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Real Estate

Understanding Nigeria’s unattractive mortgage system and recent positives from market players

Why is mortgage in Nigeria so expensive?



Nigeria’s real estate industry attracts foreign investors, Real Estate: Still not out of the woods

Nigeria’s unattractive mortgage system has been a key theme in its residential market for decades. With a housing deficit running into tens of millions, homeownership rate at 25% and a mortgage financing requirement conservatively estimated between 15-20 trillion naira, there is a great deal of work to be done.

Housing is typically capital intensive in Nigeria due to the high cost of construction, surging land prices and excessive financing costs. The high capital requirement of housing has made long-term financing critical in driving affordability; particularly for lower and middle-income groups.

Interest rates for mortgage products from commercial institutions are typically between 15%-25% per annum for a tenor up to 20 years. A model mortgage transaction would assume an interest rate of 20% on a ₦50million mortgage over 15 years. Using the loan amortization calculator by Aso Savings, the borrower would have made total payments amounting to 3x the principal at ₦158,066,685.

Paying 3x the principal on a mortgage transaction appears like daylight robbery. However, it is critical to note that the time value of money would play a major role as we expect ₦158 million today to have lost a significant percentage of its value over 15 years. Nevertheless, I reckon the question on your mind would be…

READ: National Housing Fund: FG inaugurates scheme’s first estate in Lagos

Why is mortgage in Nigeria this expensive?

The simple answer is interest rates are outrageous and here’s why;

There is a direct relationship between inflation and interest rates on mortgages. When inflation rates are high, the naira loses its purchasing power and mortgage lenders tend to increase interest rates above inflation to compensate for loss in purchasing power. Observe how Nigeria’s mortgage sits in comparison with other key economies:

Nigeria’s average mortgage rate is close to 9x that of the United Kingdom (UK) and United States of America (USA). The high mortgage rates in Nigeria discourages prospective borrowers since they have to pay so much to repay their interest and principal. Therefore, potential homeowners rather opt for personal savings, subsidized public sector housing and other sources of funding.

READ: Federal Mortgage Bank disburses additional 8,700 homes, N112 billion in three years

What is being done in making Nigeria’s mortgage market work efficiently?

Private Sector Led:

Some mortgage banks including Cooperative Mortgage Bank have gotten creative in reducing their interest rates by taking the burden of building residential properties and placing those properties on mortgages at single-digit interest rates of about 9% per annum. Mortgage banks have also executed partnerships with cooperatives to design a system where their members can make convenient monthly contributions to the mortgage bank to qualify them for affordable and quality homes over time.

The Future Africa-backed startup; Bongalow serves as a mortgage marketplace for well-curated properties, connecting banks and property developers with people that require financing to purchase homes. You can start a mortgage application on Bongalow by providing information on your income, desired property, credit profile among others. Bongalow then recommends the best mortgage rates and solutions based on the criteria of its lending partners.

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READ: Thinking Of Getting A Mortgage In Nigeria? 10 Important Things You Must Know


Public Sector Led:

The government-owned institution; Federal Mortgage Bank of Nigeria (FMBN) lends mortgage at 6% to National Housing Fund (NHF) contributors over a maximum tenor of 30 years. While mortgages from the government may appear more affordable, NHF contributors can only access up to ₦15million from the fund through an accredited and licensed Primary Mortgage Bank.

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The government is also encouraging financial institutions to participate in mortgages through the World Bank-backed institution; Nigerian Mortgage Refinance Company (NMRC). The NMRC issues long-term bonds in the capital market to provide refinancing facilities to eligible loan portfolios of financial institutions extending mortgages. This is done to increase the maturity structure of mortgage loans & reduce mortgage rates.

READ: NMRC signs N3bn mortgage agreement with Kaduna govt 

What then?

Real Estate as an asset class would need more reforms to drive mortgage participation. Aside from the issues in titling and discouraging bureaucracies in land documentation, the non-existence of an effective foreclosure law serves as a major disincentive to mortgage financiers.

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A foreclosure law basically helps the lender repossess and sell the property in the case of default by the borrower. The National Assembly has not been keen on expediting the foreclosure law and only a few states have passed the law. Without the foreclosure law, cases of repossession of properties after default by borrowers spend a long period of time in court.

Fundamentals of Nigeria’s macroeconomy may be harsh on its mortgage market, however, there are a few positives. It has taken too long for inflation and mortgage rates to function effectively and I believe the public and private sector would need to intervene through the introduction of more specific policies and creative financing facilities to drive affordability.

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Real Estate

Lagos denies allegations of condoning planning violations in Osborne Ikoyi, Magodo

Lagos Government has addressed accusations of allowing physical planning infractions in selected areas of the State.



Lagos issues ultimatum to Tank Farm Operators over planning permit, Lagos seals 27 residential and commercial buildings in Lekki, LASG Seals 19 more Buildings in Banana Island over planning permit

The Lagos State Government has denied the allegation that it is tacitly condoning the violation of its physical planning laws by some developers in Osborne Foreshore Phase 2 and Peace Valley Estate, Magodo.

This follows an accusation in a post that has gone viral on social media by one Yacoob Abiodun, who claimed to be an Urban Planner/Planning Advocate, accusing the state government of allowing physical planning infractions in these areas.

The disclosure was contained in a statement issued by the Lagos State Commissioner for Physical Planning and Urban Development, Dr Idris Salako, on Monday, March 1, 2021, refuting the insinuation.

Salako stressed that the claim by Yacoob Abiodun that residents of Osborne Foreshore Phase II and Peace Valley Zone, Magodo, were crying foul over the illegal activities of some developers is totally untrue and fabricated.

While expressing his displeasure at the twist of facts by the writer, the Physical Planning Commissioner said that it became necessary to correct the misinformation peddled in the social media report in order to disabuse the minds of Lagosians by setting the records straight.

Salako retorted that contrary to insinuations, the residents of Osborne Foreshore Phase II had influenced the increase in height of structures in the area from the original 4 or 5 to 10 floors, while Phase I still remained a maximum of five floors.

He explained that a review of the Approval Order for Osborne Foreshore was precipitated by the continuous agitation of the residents, as original allottees had brought about an increase in the height of buildings and density of the Estate while the government came in to ensure a proper review for the benefit of all concerned.

Dismissing the allegation of non-involvement in the review, he stated that the ongoing review process, which was borne out of several consultations and engagements with the residents’ association, was in line with the extant regulations guiding development planning in the State.

The Commissioner maintained that the review could not have been more inclusive, having met and discussed with residents of the Estate over 10 times before the Ministry encouraged the residents association to engage a consultant, explaining further that Messrs. MOA Planners prepared a revised plan along with the review sent by the Federal Ministry of Works and Housing.

Salako said, “It is, therefore, disheartening that despite repeated dialogue, the latest of which was held with the Governor of Lagos State, Mr Babajide Olusola Sanwo-Olu, three weeks ago, the best that the Osborne-Foreshore Residents Association Phase II (OSFRA) could do was to resort to social media to intimidate and embarrass the Lagos State Government.’

He averred that the writer’s portrayal of the incident at the Peace Valley Zone, Magodo, was not less misleading than the entire writeup as it attempted to denigrate gallant officers of the Nigeria Police who were in the estate on lawful assignment, noting that the Police officers were not only professional and diligent but they acted with the utmost respect for the rule of law and engagement.

Dr. Salako, who was present at the scene, intervened alongside the former Prelate of the Methodist Church, Pa Sunday Ola Makinde to restore order and get the understanding of the Police on the arrest warrant, expressed his dismay at the erroneous social media report which exaggerated the incident and glorified some people who claimed to have thwarted the arrest of the Estate Chairman.

Noting that it had become apparent from the unwarranted social media outburst that some people were out to take advantage of the online platforms and information technology for personal ends, the Commissioner emphasised that no amount of pressure would compel the government to outsource its responsibility for Physical Planning to groups or individuals.

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What you should know

  • It can be recalled that the Lagos State Government through its Physical Planning and Urban Development Ministry, has been on strict enforcement drive of its physical planning laws by moving against developers of illegal and unapproved buildings.
  • The state government at different times, have sealed off both commercial and residential properties in Lekki, Surulere, Ikoyi, Amuwo Odofin, Ogudu GRA, Ikeja and others and even gone as far as demolishing some of those illegal and unapproved structures.


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Real Estate

Leveraging the strong demand for housing in Lagos

Developers can attract more tenants to their building by introducing additional facilities at a slightly higher rent.



Nigeria's real estate, COVID-19 forces tenants to request moratoriums from property owners

The fast-growing young population of Nigeria has largely defined the country’s commercial capital. At 3,577 km2, Lagos has the smallest land area in Nigeria and is 21x smaller than Nigeria’s largest state; Niger.

Despite its size, the state houses the country’s largest population and arguably ranks 1st among Africa’s most populous cities. While this fast-growing young population might tell an exciting growth story, we can’t deny the socio-economic pressure it places on the state’s infrastructure and housing.

As you’ll expect, renting in Lagos can be quite difficult and expensive, particularly in areas with proximity to the city’s commercial centre; Victoria Island. Housing in these areas is gradually adapting to demand which is largely from people within the ages of 18-35. They typically demand for 1-bedroom or studio apartments and would not mind paying a premium for key additional services including quality facility management and proximity to work.

How can developers leverage this demand?

1. Serviced Apartments: Serviced apartments are gradually gaining a bit of traction in key areas in Lagos. They are typically smaller-sized apartments furnished with a bed frame, wardrobe, air conditioner and kitchen furniture. They also enjoy building facilities including security, inverters, standby generators, depending on the rental range and level of sophistication.

Developers can attract more tenants to their building by introducing additional facilities at a slightly higher rent. The shift to remote work has also strengthened the case for serviced apartments as tenants spend more time indoors and enjoy more of these facilities. Winning with serviced apartments would require quality facility management as prospective tenants have cited this as very pertinent in making their decision.

2. Shared Apartments: Multiple-room apartments can have each room rented to different tenants as it could be quite difficult finding one tenant to take up the whole space. These types of apartments could be the right fit for young people willing to explore, meet new people and split responsibilities. Muster and Fibre are two easier-living solutions that support apartment sharing. Landlords can list their properties on these platforms to secure interests from prospective tenants interested in sharing apartments.

3. Larger Formal Retail Developments: The growing urbanization in key areas in Lagos is driving opportunities for formal retail developments. In Yaba for instance, demand is currently satisfied through informal markets, small retail shops and a couple of supermarkets including Mallmart and SPAR. The closest to formal retail is E-Centre, completed in 2008 and home to Ozone Cinemas and a couple of other retail stores.

The urbanization, fast-growing population and presence of key educational institutions in Yaba present opportunities for more organized retail as seen in Surulere and Maryland with Adeniran Ogunsanya Mall and Maryland Mall. Establishing a formal retail centre could leverage this demand and help solidify Yaba’s presence in Lagos’s exciting story.

In 2050, Nigeria will be the 3rd largest country in the world after India and China and have the 2nd lowest median age among Africa’s largest economies. Going by current data, we expect a fairly large percentage of this population to reside in Lagos. This means Lagos will continue to be young and vibrant and we can trust this demographic composition to shape its housing requirements for more 1-bed apartments.

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