Why Real Estate In Lagos Is So Expensive

Lagos is the most expensive real estate market in Nigeria and in Africa. This means that if you want to buy or rent a home in Lagos you might find yourself paying 3-10 times more than you would in other states.

To illustrate this a bit clearer, the average sale price for a home in Lagos as of Dec 2022 was ₦129,450,000 while the same figure for Ogun state which is right beside Lagos was ₦27,720,000 a 366% difference.

Let's drill down a bit more and compare by the number of bedrooms;

Source: Nigeria Property Centre

As should be clear by now, its a massive difference. So today I would like us to explore why this is the case and what this means for you as a home buyer;

I will start with the most obvious cause for this massive price difference;

The laws of demand and supply;

Simply put, more people want to live in Lagos than anywhere else in Nigeria. And the one thing we all know about real estate is that is perpetually scarce. Abuja might be the political capital of Nigeria, but Lagos is the commercial nerve center. Every big business in Nigeria has either their Headquarters in Lagos or at least a major office.

This means constant competition for the limited spaces available which in turn pushes the prices of these properties up.

Good old economics 101.

Lagos is uniquely limited in Space;

By land size, Lagos is the smallest state in Nigeria. In fact, close to 15% of the total land area currently available in the state is reclaimed from water bodies and swamps. So there's just not enough space to start with.

Cost of Building Materials and Construction;

Most of the input that goes into construction in Nigeria is imported, and as the naira loses its strength against the dollar, the local prices for these materials increases. This cost is then transferred to the end consumer (You).

Lack Of Adequate Controls and Regulations;

The sale prices of new properties in Lagos are usually set somewhat arbitrarily, i.e the seller sets a price that she thinks she can get for it, and because of the factors mentioned above, she could sell for either that price or close to it, which then forces the prices of any new properties in that neighborhood up to meet the new benchmark that has been set by that single seller.

There's nothing inherently wrong with that, this is exactly how a free market should work and there's an economic theory that every item is worth whatever price people are willing to pay for it.

The issue is something people in developed countries have discovered, there is a need sometimes to rein in these free market forces so that ordinary working-class citizens are not priced out of the market and to ensure that a more equitable and fair society is built.

Some measures that have been taken abroad that could work here include;

Rent control

Price caps

Tax incentives

Zoning etc

Non-Institutional Capital

Developers who raise money outside the traditional financial institutions are less affected by market conditions and so are more likely to be adamant about their high sales price points.

If the funds are raised through institutional capital, they are usually contractually obligated to return the capital within a specified time which forces them to sell at the best prices they can get for these properties.

What does this mean for you as a home buyer in Nigeria ?

Lagos remains the best real estate market in Nigeria and the factors driving up the prices of property are not likely to abate anytime soon. What this means is that you can reliably assume that any home you buy in Lagos will appreciate significantly over the next 10-20 years.

Lagos is also most likely to develop, modernize and advance faster than any other city in Nigeria, this means that even if some of the issues above are resolved, you can still expect the city to receive the bulk of internal migration in the country, keeping real estate prices high.

Before you buy your own home, it's important to understand the implications of this purchase and what it means for the home you are about to buy. Remember, whether you know it or not, your home is an investment.