“Lagos Real Estate Is Ridiculous” Part Two: Is the Price Justified?

Part two of a two-part article by Collins Joseph Oni, PMP, Senior Investment Advisor at Fountain Havens Nigeria Limited. Part one looked at what actually drives the price of a Lagos property: the numbers behind the headlines, the rising cost of building, the weight of location, and the difference between paying for a property and paying for a promise. Here, Collins turns to the harder question of whether those prices can withstand scrutiny.

The Developer Must Make Money, but the Buyer Must Make Sense of the Price

There is another side to this discussion that is sometimes overlooked.

Property development is a business. Developers commit capital, take construction and delivery risks, coordinate professionals, manage approvals and carry the consequences of delays and cost overruns.

They must make a reasonable return for their investments and risks if they are to remain in business.

The problem begins when the selling price is discussed without considering whether it is commercially sustainable.

A developer may have spent ₦250 million delivering a unit and decide to sell it for ₦350 million. That difference does not necessarily represent pure profit. The full project costs, financing expenses, taxes, shared infrastructure and other obligations must be considered.

Equally, a high development cost does not guarantee that the market will accept the resulting price.

The developer has to understand the buyer.

Who is the intended customer? What alternatives does that customer have? What does the property offer that competing developments do not? How many people within the target market can realistically afford it?

These are not merely sales questions. They are fundamental commercial questions.

The most successful developments are not necessarily the ones with the highest selling prices. They are the ones where the product, pricing, target market and delivery quality work together.

The Uncomfortable Question: Are Some Lagos Properties Overpriced?

Yes, some may be.

It would be intellectually dishonest to suggest that every property price in Lagos is justified simply because land and construction have become expensive.

Markets are influenced by facts, but also by expectations, competition, sentiment and individual decisions.

A seller may price a property based on what a neighbour claims to have sold for. A developer may benchmark a new project against a more established development without adequately accounting for differences in quality or location. An investor may assume that because prices increased sharply in previous years, they will continue rising at the same pace.

These assumptions require scrutiny.

An asking price is a seller’s position, not an independent valuation.

Similarly, a price increase does not automatically mean that an investment has become more valuable in economic terms. If the property’s price rises but its rental income, demand and resale prospects do not support the increase, an investor needs to investigate what is driving the premium.

This is why comparable evidence is essential.

Where possible, buyers should examine completed transactions involving genuinely comparable properties. Where such information is unavailable, they should be transparent about relying on asking prices, professional estimates or other imperfect indicators.

The objective is not to find a reason to reject every expensive property.

It is to determine whether the price can withstand reasonable scrutiny.

High Prices Do Not Automatically Mean a Bubble

Whenever property becomes expensive, the question of a bubble inevitably arises.

But a market does not become a bubble simply because prices are high.

To assess whether prices are becoming unsustainable, we need to examine the relationship between prices, rents, household purchasing power, supply, financing and the underlying demand for property.

If prices rise substantially faster than the income buyers can earn from the property or the income they can use to purchase it, affordability becomes a concern.

If developers continue introducing similar products into a segment where demand is limited, some properties may take longer to sell or require price adjustments.

If investors are buying primarily because they expect someone else to pay more later, rather than because the property has a sound underlying use or investment case, the risk increases.

But these risks do not affect every part of Lagos equally.

A highly desirable property in a supply constrained location may behave differently from an apartment in a segment with numerous competing developments.

The right analysis must therefore be specific to the location, property type, price range and intended buyer.

I would be cautious about declaring the entire Lagos market a bubble without sufficient transaction data to support that conclusion.

A more useful question is which segments are supported by sustainable demand and which are becoming vulnerable to affordability constraints or unrealistic expectations.

What Should a Serious Buyer Actually Do?

My advice is straightforward: do not allow either excitement or outrage to make the decision for you.

An expensive property is not automatically a bad investment, just as a relatively cheap property is not automatically a bargain.

Before committing substantial capital, I would encourage every buyer to examine five things.

First, establish a credible price benchmark. Compare the property with similar developments in the same location. Consider size, specifications, title, age, completion status and amenities. Do not compare properties merely because they have the same number of bedrooms.

Second, understand the intended use. A property purchased for personal residence should be evaluated differently from one purchased primarily for rental income or capital appreciation. Your objective determines which financial measures matter most.

Third, test the numbers. For a rental investment, estimate realistic annual rent and deduct relevant expenses, including service charges, management costs, maintenance, vacancy and other applicable costs. Do not mistake gross rental yield for the income you will actually retain.

Fourth, assess the downside. Ask what happens if the property does not appreciate for three years. Would the rental income still justify holding it? Could you meet your financial obligations? Would you be able to sell without accepting a substantial discount?

Fifth, conduct proper due diligence. Verify the title and relevant approvals, understand the contractual terms, assess the developer’s delivery record and ensure that the payment structure suits your financial position.

These steps will not eliminate every risk. They will, however, help you make a more informed decision.

So, Is Lagos Real Estate Ridiculous?

Sometimes, the price deserves the reaction.

Sometimes, the price reflects genuine scarcity, high development costs, strong demand and the advantages of a particular property.

And sometimes, the price is simply an expectation waiting for a buyer willing to accept it.

The difficulty is knowing which situation you are dealing with.

That is why I believe the most valuable contribution a real estate investment adviser can make is not to convince a client that every property is worth buying. It is to help the client understand the opportunity, question the assumptions, assess the risks and decide whether the numbers make sense.

Real estate is too capital intensive for decisions to be based on attractive brochures, prestigious addresses or promises of guaranteed appreciation.

The buyer deserves more than that.

The investor deserves evidence, clear reasoning and honest advice.

And the market benefits when professionals are willing to discuss not only the opportunities but also the questions that deserve to be asked.

So, the next time someone tells you that Lagos real estate is ridiculous, do not dismiss the statement. Ask them what they mean. Then examine the numbers.

Because the real question is not simply whether Lagos property is expensive.

It is whether the price makes economic sense.

Missed the first half? Part one, “What You Are Actually Paying For” sets out the numbers behind the headlines, the rising cost of construction, and why a prestigious address is not a blank cheque.