Why cheap land won’t make Lagos, Abuja homes affordable—Developer

Cheap land on the outskirts of Lagos and Abuja will not necessarily translate to affordable homes because developers still have to absorb infrastructure, construction and financing costs, according to Michael Onyeachor, co-founder of Besitz Group Limited.

Onyeachor said this during an exclusive chat with Nairametrics on the challenges private developers face in providing housing for low- and middle-income earners.

He said lower land costs in emerging areas can be offset by spending on roads, drainage, electricity, water and other infrastructure, while high development costs also make luxury housing more commercially attractive to private developers.

What Michael Onyeachor is saying

Onyeachor said the economics of affordable housing have become increasingly difficult, particularly in Lagos and Abuja, where land values and development costs are high.

• “Private developers face a combination of high land prices, rising construction costs, expensive financing, inadequate infrastructure and weak purchasing power, making it difficult to deliver homes at prices affordable to the majority of Nigerians.”
• “The challenge is particularly severe in Lagos and Abuja, where housing demand is exceptionally high but land values have risen sharply.”
• “In Lagos, developers seeking to provide affordable homes are increasingly pushed towards peripheral areas because land in established locations is prohibitively expensive. However, developing on the outskirts creates another challenge, as developers often have to factor in the cost of roads, drainage, electricity, water and other infrastructure into the final price of the house,” he told Nairametrics.

Onyeachor said these costs also make luxury and upper-middle-income housing more attractive to developers because higher-value properties provide more room to recover development costs.

He said government support through concessionary land, infrastructure, tax incentives, cheaper long-term financing and public-private partnerships could help make affordable housing projects more viable.

More details

Onyeachor said investors are increasingly assessing locations based on their potential over the next five to 10 years rather than their current level of development. In Abuja, he identified Kuje, Idu, Apo-Tafyi, Kabusa and Karsana as areas attracting interest, while Lagos investors are increasingly looking towards the Lekki-Epe axis and other expanding corridors.

However, he cautioned that cheap land can remain cheap if infrastructure and economic activity do not follow.

Roads, drainage, electricity, water, schools, healthcare, transport links and employment opportunities are needed to turn emerging areas into viable residential markets. Without these, moving affordable housing farther from established areas can increase commuting distances and the cost of accessing jobs and services.

Get up to speed

Previous conversations with Nairametrics have highlighted the growing preference for higher-value residential projects and the financial pressures facing developers of lower- and middle-income housing.

Temitope Runsewe, Managing Director of Sage Grey Group, told Nairametrics that developers were increasingly seeking financing for prime projects in Ikoyi, Victoria Island and Lekki.

• Runsewe said infrastructure development and rising prosperity among parts of the middle class were supporting demand for high-end residential property.
• Ayodeji Johnson, CEO of Elara Development, said high land and financing costs were making lower- and middle-income projects more difficult to deliver profitably.
• Johnson said developers were not necessarily choosing luxury housing purely because of demand, but because expensive land and financing made higher-value projects easier to justify.

These earlier comments provide context for Onyeachor’s argument that development costs, rather than land prices alone, are shaping the type of housing private developers can deliver.

What you should know

Lagos’ housing affordability challenge comes against a relatively low homeownership rate. Fortren & Company found that 31% of Lagos residents own homes, while 51% live in rented accommodation.

• Lagos’ homeownership rate compares with 61% in Nairobi, 50% in Dakar, 29% in Kampala and 33% in Addis Ababa.
• Fortren & Company said Nigeria’s 31% figure covers people living in homes they built, purchased, received as gifts or inherited, rather than only mortgage-financed properties.
• Estate Intel found that $1 million buys about 507 square metres of prime land in Lagos, making it the second-most expensive among 11 major African cities surveyed.

The analysis covered Ikoyi, Victoria Island and Lekki Phase 1, where strong demand and limited land supply continue to support high land values.

The combination of expensive land, construction and financing costs means cheaper land alone is unlikely to produce genuinely affordable homes without corresponding investment in infrastructure and access to finance.