Nigeria’s real estate sector is showing signs of revival following the negative impacts of the Covid-19 pandemic. The upward trend in sector activity is expected to continue in the coming years, with the government keen to secure private investment and public-private partnerships in order to boost infrastructure, especially affordable housing construction.

The sector was significantly affected by pandemic-containment measures and the reduction of office-based work and non-essential commercial activities that followed. Although there was a sharp contraction in commercial leasing, the shift to e-commerce initiated an uptick in warehouse occupancy. Meanwhile, new trends in real estate development are attracting investment both domestically and from abroad.

Addressing Nigeria’s affordable housing deficit is a long-standing national priority. To that end, the government has established public funding entities and the country’s leading financial institutions have launched several new affordable finance offerings in recent years. Meanwhile, an increasing number of mixed-use developments are under construction and could benefit the affordable housing drive (see analysis). However, with significant macroeconomic headwinds limiting sector activity in the years leading up to the pandemic, it will be important for the government to implement policy reforms in order for Nigeria’s property market to reach its potential.

Structure & Oversight

The real estate sector is overseen and regulated by multiple government authorities and entities. The Federal Ministry of Works and Housing (FMWH), through its 15 departments and seven units, works to ensure there is a suitable supply of public housing for Nigerians and the required supporting infrastructure. The FMWH formulates sector policy, while also initiating various home ownership and rental schemes. The Federal Housing Authority (FHA) is a commercial entity that works under the purview of the FMWH, and, among other duties, prepares and submits proposals for housing projects to the government, executing those projects where required; develops and manages real estate in Nigeria on a commercial basis; implements the government’s provision of site-and-services scheme; and makes recommendations regarding spatial planning and infrastructure requirements in relation to approved housing projects and initiatives.

The Family Homes Funds (FHF), a social housing entity jointly owned by the Federal Ministry of Finance and the Nigeria Sovereign Investment Authority, was formed in 2018. In line with the government’s Social Intervention Programme, the FHF aims to invest N1.3trn ($3.1bn) to develop 500,000 homes for low-income families and individuals by 2024, while creating 1.5m jobs through various initiatives.

The Federal Mortgage Bank of Nigeria (FMBN) is central to the government’s efforts to strengthen Nigeria’s housing finance segment by facilitating the proliferation of primary and secondary mortgage institutions across the country, while through the National Housing Fund, the FMBN offers a diverse range of housing finance packages and facilities.

Market Dynamics

Since mid-2021 real estate market dynamics have shifted, with the residential segment remaining robust as the office, retail and commercial segments stagnated. Meanwhile, student housing, general education and health care projects are on the rise and niche developments are experiencing expansion. “Opportunities exist in emerging spaces for both local and international investors,” Dolapo Omidire, founder and CEO of local data analytics firm Estate Intel, told OBG. “There is a clear requirement for data centres and logistics facilities, but measured investment strategies must be adopted so that we avoid further oversupplied markets.”

The sector faces significant challenges arising from a deepening foreign exchange imbalance. The progressive devaluation of the naira is exacerbated by a reliance on imported building materials, which are generally priced in US dollars, presenting an unsustainable dynamic for developers, investors and end-buyers, with construction costs subsequently driving up property prices. This has resulted in shifting investment models making it difficult to source funding and raise capital for major projects. In addition, restrictions placed on capital repatriation for foreign companies see market operators adopting new strategies in order to avoid carrying excessive amounts of cash as capital and insulate themselves from inflation.

Performance & Size

Following a downturn in 2020 due to pandemic-related disruptions, the sector has rebounded steadily in recent years. In the second and third quarters of 2020 the sector contracted by 22% and 13.4% respectively, and posted negative growth of 9.2% for the full year. With the resumption of commercial activities, however, the sector saw steady quarter-on-quarter growth that carried through all of 2021, resulting in a total expansion of 2.2%. That expansive trend continued in subsequent years, with the sector growing by 10.8% in 2022. Even so, as of the second quarter of 2023 growth slowed to 2.6%. The real estate sector contributed around 5.6% to the overall GDP in 2021, and took a dip to 5.1% in 2022, before dropping again to 4.5% and 4.4% in the first and second quarters of 2023, respectively.

Public Expenditure

In June 2020 as part of the Economic Sustainability Plan, the government pledged to provide N200bn ($476.5bn) for the National Social Housing Programme in the years ahead. The 2022 and 2023 government budgets contained allocations of N1.4trn ($3.3bn) and N999bn ($2.4bn) for infrastructure development, respectively, with allowances for housing projects significant components of those totals. The 2022 budget breakdown featured a list of strategic investments in the sector, including N14bn ($33.4m) for the National Housing Programme, N10bn ($23.8m) for the Family Homes Funds, N4.3bn ($10.2m) for infrastructure and services for nationwide housing projects, N2bn ($4.8m) for social housing in Lagos State, and N1bn ($2.4m) for prototype housing schemes in Niger and Lagos states.

Land & Property

In Nigeria ownership, acquisition, administration and management of land are governed by the Land Use Act of 1978. Land occupancy certificate holders are not permitted to transfer, re-assign, sub-lease or mortgage designated land without the approval of the relevant state governor. Furthermore, the federal government has the authority to appropriate land for public use or purpose. Foreigners are permitted to own land in Nigeria, with individual states empowered to define the terms of ownership.

Land ownership in Nigeria is divided into four broad categories: individual owners who purchase land for small or medium-sized residential or commercial developments; corporate buyers who undertake medium to large-scale projects such as housing estates, malls and office buildings; social groups such as religious, academic or charitable organisations; and federal, state and local government entities.

According to data published by Nigeria Property Center, as of January 2023, the purchase price of housing in Nigeria ranged between N8m ($19,100) and N165m ($393,100), with an average cost of N100m ($238,300). Both property and land prices vary widely throughout the country. Broll Nigeria’s November 2022 Real Estate Market report, which highlights developments in the residential and commercial segments, saw per-sq-me-tre land costs in Lagos State of $1277 in Ikoyi, $1130 in Victoria Island, $594 in Ikeja and $457 in Lekki for the fourth quarter that year.

Affordable Housing

As of October 2022 the country’s estimated housing deficit was in the range of 22m-28m, units, the lower limit of which is the highest in the world, according to the World Bank. The international institution estimated that meeting the lower bound would cost Nigeria N6trn ($14.3bn). Nevertheless, the construction of affordable housing to help meet demand remains well below the 1m-units-per-year pledge made by the government in 2019.

Since it began operation in 2018 the FHF has been responsible for executing the government’s National Social Housing Programme with the goal of delivering 500,000 houses by 2024. As of October 2022, 15,793 homes had been built, with over 21,000 units under development. With other initiatives falling short of tar-gets and the country’s population set to expand from 218.5m in July 2022 to 400m by 2050, the government is working on policies and initiatives to encourage private sector investment. However, a more favorable business environment would be helpful to raise investor confidence and involvement.

In November 2021 the MPWH proposed a housing bond scheme to foster public-private collaboration for large-scale housing projects. Moreover, through its sukuk (Islamic bonds) scheme, the government has attracted significant private investment in its road infrastructure projects (see Construction overview). A similar approach to raising finance for housing developments could be beneficial, while deepening the role Nigeria’s financial markets play in housing construction.

Housing Developments

Two large-scale housing developments in Abuja under the purview of the FHA were commissioned in May 2023. One is in the Zuba area of the capital and comprises 748 one-, two- and three-bedroom units. As of November 2022 all sup-porting infrastructure was complete, with the projects said to be 90% ready. The second project in Bwari was at an earlier stage of development, with its 337 units of up to three bedrooms due for completion in 2024. By late 2022 the development had involved 72 contractors and created 3500 direct jobs.

Under the National Social Housing Programme, the government commissioned 372 residences in the first quarter of 2022 across five of the country’s 36 states. Kaduna State received the most, at 80 housing units; followed by Naswara and Kogi states (76 each); Osun State (72); and Delta State (68). In January 2023, 469 two- and three-bedroom bungalows were delivered in Kano State. Although these developments represent positive steps, more can be done to close the existing housing gap. With the need for larger developments pressing, there is a growing trend towards mixed-use community developments – an approach effectively used by China during its own period of rapid population expansion and rural-urban migration.

Mortgages

Mortgage penetration in Nigeria was 0.5% in 2021, which is similar to that of other major African economies, but below the average in developed economies. However, the home ownership rate of 25% is significantly lower compared to regional neighbours. To facilitate access to residential loans, the federal government plans to increase mortgage funds to N712bn ($1.7bn) by 2024 as part of a five-year strategic plan on housing development covering the period 2020-24. “The penetration of mortgage services is gradually increasing in Nigeria, a sign that the economy is slowly becoming more solid and robust,” Kehinde Ogundimu, managing director and CEO of the Nigeria Mortgage Refinance Company, told OBG.

According to the Central Bank of Nigeria, there were 32 primary mortgage institutions, 24 commercial banks and 719 licensed microfinance companies operating in Nigeria as of November 2023. At the time, average mortgage interest rates from private lenders ranged between 22% and 27% as of August of that year. With interest rates influenced by inflation, homebuyers can potentially pay up to three times their mortgage principal over an average term of 20 years. In comparison, average mortgage interest rates in Nigeria are up to nine times higher than those in the US and the UK.

The FMBN offers the most affordable mortgages in the country with publicly subsidised 6% interest rates and maximum terms of 30 years for loans of up to N15m ($35,700). Furthermore, Nigerians who contribute 2.5% of their monthly salary to the National Housing Fund for a period of six months are eligible to apply for the loans. In order to obtain approval for a loan in the N6m ($14,300) to N15m ($35,700) range, homebuyers must provide up to 10% equity, but for loans of N5m ($11,900) or less no equity is required. Despite these relatively favourable terms and conditions, the mortgages have proven out of reach for a majority of prospective homebuyers.

The need for more innovative approaches to mortgage lending and higher production of affordable homes has seen the FMBN expand its range of products, with rent-to-own and estate development finance facilities unveiled in recent years. In September 2022 the National Pension Commission released guidelines for a scheme that allows citizens who have been making pension payments for a minimum of five years to leverage those savings to secure a residential mortgage. The National Bureau of Statistics data revealed that at the start of 2021, 20% of Nigeria’s 46.5m workforce was making pension payments, underscoring limitations regarding the programme’s reach and affordability. However, Nigeria’s pension contributor base grew by 430,000 between 2010 and 2022, indicating similar initiatives could prove effective in further expanding that pool.

Rental Market

Compared to land and property purchases, rental costs differ in terms of quality and location. Revenue growth in the luxury market is a reflection of an increase in demand and rent charted in US dollars, given the naira’s volatility. Due to consistent and rising demand, activity is generally increasing in the affordable to mid-range housing category.

Residential rents across Lagos as of the fourth quarter of 2022 ranged from $9090 per year at the mid-range level to $100,000 per year at the luxury end of the market. In terms of variances between the different neighbourhoods in Lagos, average mid-range rental costs in Ikeja and Lekki were between $9090 and $13,637 per year, whereas in Victoria Island and Ikoyi mid-market rents ranged from $12,000-$15,000 and $27,385-$34,231 per year, respectively.

Demand for office space has been on a downwards trend since 2012 and decreased significantly during the pandemic, with hybrid work models in effect and in some cases permanently adopted by companies. As such, supply currently outstrips demand. There was 960,000 sq metres of office stock in Lagos in 2022, with a gross leasable area (GLA) of 117,132 sq metres. In Ikoyi average rents per sq metre, per year were $710 for grade-A space and $450 for grade-B space. Grade-A space in Victoria island averaged $650, while grade-B was $272. Meanwhile, in Ikeja, Lekki and Lagos Island grade-B space per sq metre, per year was on average N58,000 ($138), N55,000 ($131) and N27,000 ($64), respectively. An additional trend in the market has seen large amounts of grade-B space vacated in favour of grade-A as companies seek global-standard space that better adheres to environmental, sustainability and governance requirements. While rents in those spaces are higher, so is operational efficiency.

In terms of retail space, Nigeria housed a total stock of 283,900 sq metres as of November 2022 and a GLA of 195,205 sq metres. Average monthly rents in Lagos and Abuja were $35 per sq metre, while in the country’s secondary cities they were $18 per sq metre. The retail segment, however, did not mirror the broader market dynamic in 2022, with smaller commercial centres operating at around 90% occupancy and high-end malls able to fill at least a portion of space left by some high-profile market exits (see Retail chapter).

Outlook

Although the real estate sector has enjoyed a rebound since pandemic-related restrictions began to ease, the prolonged decline experienced in the preceding years suggests wider reforms could be helpful to facilitate future growth. The downward trend reflects the property market’s inability to overcome the effects of the recessions that Nigeria experienced in 2016 and 2020 related to low global oil prices and Nigeria’s traditional reliance on crude export receipts. Given real estate’s sensitivity to oil price fluctuations, the future success of the government’s economic diversification initiatives will play a significant role in determining the long-term health of the country’s property market. Furthermore, implementing policies that aim to stabilise the naira and attract economy-wide investment could have the knock-on effect of reviving demand for office, commercial and industrial space.

The lack of affordable housing is a growing concern that has been exacerbated by inflation, exchange rate volatility and the rising cost of building materials. In order for the government to receive the private sector investment it requires to bridge the shortage, more secure land ownership legislation and measures that can bring construction costs in line with realistic levels will be essential moving forwards. If those issues can be suitably addressed and dynamic policies implemented, the government could transform sizeable challenges into significant opportunities for private investors.