On one of the most exclusive streets in Nigeria’s capital sits a crumbling mansion with an unwelcoming message painted at its entrance: “BEWARE! THIS HOUSE IS NOT FOR SALE”.
The warning refers to a popular property scam. In the most elaborate version, robbers break into your house while you are away, change the locks, and then produce multiple copies of fake title deeds. Posing as estate agents, they show buyers around your house and sell as many copies of the deeds as possible. When you get back, your house belongs to six people.
This sort of deception epitomizes the tricky nature of Nigeria’s real estate business, but despite the risks, there are huge returns to be had in a market where around 16 million homes are needed just to meet current demand.
Navigating through opaque land laws, corruption, a lack of development expertise and financing, a dearth of mortgages and high building costs will take courage and influential local partners.
“There are sizeable challenges to overcome but in many ways Nigeria represents the perfect storm for real estate investment; huge population, rapid urbanization and a growing middle-class,” said Michael Chu’di Ejekam, Director of Nigerian Real Estate at Actis, a London-based private equity firm.
Actis has $5.2 billion under management, including two sub-Saharan Africa real estate equity funds totalling $434 million, which it says are attracting U.S. and European investors.
“I see demand from the middle-class higher than ever before,” said Deolu Dara, Associate Vice President at Nigeria-based Avante Property Asset Management, which manages several multi-million dollar residential projects in Lagos.
A successful real estate investment in Nigeria can earn an returns as high as 30-35 percent, while rental income yields in cities such as Lagos and Abuja can easily reach 10 percent, developers and estate agents say.
Property in Lagos, a heaving metropolis of around 20 million people, can be among the most expensive in the world with two-bedroom flats costing more than $1 million in upmarket areas.
However, the top-end range is dominated by well established players and developers should target middle-income workers in major cities, such Lagos, Abuja and the oil-hub Port Harcourt. The most popular units fall in a price bracket of 20-35 million naira ($123,000-$214,100), developers and estate agents say.
Nigeria’s middle class make up around 23 percent of the population and earn around 80,000- 100,000 naira ($490-$610) per month, according to report by investment bank Renaissance Capital.
“If you know the market, the people, focus on middle class and cherry pick your deals, you can clean out,” added Dara, who said Africa’s biggest oil and gas industry is also driving demand. One foreign oil major bought 300 flats recently.
Nigeria’s construction and real estate sectors are growing at more than 10 and 12 percent respectively, a boon for foreign and Nigerian construction firms, including UPDC, Cappa D’Alberto and Julius Berger.
London-based estate agent Jones Lang LaSalle ranks Nigeria 96th out of 97 on its transparency index, just in front of Sudan but behind six other African countries.
“It’s a business that requires local partners and local knowledge or you’ll run into problems,” Dara at Avante says.
Avante’s chairman is Wale Tinubu, the head of oil and gas firm Oando and a close relative of former Lagos state governor Bola Tinubu, who still wields influence there.
London-based Actis has given directorships to Nigerian energy firm Seven Energy and local conglomerate UAC.
Once the supply challenges have been overcome, there remains a problem with that huge latent demand. No mortgages. Unless you are willing to pay a 25 percent interest rate.
The government says it is trying to fix this by securing a $300 million loan from the World Bank to establish a mortgage refinancing company, which should free up some bank lending.
A Federal Mortgage Bank was also launched this year, which government hopes will help build 500,000 new homes. The bank plans to float a 200 billion naira mortgage bond, the proceeds from which can be handed over to home buyers with the state guaranteeing against default for five years.
“With this sense of urgency we could have a significant improvement in the mortgage market by 2015,” United Bank for Africa CEO Phillips Oduoza told Reuters.