Property developers in Lagos continue to favour selling completed homes over retaining them as rental properties, despite strong demand for rented accommodation, according to Fortren & Company.
A report by the real estate research firm attributes this preference to high financing costs, rising construction expenses and the need to recover investments quickly.
The findings highlight a mismatch in Lagos’ housing market, where a substantial housing deficit and a high proportion of renters have not been enough to make build-to-rent developments the preferred investment model for many developers.
The preference for selling homes reflects the financial pressures developers face when deciding whether to sell properties after construction or retain them to generate rental income over several years. The report puts Lagos’ housing deficit at 3.3 million units, despite the continued preference for selling completed properties rather than retaining them as long-term rental assets.
Selling completed homes allows developers to recover their capital sooner and redeploy the proceeds into other projects rather than wait years for rental income to accumulate.
Rising land and construction costs add to the pressure on developers, increasing the amount of capital required to deliver residential properties and the rental income needed to generate viable returns.
The report’s average land price estimates for 2022 to 2026 put the cost per square metre at N2.8 million in Ikoyi, N2.63 million on Victoria Island, N1.25 million in Lekki Phase 1, N950,000 in Ikeja and N500,000 in Yaba.
Building materials have also become significantly more expensive.
Retaining completed properties also exposes developers to recurring expenses and operational risks, including vacancies, rent collection, repairs, security, water, electricity and the maintenance of facilities such as lifts.
Off-plan sales provide another financing advantage, as deposits and staged payments received before completion can help fund construction and reduce dependence on external borrowing. By contrast, build-to-rent developments do not generate the same upfront proceeds from selling individual units.
While developers face pressure to recover their investments quickly, many Lagos residents struggle to raise enough money to buy homes. The report estimates that only about 31% of Lagos residents own their homes, indicating that renting remains the main housing arrangement for much of the population.
Affordability constraints extend beyond property prices, with household incomes and access to mortgage finance also limiting homeownership.
The result is a market in which many households cannot afford to buy homes, while developers face high costs and financing pressures that encourage them to sell completed properties or target buyers with greater purchasing power.
In an earlier report, Nairametrics examined why cheaper land on the outskirts of Lagos and Abuja does not necessarily translate into affordable housing.
Michael Onyeachor, co-founder of Besitz Group Limited, explained that developers who acquire land in emerging areas must still fund essential infrastructure before properties become suitable for occupation.
These findings complement the current report’s analysis of why developers favour selling completed properties over retaining them for rental income.
