WHY LAGOS IS STILL THE MOST PROFITABLE REAL ESTATE INVESTMENT LOCATION IN NIGERIA
The Lagos State Government estimates the population of Lagos at 17.5 million, although this number has been disputed by the Nigerian Government and found to be unreliable by the National Population Commission of Nigeria, which put the population at over 21 million in 2016. Lagos surpassed Cairo in size in 2012 to become the largest city of Africa. The population was estimated at just 11.2 million in 2011 by the United Nations. While the housing deficit is put at close to 7 million, the reality of these figures in real estate investment terms is more in the demand it creates. Although savvy real estate investment analyst would argue that the deficit those not automatically translate into what is known as active-demand; there is no denying the fact that even if half of that population has the capacity to operate at any level of the property market, Lagos is still the choice location any real estate investor can think of. Imagine a market with a population of up to five other West African countries all put together.
EMERGING NEW MARKETS
Over the last two decades, the Lagos Property Market has continued to bring up emerging and new markets. While many of those markets have been at the high and mid end of the property ladder, a number of developers have also ventured profitably in the largely untapped and almost forgotten lowest levels of the property market. In the late 1990s the Lagos Property Market grew beyond its borders to create what is now a multi-billion naira Lagos-Ogun Property Market with areas like Mowe-Ofada, Ibafo, Agbara-Igbesa, Shimawa amongst others. The Ibeju-Lekki Property Market is now very massive with more than a 1,000 property developers building different estates.
From the Lekki Free Trade Zone, Deep Sea Port to the Dangote Refinery which is expected to be the largest privately owned Refinery in the whole of Africa, Lagos holds the unmatched pride of being the choice location for massive and gigantic developments which in the long run will become real estate investment drivers. Real estate developments in the city have also been at a massive scale. The Lagos State Government just announced that by the third quarter of 2019, Eko Atlantic City would be ready. Before this extremely novel city, there have been other noteworthy estate developments in the forms of island for the super-rich; Banan Island, Orange Island, Gracefield Island, Imperial Smart City amongst others have continued to make Lagos a “big deal” when it comes to luxury living and massive real estate investment.
Lagos’ success has set it apart as a benchmark for other states in Nigeria. Internally generated revenue (IGR), mainly through taxes stood at $1.3 billion in 2015—three times more than the state with the second most IGR and 39% of the total IGR by Nigeria’s 36 states. But Lagos’ success looks even better compared to other African nations.With GDP in 2014 pegged at $90 billion, Lagos’ economy stands as the 7th largest in Africa- bigger than Cote d’Ivoire and Kenya, two of the continent’s most promising economies. A finely tuned IGR model and a growing economy has made Lagos into Africa’s leading city and one of the world’s fastest growing megacities. Now with oil production, it will grow even quicker. With these figures, there is no gainsaying that the real estate sector is also a major beneficiary of the robust economic standing of Lagos. Real estate thrives in cities with strong economies and people with “deep pockets” and Lagos is not an exception.
PRIVATE SECTOR PARTICIPATION
Recent research findings have revealed that the high housing demand in the city of Lagos has spurred increased participation by the private sectors including banks, construction firms, real estate developers, mortgage lenders and individual investors. The direct consequence has come in the form of several new developments and construction of housing estates with good roads, security, water, recreational facilities and other supportive infrastructure. The luxury market, on the other hand is also seen as thriving with leading brands such as the Eko Atlantic developing high-rise apartments with state of the art technology. Developers, it says, have also built strong brand loyalty making them well positioned in the prime market even as the luxury segment is today benefiting from the absence of well serviced apartments, inadequate power supply, poor city planning and many more inadequacies which do not cater to the needs of a rising number of high net worth individuals currently put at 15,400 persons in Lagos. In essence, the luxury market has experienced growth due to increased earnings of individuals and groups.
Although it covers only 0.4th of Nigeria’s territorial land mass, making it the smallest state in the country, it accounts for over 60% of industrial and commercial activities in the nation. Lagos is financially viable, generating over 75% of its revenues independent of federal grants derived from oil revenues. It generates the highest internal revenue of all states in Nigeria. If taken as a country on its own, its 2010 GDP of $80 billion made it the 11th largest economy in Africa. Here, it is important to distinguish between Lagos State and its Metropolitan area. Lagos State is the area defined by the state declaration of 1967 whose boundaries had largely remained the same since the amalgamation; while the Lagos Metropolitan Area consists of the densely populated and extensively built up parts of the state, referred to as “the city” or simply “Lagos” from here on. Today, Lagos has emerged as a major hub for the headquarters of national and global companies and the complex business and professional services that support them. Lagos is not only becoming a “megacity” in terms of population but it is a global city with a substantial and growing foreign-born population and non-stop flights to hundreds of destinations around the world. With such relatively small land mass and continuous influx of settlers and investors, demand for real estate developers have continued to rise beyond supply. Simple law of economics would answer the question; when demand is higher than supply, what happens. Here real estate investors who position properly and come up with innovative products and developments are smiling to the bank.
In the year 2015, figures released by World Bank show that as at August 2012, the country’s housing deficit stood at 17 million units.Against this backdrop, the National Bureau of Statistics (NBS) has explained that for the country to meet its current housing demand, it needs to build and allot about 700,000 new housing units every year.However, statistics show that the present yearly turnover stands at barely 100,000 per year, which is also largely undertaken through the efforts of private investors. The implication of this is that in each passing year, the country carries on a housing stock deficit of over 600,000 units.Added to this is the burden of the ever growing population rate in the country as well as the increasing number of young professionals in the cities which invariably pushes up the demand scenario. In Lagos, several choice estates have been developed in the past two decades, namely, Lekki Phase 1&2, VGC, Parkview, Banana Estate, Nicon estate Eko Atlantic City etc, which compete with some choicest properties in the emerging markets. As the NBS report states, “Nigeria is in the midst of a housing boom primarily due to the great demand created by rising population.” It further noted, however that “demand for housing is simultaneously rising further down Nigeria’s income spectrum. Growing number of middle class young professionals have jobs in city centres; mainly Lagos. This represents the majority of city workers in Lagos in white-collar jobs. Their salaries are well beyond the Nigerian average. Yet, there is no source of housing nearby that they can afford to rent, let alone buy.”The consequence of the above is that there is growing demand for houses but little supply which instantly pushes up prices making houses difficult to afford for a large percentage of the population. According to available statistics, housing prices rose by 284 percent between 2001 and 2011 in India. Russia comes behind with an increase of 209 percent within the same period. In Nigeria, Lagos being the reference point, prices rose by 400-500% between 1998 and 2008 making it the highest in the developing world. Although the pattern has slowed a bit, the rise in prices in the city of Lagos have been relatively steady. This, for private investors, is big business. And it’s not unexpected that they are taking advantage of it.
In the words of Rahul Gandhi, “A rising tide doesn’t raise people who don’t have a boat. We have to build the boat for them. We have to give the basic infrastructure to rise with the tide’’.Globally, government’s investment in infrastructure is a big factor in the citizenry’s quality of life. Infrastructure is the backbone and chief driver of socio-economic development, which every country strives to achieve. For real estate investment and development it is a major factor. Roads and bridges, in particular, change the face of landscapes; increased connectivity by bringing societies closer to the outside world and attracts in investment from far and wide.In Lagos State, the current government recognizes the connectivity between infrastructure development and socio-economic growth. This explains why the State Governor, Mr. Akinwunmi Ambode is so much in a hurry to develop infrastructure across the state.This is being reflected in massive road construction and maintenance project in both urban and rural centers in the State. The main objective behind this is to ease undue hardship of road users who spend endless hours in traffic gridlock. Less than two years on the saddle, radical construction/rehabilitation of roads have become a major priority of the state both as a developmental end and a stimulator of further economic growth.When the Governor audaciously announced the plan of his administration in 2016 to construct 114 roads in all the 57 local councils and Local Council Development Areas (LCDA) in the state simultaneously in six months, many applauded the vision behind the plan but expressed reservation over its successful implementation.The Governor, while speaking at the first Quarterly Town Hall Meeting for 2017, the sixth in the series, held at the Ajelogo Housing Scheme, Ajelogo Market Road, Akanimodo, Mile 12, said the 181 roads, is an improvement on the 114 roads, two in each local government, which his administration promised to embark upon every year.The decision to increase the number of roads was informed by the need to reduce man power time that is mostly dissipated in traffic. This infrastructure development plan in essence will provide more alternative means to business execution on the long run. No doubt real estate is and will continue to be a major beneficiary.