The Nigerian real estate market, like many others globally, is cyclical, alternating between what is referred to as a buyer’s market and a seller’s market. Understanding these two distinct conditions is essential for investors, property developers, and even individual homebuyers to make informed decisions. This article explores how to identify a buyer's or seller's market within the Nigerian context, backed by relevant market facts and trends.
What is a Buyer's Market?
A buyer’s market occurs when there are more properties available for sale than there are buyers willing to purchase. In this scenario, property prices tend to fall, or at the very least, increase at a slower rate. Buyers have greater negotiating power, and sellers are often willing to accept lower offers to close a deal quickly.
Indicators of a Buyer’s Market in Nigeria
1. Increased Property Listings:
One of the key signs of a buyer's market is the availability of many properties in the same location or region. For example, in places like Abuja and Lagos, there have been periods when numerous residential and commercial properties remain unsold for extended periods due to an oversupply of housing stock, especially in new developments. As a result, sellers are compelled to offer incentives like price reductions or flexible payment plans.
2. Extended Days on Market (DOM):
When properties remain on the market for an unusually long period, it's a strong indicator of a buyer's market. In Lagos’ upscale neighborhoods such as Ikoyi and Victoria Island, high-end real estate sometimes experiences longer DOM due to limited buyer interest, making it favorable for prospective buyers who have more time to negotiate.
3. Price Reductions:
Another clear signal of a buyer’s market is when property sellers begin to lower their asking prices. For instance, some areas of Lagos and Abuja saw a noticeable drop in rental and property prices between 2017 and 2018 due to a combination of economic uncertainty and overbuilding, which tipped the market in favor of buyers.
4. Favorable Lending Conditions:
When mortgage rates are low, and banks are more willing to lend, it can signal a buyer’s market. Although mortgage uptake in Nigeria is relatively low due to high interest rates (often exceeding 20%), any improvement in loan accessibility usually coincides with conditions favorable for buyers.
5. Economic Slowdown or Recession:
Economic downturns directly affect real estate markets. During the Nigerian recession of 2016, consumer purchasing power dwindled, and property sales declined, leading to lower property prices in some regions. Economic hardship often creates a buyer’s market as people sell properties to free up cash, increasing the housing supply relative to demand.
What is a Seller's Market?
Conversely, a seller’s market occurs when there are more buyers in the market than available properties for sale. In this environment, property prices tend to rise, sellers are in a stronger negotiating position, and buyers may have to make concessions or pay premium prices to secure a property.
Indicators of a Seller’s Market in Nigeria
1. Limited Property Supply:
When the number of available properties decreases, and demand remains high, sellers can dictate terms. For instance, despite high development activity in Lagos, demand for properties in prime areas like Lekki Phase 1, Ikoyi, and Victoria Island continues to exceed supply, especially for high-end, luxury apartments. As a result, property prices in these locations have remained high or have appreciated faster than other regions.
2. Rising Property Prices:
In a seller’s market, property prices increase steadily due to high demand. Between 2020 and 2022, Lagos experienced sharp rises in land and property prices in areas such as Epe and Ibeju-Lekki. The ongoing construction of the Dangote Refinery, Lekki Free Trade Zone, and other large-scale projects fueled demand for residential and commercial properties, making it a classic seller’s market.
3. Properties Selling Quickly:
When properties sell quickly, often at or above the asking price, this indicates strong demand. In Lagos, during periods of high demand, developers report quick turnovers of newly constructed homes, particularly in emerging middle-class areas like Sangotedo and Yaba, where affordable housing is quickly snapped up by eager buyers.
4. Multiple Offers on Properties:
In a seller’s market, properties often receive multiple offers from prospective buyers. This is especially true for properties located in rapidly developing areas. The influx of investors and homebuyers in Lekki and Epe, anticipating the completion of major infrastructural projects like the Lekki Deep Sea Port, has resulted in competition for available land and properties, with buyers often paying above the initial asking price.
5. Booming Economy or Market Confidence:
A strong economy or an optimistic outlook for economic growth contributes to a seller’s market. In recent years, certain sectors of Nigeria’s economy have seen growth, including the tech industry. This has had an impact on housing demand in areas like Yaba, which is now referred to as Nigeria’s "Silicon Valley." Here, demand for residential and commercial spaces has skyrocketed, driving up prices and creating a seller’s market.
The Nigerian Real Estate Market: Current Trends
Nigeria's real estate market is dynamic, influenced by various macroeconomic factors, government policies, and international trends. Here's a breakdown of some current trends:
1. Increased Demand for Affordable Housing:
One of the persistent trends in Nigeria’s real estate market is the high demand for affordable housing. Despite the growth of luxury developments in Lagos and Abuja, the majority of Nigerians seek housing that is within their financial reach. In recent years, areas like Sangotedo in Lagos and Lugbe in Abuja have seen a rise in residential developments targeting the middle-class population. However, the supply of affordable housing remains insufficient to meet demand, leading to a seller's market for low- and middle-income housing.
2. Impact of Government Policies:
Government policies such as the National Housing Fund (NHF) and the Federal Mortgage Bank of Nigeria (FMBN) aim to increase home ownership through affordable mortgage schemes. While these initiatives have improved access to finance for some, the overall uptake remains low due to the high cost of housing. However, such policies, when effective, can spur demand and create a seller's market, particularly for affordable properties.
3. Foreign Investment and Diaspora Interest:
Nigeria's real estate sector continues to attract foreign investment, especially from the Nigerian diaspora. Prime areas in Lagos and Abuja are often targeted by Nigerians living abroad who seek investment opportunities or future retirement homes. This sustained interest has kept property values in high-end locations buoyant, contributing to a seller's market in those regions.
4. Growth in the Tech and Commercial Real Estate Sectors:
Nigeria’s growing tech industry has increased demand for commercial real estate in areas such as Yaba (Lagos) and Gwarinpa (Abuja). The need for modern office spaces and tech hubs has contributed to rising property prices in these districts, making it favorable for sellers.
5. Real Estate Investment Trusts (REITs):
REITs are gradually gaining traction in Nigeria as a means of investing in real estate without direct property ownership. This trend has the potential to affect the real estate market by increasing liquidity and attracting more investors, which could either sustain a seller's market or mitigate an oversupply that would lead to a buyer’s market.
Summary
Recognizing whether the Nigerian real estate market is currently favoring buyers or sellers requires careful observation of market indicators such as property supply, demand, pricing trends, and economic factors. While prime areas in Lagos and Abuja often experience a seller’s market due to high demand and limited supply, there are still regions and property types that cater to buyers. Understanding these trends is critical for anyone involved in Nigeria's real estate market, whether they are buyers, sellers, or investors.