Why are property prices in Lagos so high?
Nobody knows the exact number of people who live in Lagos, but everyone agrees on one thing: the country’s largest city is expanding at an alarming pace.
According to the United Nations, there are 14 million citizens. The Lagos State government estimates that the population is closer to 21 million, as rural Nigerians flock to one of Africa’s few megacities in search of a better life.
Lagos is without a doubt Nigeria’s commercial capital, which is why the country’s real estate market has become a topic of discussion in a number of forums both at home and abroad.
Lagos’ housing units is insufficient to accommodate the city’s growing population. The housing units in Lagos is projected to be 1.492 million units, according to the Pison Housing Group’s 2019 survey, 2.5 million units short of the required housing units.
Meanwhile, some operators and stakeholders are concerned about whether the property values are inherently guided or dependent on assumptions.
According to a study from Estate Intel, the following are the reasons/forces behind the prices:
Owners go for the highest bids
Lagos has over 3.8 million households, with up to 2.1 million living in informal housing. This results in a supply gap of more than 55%. Excess demand pushes up rates, as it does in every industry. According to Estate Intel, this encourages landlords who receive a high volume of requests for their available spaces to raise their prices and rent or sell the property to the highest bidder.
There is a disconnect between the asking and realistic prices.
Multiple agents and developers, according to Estate Intel, usually list properties for far more than they are willing to pay.
“We expect developers or agents to target for the highest possible price, with a negotiating window, leaving a wider than average gap between asking and realistic prices,” it said.
A wide gap between asking and achievable rent makes average market rent seem unnecessarily high and allows other developers to stick to those artificially listed prices, resulting in high average rents or selling prices.
“This is extremely misleading, particularly because the majority of the properties on the listed platforms in Nigeria are priced far above what is realistic.”
Construction cost and land price
The high cost of purchasing land, as well as the actual cost of construction, contributes to Lagos’ high property prices. In Banana Island, Ilasan, Yaba, and Surulere, the research looked at four brand new projects. With selling prices ranging from 21 to 24 million naira for a two-bedroom apartment in Yaba to 620 million naira for a six-bedroom house in Ikoyi, both developers made profits of 15 to 36 percent and rental yields of 2% to 7%. According to the research, land acquisition and construction costs contributed 22 percent and 64 percent of the overall development expense, respectively, for the Ikoyi project, but the split was 53 percent and 47 percent for the Ikoyi project.
“The skew is due to the fact that Ilasan, Yaba, and Surulere (with an average land price of 78,000 per sqm) are comparatively cheaper than the more pronounced Ikoyi (Banana Island),” it added.
Excessive speculative thinking
Land is a scarce asset, and locations near commercial and recreational activities, such as Lekki, generate demand and drive up prices. These price hikes, however, are not always justified.
“A wide expanse of land in prime locations such as Ikoyi (especially Banana Island), Victoria Island, and Lekki Phase 1 is limited,” the report said. As a result, even with high vacancies in some properties, the few landowners are raising their prices to new highs.”
For instance, in early 2020, asking prices for land in Banana Island were around ₦400,000 to ₦600,000 per square meter, but it now sells for as high as ₦800,000 to ₦1,000,000 per square meter.
From this research, it clear that there are two types of people in the Real Estate industry in Lagos; Those who gain and those who lose. It is therefore important to find a way to be on the winning side. You do not have to buy land in Ikoyi and Lekki Phase 1. A single plot of land at Windspring Estate can be a game changer in your investment portfolio. Contact us today.