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Saturday, December 3, 2022

How Rising Cost Of Living Is Impacting Lagos Housing Market

Nigerians have described the economic situation as extremely difficult over the past 12 months, particularly for new renters in Lagos. The economic environment has not been very favorable for the majority of low-to middle-income earners in Nigeria, with inflation surging over 20% in August 2022.

Nigerians are constantly looking for ways to reduce their spending as the rising cost of goods and services continues to force people to spend more money in exchange for fewer goods.

Regarding new leases, this has manifested itself in one way. Recent interactions with Lagos real estate agents over the past half-year have revealed that current tenants who had previously thought about moving into new apartments are changing their minds.

It seems obvious why this decision was made. Cost! When we looked further, we discovered that moving at this time can cost you nearly twice as much as it would to stay in your current space, and potential renters have realized this as well. How come, though?

It is highly likely that you will pay 20% more for the same kind of apartment in the same location if you are looking to rent a new apartment than you did a year ago. The percentage increase will probably be higher for tenants who have lived in their old apartment for a long time. The additional premium being charged by developers and landlords for newer apartments, especially those with modern amenities, can reach as high as 30% or more, depending on the location. When considered holistically, this additional rental burden is a major discouragement for people looking to relocate or move into newer apartments.

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Agency commission, legal fees and caution deposits can cost as much as 50% of the rent.

Traditional estate agents’ commissions typically range from 0.5% to 5% depending on the size of the transaction and the parties’ ability to negotiate. 

According to MoveWise, a UK-based real estate advisor, the range is 0.75% to 3% in the UK. The commission in the US typically ranges from 4% to 6%. The percentage is higher and can range between 5% and 10% in the majority of African cities. Findings revealed that the majority of agents typically demand a 10% agency commission for residential rentals, especially those valued at less than $10 million. For rental properties costing less than $1 million, they can reach as high as 20% in some areas around Lagos. In addition, a 10% legal fee usually mandatory, and some landlords can charge as high as 20% extra as a caution deposit. The impact of this is that it shoots up the total amount that prospective tenants end up paying for new leases, and has been a major discouraging factor for most prospects.

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The additional hassle of moving and settling in can be very daunting in busy Lagos

Relocation costs can make things worse, but outside the financial cost, the hassle that comes with it wears out quite a number of people. Based on a sample relocation cost quote we got from Packmyload and a number of other Nigerian-based logistics companies, it costs a minimum of ₦150,000 to move furnishing items in a 2-bedroom apartment in Ikeja to Lekki Phase 1. Judging from the average rental price data that we are currently tracking Lekki Phase 1, this means that a prospective renter will need to pay between 5% and 10% of the rent on logistics.

Closing thoughts

When considered individually, these costs may be insignificant but can sum up to almost the same amount that a prospective tenant is paying as rent, or even more. What has been your experience with renting a new apartment in Lagos? Share with us by sending a DM or commenting on our social media handles.

If you are looking to rent or buy an apartment or get a short let, go to BuyLetLive.com and find properties that meet your requirements.

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