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Why Real Estate in Lagos is so Expensive

Why Real Estate in Lagos is so Expensive

According to Forbes.com, Lagos is the 55th most expensive city to live in the world. For prospective homeowners, the very high valuations on property prices pose one of the greatest challenges. While this could be good business for developers and property owners, it is a growing cause for concern for the average house hunter or first-time buyer. There are several factors that however influence the cost of Real Estate in Lagos:

 

1. High Demand: Lagos is one of the smallest states in Nigeria. However, it remains the country’s largest business hub attracting investors from all over the world as well as hordes of Nigerians in search of better prospects. Daily, thousands of companies spring up and are in need of office spaces.  Houses in business areas are in very high demand due to workers’ preference to work close to home. The law of diminishing returns has no choice but to show forth, consequently raising the price of Real Estate to match this demand. Sometimes, landlords and developers can decide to increase the valuation of their Real Estate assets at any time with the assurance that due to the high demand, there will always be someone with the purchasing power to buy or rent.

 

2. Low Infrastructure: In other developed countries, the burden of providing basic amenities rests with the government. From roads, electricity, water supply, security etc. governments provide and citizens are taxed accordingly. Compare this with a state like Lagos where most of those basic amenities are provided by the developers. These extra expenses are then passed down to the buyers and renters.

 

3. Lack of Regulation: The Nigerian Real Estate space has very little to no regulations. A property can be bought for x amount of money and then resold for almost twice its value the next day. There are many cases of developers artificially inflating the valuation of a property in order to make obscene amounts of profit on that asset. The lack of a functional regulatory body for the Real Estate sector means that builders dictate prices and are free to value their property at whatever amount they please.

 

4. High Inflation: Nigeria is a country that is largely import driven. Couple that with a poorly performing currency and skyrocketing inflation and the result is the soaring cost of construction. The cost of construction (materials and labour) is rising alarmingly by the day and this largely influences the cost of Real Estate. A building that cost 100 million Naira in 2018 may cost more than 150% more to replicate in 2022 due to the surge in prices. What we see as exorbitant housing costs is a direct offshoot of this problem.

In conclusion, we are aware that Land is a non-replenishing resource. And as long as the  Lagos population continues to boom, more and more houses need to be built to accommodate this growth. With little to no government intervention, the Lagos real estate market will be dominated and influenced by developers. A solution may be found in opening up new areas within the state and focusing on low-cost housing units to reduce the demand for accommodation within the already overpopulated city centres.

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