A Panoramic view of the Lagos Residential Real Estate Market in the second half of 2022

August 19, 2022

They say every cloud has a “silver Lining “in the real estate Market, The Residential sector possesses this attribute and is currently viewed as the bright spot due to a lack of supply in other sectors, but there is still a large supply deficit and less investors are focusing on affordable housing. the residential sector is looking up because it’s undersupplied. High construction costs make investors focus on the higher income market, but there’s an emerging shift of interest in the lower income demographics like students and young professionals, indicating that the market is headed in a more upward direction for more affordable housing.

The residential sector has a supply deficit of up to 2.3 million units, and it’s the brightest spot in the market Lagos has an undersupply in the residential sector due to population and demand continually out-pricing supply. They have about 1.5 million units at the current moment, but the population is at 3.8 million which leaves a deficit of 2.3 million residential units.

The residential space investors are mostly dominated by domestic investors. The investment typically focuses on building and selling quickly because rental yields are low. Investors in the residential space also ignore the affordable housing segment, where demand is high and focus on luxury property, where margins are higher due to construction costs.

This is starting to shift, and we’re seeing an increase in investor interest for less-served demographics like students and young professionals who have the opportunity for robust demand. We believe this will result in a positive outlook for the residential market.

The residential sector is the only bright spot in a market with a 2.3-million-unit supply deficit.

It is estimated that there are currently 1.49 million units in Lagos, which is not enough to meet the demand. There are three times more households than the current number of apartments in Lagos, resulting in a 2.31 deficit.

Housing investors are often motivated by fast rental yields, as opposed to building, and selling. This creates a problem in the residential space where demand is high, but margins are low. In contrast, investments in the luxury housing market have higher profits, but their high construction costs mean that housing for those with lower incomes is undervalued.

The market is starting to change, investor interest is shifting from higher income households to lower income households because of different demographics. Young individuals have a robust demand for residential properties.