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Pros and Cons of Real Estate Investments in Nigeria

Nigeria is one of the countries with the fastest-growing population in the world and the demand for real estate is rising rapidly. Many investors expect housing prices to increase dramatically in the following years and invest their savings in real estate in Nigeria.

There is no doubt that real estate is the preferred type of investment for most people but there are several issues associated with property investments in Nigeria that every investor should be aware of. That is why we created this list with the most important pros and cons. 

Pros

1. Increasing demand

The population of Nigeria is growing constantly but the land available for construction and farming is limited and cannot be increased. According to fundamental economic laws, a higher demand for any asset with a fixed supply leads to higher prices. 

2. Rising income and wealth

Nigeria’s GDP increased by 3.1% in 2022 and is expected to grow by more than 3% in 2023 as well. Many new businesses are created and existing ones grow when the economy of a country is expanding, which in turn leads to higher salaries for employees and wealth creation for business owners.

3. Protection against inflation

One of the main reasons for the price appreciation of existing properties is the increase in prices for materials like metals, wood, cement and the wages of construction workers. Therefore, property prices are linked to the inflation rate and tend to increase in line with the overall inflation in the country.  

4. Physical asset

Real estate is a tangible asset that you can see and touch, unlike some other assets like cryptocurrencies and bonds. Properties can be used for living, office spaces, business operations and other purposes.

5. Easy to manage

Purchasing a property does not require a lot of knowledge and financial expertise. Almost any Nigerian who has enough money can buy a property and manage it himself. Many other types of investments like stocks, FX, options and futures require advanced knowledge or skills and are unsuitable for newbie investors. 

Cons

1. Inflexibility

Properties are very illiquid assets compared to other investments, like stocks, bonds and cryptocurrencies. Selling a property takes time and involves high transaction costs (effort, money, stress, etc).

2. High transaction costs

You need to deal with real estate agents when you want to sell or buy a property and agents in Nigeria charge relatively high fees. In addition to that, there are multiple additional fees that need to be paid - legal, notaries and registration fees.

3.High investment required

Nowadays, the median price of a house in Nigeria is equal to roughly 18 times the annual income of a household. For this reason, it is impossible for most people to purchase a good property only with their savings and without getting a mortgage from a bank. 

4. Maintenance and taxes

Apartments and office spaces need periodic renovation - wall painting, furniture change, repair of appliances and others. These costs can vary significantly, depending on the quality of materials used, tenants and way of use. In addition to that, property owners need to pay a tax to the government every year.

5. High exposure to a single asset

Real estate owners typically have most of their net worth invested in one property but property prices can also go down, especially during financial crises and economic downturns. Furthermore, houses are vulnerable to natural disasters like flooding and fires.