Nigeria’s real estate industry could be heading for a much-needed turnaround, as the Federal Government’s proposed Tax Reform Bill promises significant relief for developers, landlords, and tenants alike.
The proposed legislation, if signed into law, outlines a series of tax adjustments that aim to reduce operational costs, improve housing affordability, and support local contractors, while encouraging transparency in rental transactions.
A central feature of the reform is the exemption of certain real estate income from taxation. Under the new framework, real estate investment firms may not have to pay tax on dividends and rental income collected on behalf of shareholders provided that at least 75% of such earnings are distributed within 12 months of the fiscal year’s end.
This provision is expected to boost investor confidence and enhance liquidity in the sector, particularly at a time when economic challenges have strained demand and stunted development.
The reform also raises the threshold for corporate income tax, increasing the minimum turnover for eligibility from N25 million to N50 million per year. In addition, a 4% development levy will be introduced to support national education and infrastructure programs though this is set to be lowered to 2% by 2030 to reduce the burden on developers.
Further clarification in the reform addresses how individual incomes will be taxed. Rent relief either a flat N200,000 or 20% of the annual rent paid, whichever is lower will be deductible for individuals, assuming they truthfully declare the rent paid. This move is designed to make housing more financially manageable for renters while improving data accuracy in the housing market.
Contractors in the construction sector also stand to benefit. The withholding tax rate for local firms handling infrastructure projects such as roads and buildings will drop from 2.5% to 2%, helping to reduce overhead costs. However, foreign contractors will now face a higher rate of 5%, giving domestic companies a competitive advantage.
“This adjustment not only makes things easier for local builders but also levels the playing field by discouraging over-reliance on international contractors,” the reform document notes.
Years of economic stagnation have weighed heavily on Nigeria’s property market. Real estate expert Tayo Odunsi, who chairs Northcourt the firm that compiled a comprehensive analysis of the reform explained that weak purchasing power has led many Nigerians to focus on survival rather than investing in property. As a result, transaction volumes have dipped and many developers are shifting their focus to low-cost, efficient housing models.
Foreign investment in the sector has also taken a hit. In Q2 of 2024, FDI fell to just $29.83 million. “The uncertainty in Nigeria’s economic outlook has made long-term real estate investments less attractive,” Odunsi noted, adding that capital is now being redirected to more stable environments.
Despite these challenges, the Presidential Committee on Fiscal Policy and Tax Reforms, led by Taiwo Oyedele, remains optimistic. According to Oyedele, the reforms are not only aimed at easing tax pressures but are also structured to revive construction activities and stimulate broader economic growth.
“These reforms target the entire housing value chain from raw materials to rentals. Reducing taxes on key inputs will make construction cheaper, and ultimately, housing more affordable,” he said.
He also highlighted other proposed changes, including an expanded tax exemption threshold for small businesses, which will rise from N50 million to N100 million in annual turnover, and the removal of overlapping or obsolete tax policies that have hindered business growth in the past.
As the nation waits for the bill’s passage, stakeholders in the real estate sector are hopeful that the proposed changes will not only bring financial relief but also restore investor confidence and open the door to more inclusive housing solutions.
