate of 6% per annum for a period of up to 30 years. Between March 2015 and March 2017 the FMBN granted 2044 mortgage loans valued at over N15bn ($53m) in total, and facilitated the construction of 1878 housing units. This, however, remains a drop in the ocean.

The government estimates the housing deficit to be around 17m units and believes upwards of N56trn ($197.9bn) is required to finance the country’s housing needs; however, private industry believes the housing deficit is much larger. In 2016 the bank turned a profit for the first time since 2011, registering a N2.7bn ($9.5m) surplus.

In September 2017 the government also introduced the Family Homes Fund (FHF). This public-private partnership, funded with approximately N500bn ($1.8bn), aims to deliver 100,000 affordable homes each year and provide mortgages valued at up to 90% of the price of a home at rates of under 10% per annum, payable over 20 years. Around 70% of houses built under the scheme would be in the N2.5m-4.5m ($8840-15,900) price range, according to Kemi Adeosun, the minister of finance. Structured as a real estate investment trust (REIT), the FHF sources funds from the private sector, pension funds, insurance funds and impact investors with the goal of reaching N1trn ($3.5bn) under management.

Public Housing

In March 2016 President Muhammadu Buhari announced that his government was targeting the provision of 1m homes per year up to the end of his term in 2020, of which one-quarter would be provided by the federal government and one-quarter by 22 states, with foreign investors and local private companies expected to provide the remaining 500,000 units per year.

That would be a major step forward in public housing development efforts, given that new home construction has been around 100,000 units per annum in recent years. At the opening of a 250-unit project in Kwara State in February 2017, Mustapha Baba Shehuri, the minister of power, works and housing, restated the government’s commitment to reducing the 17m-unit housing deficit and said that the FMBN would be refinanced by the government to the tune of N500bn ($1.8bn).

Reit Of Return

Other new financing mechanisms have entered the Nigerian market. In addition to the FHF, there are four REITs listed on the Nigerian Stock Exchange (NSE) with a combined market capitalisation of N45bn ($159m). REITs are exempt from withholding taxes, value-added tax and capital gains tax, and have proved successful in sourcing capital from foreign firms looking to gain access to Nigerian real estate without having to go through the process of buying and registering property.

Speaking at the launch of the Real Estate Investment Trust Conference in Lagos in May 2017, Oscar Onyema, CEO of the NSE, told delegates, “African real estate markets are well positioned for a long-term growth phase given the significant supply deficit across the continent. We believe that this growth can be accelerated by deploying capital market tools such as REITs, listing real estate companies and creating real estate exchange-traded funds to unlock capital in the sector.” Onyema noted that over the course of 2017 the NSE would propose changes to promote transparency, disclosure and liquidity of listed REITs, and promote easier access to information for investors.


Following two years of expanding supply, falling demand and downward pressure on rental rates, the period of high profits for landlords in Ikoyi and Victoria Island look to be over for the time being. However, the government’s efforts to boost middle-income home ownership should bear fruit in the longer term. “In 2018 there will still be plenty of room for demand to grow into the available supply of high-end developments,” Gbadebo told OBG. “We won’t see any growth in returns and the market for these types of developments could dip lower still, but eventually, with middle-income supply increasing, new investment opportunities will emerge.”

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