Following the recent occurrences in Nigeria’s real estate and short-let rentals sector, a major disruptor in Nigeria’s real estate sector, Keji Giwa of Digital Landlords and Shortlethomes, in a recent analysis, admonished the approach by property developers that is turning more landlords (property owners) to tenants.
As the pioneer of short-let apartment rental with 5-star hotel-like experiences in Lagos, Keji noted that landlords must experience profitable and healthy growth in their rental income from local rental to high yield vacation rental income where landlords with properties in Lekki Phase 1, Ikoyi, Victoria Island have experienced a 500% increase yearly rental income. This has taken their ROI on a property from 2.5% a year in local rental income to 22% a year in high-yield rental income.
Commenting, Keji Giwa said; “For the first time in the history of Nigeria, average Nigerians could potentially get back the return on a property in 5 – 7 years and this led to an accelerated explosion of real estate investments, creating new opportunities for real estate developers to sell to Nigerians in Diaspora who were keen to capitalize on this new goldmine.
“The new sales pitch became: ‘When you buy our homes at N75m, Shortlethomes will get you between N15- N25m per year in short let rental income and if you post it on Airbnb or booking.com you can even earn in dollars or pounds. For the first time in the history of Nigeria, diasporas no longer needed to worry about the inevitable & consistent dollar to naira devaluation on their investment while earning a 2.5% yearly on their property which does not cover the 10%-15% currency depreciation per year, wiping away any possible capital gains. “
He continued, “A slowed down and struggling real estate market quickly picked up towards the end of Covid 19 between 2019 – 2021 and we suddenly started to see a real estate boom with an influx of diasporas collectively investing millions of dollars in properties.”
According to a World Bank Data, the Nigerian Diaspora population remitted $65.34bn in three years to boost economic activities in the country. Looking into the data itself, in 2018, the Nigerian Diaspora remittance was $24.31bn; in 2019, it dropped to $23.81bn; and in 2020, it fell to $17.21bn. Remittance inflow made up four per cent of Nigeria’s Gross Domestic Product in 2020. Also, the United Nations Department of Economic and Social Affairs in research data stated that Nigeria had a Diaspora population of 1.7 million as of 2020. This puts the average remittance per Nigerian abroad (based on 2020 Diaspora population) at $38,428.15 across the three years.
A pretty insightful article by B Joseph written in 2018 reads that; “Nigerian Americans are estimated to earn $52,000 per year according to Migration Policy Institute, USA, slightly higher than the average $50,000 in the US. They are also more likely to be counted in the higher income brackets as 35% of Nigerian-American households earn US $90,000 per year. Albeit they represent a minutia portion of the U.S. population, 37 percent of them hold a bachelors degree and 17 percent a master’s. 29 percent of Nigerian-Americans aged 25 and plus, have a graduate degree, compared to 11 percent of the US population. Nigerian accounts for less than 1 percent of the black population in the United States, yet they make up nearly 25 percent of all Black students at Harvard Business School.”
Keji stated that; “A great deal of property developers came to the realization a few years ago that they could easily turn landlords into tenants by charging up to 400% premium on electricity bills and close to 100% profit margins on service charges. While a landlord may generate N1.3m from a short-let property as rental income, N1m of that money goes towards paying electricity bills. When you consider the cost of maintaining a short-let home, cleaning, facility management, and replacing damaged items, it’s no longer profitable.”
Addressing how to tackle the naira to dollar devaluation and ensuring property owners return to earning 22% or more from high yield rental income, Keji Giwa said the solution lies with property developers. He also proposed a master plan that will boost Nigeria’s real estate investment from Nigerians in Diaspora.
According to him, “Property developers should see buyers and landlords as partners rather than cash cows. If you are a developer building in Lekki Phase 1, Victoria Island, Ikoyi, Oniru, Ikate, or Osapa London, you should be focused on selling value. Approximately 5m people travel to Nigeria each year with Lagos State, Lagos Island to be precise, accounting for the majority of that number. High population density areas with mixed use of recreational, business, and residential properties account for 95% of the short-let market, that’s a 10-mile radius from Lekki Phase 1.
“If developers can choose to work on a 30% margin on electricity bills and service charges combined, rather than a 400% plus margin wiping away every possible gain a landlord can make, Landlords can maximize up to 22% ROI on their properties each year from short let rental income and beat the dollar to naira devaluation. If they refuse to do this, they will inevitably lose the Nigerians in the Diaspora market which is worth at least $7bn yearly.
“While 70% of vacation bookings are local bookings, the daily rates charged are up to 40% higher than the rates of international bookings from Airbnb and booking.com which accounts for 30% of bookings. Property owners can capitalize on this high yield income while only losing 10% – 15% a year in naira to dollar depreciation.
“If I can buy a 2-bed apartment for N80m in Lekki Phase 1 and make N15m yearly after cost in short-let rental income, that’s an 18.75% ROI on my property. In 5.3yrs, I have made my money back. If I earn 30% of it in pounds/dollars and convert the remaining 70% of it from naira to dollars or pounds monthly, I may only lose 5% – 10%, allowing me to average close to 10% in dollars or pounds on my property each year. My capital appreciation is now a bonus to me. At this point, it’s far more profitable than investing in UK or the US because I am experiencing a 10% yearly 10% revenue to capital investment. Developers hold the key to making real estate in Nigeria attractive to Nigerians in the diaspora.”
He concluded that property developers who can capitalize on this initiative will gain a huge competitive advantage and dominate the diaspora market over the years to come.
