Despite the challenges in the Nigerian real estate market that are deeper in highbrow locations or up-market neighbourhoods, Ikoyi and Victoria Island in Lagos remain attractive destinations for investors.
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These two locations, home for luxury real estate, have seen challenges reflected in over-supply interspersed with falling demand and widening vacancy rate, which, as at the end of 2020, was estimated at 40 percent for residential properties.
But returns on investment, especially for small size family housing units like studio, one-bedroom and two-bedroom apartments, have been good and encouraging compared to other locations.
Lay-offs, pay-cuts and economic downturn made worse by the crippling impact of COVID-19 pandemic have left consumers with shrinking wallets and low purchasing power, leading to buyers and tenants’ preference of apartment units to duplexes, maissonettes and large luxury homes.
For this reason, multi-family units, specifically apartments, top consideration for most investors in these locations. “Apartments make more economic sense to developers, more so as multiple units can be developed on a piece of land without taking up too much space,” David Mba, former manager, commercial sales at Fine & Country, explains to BusinessDay.
“Returns are higher for smaller apartment units, especially 2-bedroom, which means that demand is more for these house-types than the big-size apartments,” he states.
According to Mba, Ikoyi and Victoria Island are “promising destinations,” but the consideration has to be on smaller-unit apartments. “Any investor wanting to enter the market amid the COVID-19 pandemic should look in that direction,” he advised.
On the average, rental values in Victoria Island as at the end of 2020 stood at N1.5 million per annum for 1-bedroom apartment; N3.5 – N8.5 million for 2-bedroom; N5.5 – N15 million for 3-bedroom and N6 – N25 million for 4-bedroom apartment.
In Ikoyi, it is N4 – N5 million per annum for 1-bedroom; N6.5 million for 2-bedroom; N10 million for 3-bedroom, and N10 – N25 million for 4-bedroom apartment.
Return on investment on these apartments, according to Mbah, is quite significant. In Victoria Island, the return on the different apartment sizes stood at 2.7—3.7 percent per annum for 1-bedroom; 7—10 percent for 2-bedroom; 6.1—10 percent for 3-bedroom; 6.1—9.2 percent for 4-bedroom duplex and 3.75—6 percent for 4-bedroom terrace.
In Ikoyi, it is 9 percent for 1-bedroom; 5.4—8.6 percent for 2-bedroom; 5.3—8 percent for 3-bedroom; 4.5—8.3 percent for 4-bedroom duplex and 4.8—5-4 percent for 4-bedroom terrace.
Though most real estate investors aim for over 10 percent or 12 percent return on their investment, experts say anything above 8 percent is good.
Lekki is another Island location in Lagos where return on investment is good and encouraging. Chiedu Nweke, CEO, Periwinkle Residences Limited, argues that returns in the Lekki corridor is the highest in Lagos, but records show that Ikoyi, particularly, is still ahead.
“This is because whether you are talking about Ikoyi or Victoria Island, the story is the same that these locations remain attractive for reasons other than returns on investment,” Mba says, explaining that talking in terms of strengths, weakness, opportunities and threats (SWOT), which guide investments, opportunities are more here.