Nigeria, Africa’s largest economy, Lagos State, has been ranked among the most expensive rental markets on the continent, as house rents in the country’s major cities rise almost monthly.
According to BusinessDay, a new report, which looked at ‘Average Rent of 2-bedroom Apartment Across Africa’s Most Important Cities’, places Lagos, Nigeria’s most expensive housing market, fourth out of 10 most expensive cities to rent on the continent. Lagos follows Abidjan, Cape Town and Accra, which are ranked first, second, and third, respectively. Others are Douala, Nairobi, Kigali, Dar es Salaam, Cairo, and Casablanca.
According to the report compiled by Fortren & Company, a real estate research and advisory firm, the average rent for a luxury 2-bedroom apartment in Lagos high-end neighbourhoods like Ikoyi, Banana Island, and Victoria Island is about $19,379 (N26.8 million) per annum. In Abidjan, Cape Town, and Accra, rents are more expensive for the same-size apartment at $41,671 (N57.7 million), $27,813 (N38.5 million), and $26,299 (N36.4 million), respectively.
Though Lagos comes a distant fourth in the ranking, renting in the city remains a huge challenge as the city is experiencing what experts have described as a rental boom. The rate of rent increase has been quite significant. Chudi Ubosi, Principal Partner at Ubosi Eleh + Co, said at a recent Webinar on rent that, “in the last 24 months, rents have increased by 50-200 percent,” pushing the income-to-rent ratio up to 70 percent—more than double the 30 percent benchmark approved by the United Nations. Though this situation creates socio-economic challenges that pile enormous pressure on household income, analysts posit that it also presents a good opportunity for investors interested in build-to-let apartments, especially small units such as 1 and 2-bedrooms.
The reasons for rent increases find explanation in the affordability crisis in the sales market, which has pushed a good number of people to the rental market. Inflation, high borrowing costs, and skyrocketing material prices have combined to make new housing unaffordable for a large segment of the population. Renting has, therefore, become the norm, and landlords are making a feast of the situation, squeezing tenants whose income can no longer support their rents. Most reports on the country’s real estate market show that the rental segment now dominates real estate transactions, as affordability challenges push potential buyers to the sidelines.
Across major cities, annual rents for standard apartments have surged, pushing people from the city centres to the hinterlands, where some two-bedroom apartments now command as much as N1.5— N2.5 million per annum. The Fortren and Company report notes that, in Lagos, high real estate prices are driven by limited land availability, high demand in prime areas, rising construction costs, speculation, and currency devaluation, which has historically pushed developers to hedge by raising prices.
“High-end residential stock in neighbourhoods like Ikoyi, Victoria Island, and Banana Island are typically dollar-denominated, which compresses the high-end market into a very small geographic and socioeconomic band, sustaining elevated rents,” Martin Uche, the company’s Research Director, stated. Uche added that, “it is important to note that when compared on a project-by-project basis, the data becomes skewed. For instance, several ultra-luxury projects along the Bourdillion, Alexandra, and Gerrard corridor in Ikoyi, Lagos, are renting for as high as $130,000 annually.
Over the past few years, according to the report, Cape Town has seen an influx of newcomers, mainly South Africans escaping dysfunction elsewhere, attracted by good jobs, and foreigners lured by its natural landscape and comparatively cheap values relative to other developed markets. Average rents have risen 68.5 percent since 2014, partly driven by a shortage of long-term rentals as landlords have migrated toward higher-returning short-term and tourist markets.
“Accra’s premium is somewhat counterintuitive given its broader affordability profile, but it is explained by a highly concentrated high-end demand base, particularly along the Cantonment, East Legon, and Airport Residential Areas,” Uche stated. According to him, Ghana’s economy has experienced impressive growth over the past decade, making Accra one of West Africa’s most important cities, attracting a dense cluster of multinationals, diplomatic missions, and NGOs, all competing for a very thin stock of high-end residential supply. Dollar-denominated expatriate housing allowances further inflate the top end of the market.
Uche explained that the way rent is paid in Africa is making renting even more expensive, noting that Africa’s rental market is one of the most rigid in the world. “50 percent of Africa’s traditional rental market requires at least 3 months of rent in advance. In countries like Nigeria, Ghana, Sierra Leone and Cameroon, demand far outstrips supply, giving landlords, who typically desire rapid capital recovery, leverage to charge one to two years’ rent in advance,” he said. “In a generally low-trust environment with limited access to credit data, landlords are more risk-averse. For most landlords, the only path to building their capital base and protecting their rental income is by demanding several months or years’ rent in advance,” Uche added.
