How HNWIs, others drive consumer spending on luxury residential homes

But for the crippling impact of the economic slowdown in Nigeria in the last 12 months, luxury residential market had been quite upbeat with high concentration in the country’s major cities of Abuja, Lagos and Port Harcourt which are also business and commercial centres.

A good number of luxury residential properties have been developed in these cities with beautiful landscape and an evolving culture of modern architecture in building designs. Lagos being the country’s commercial nerve centre boasts of thicker density compared to Abuja—the country’s centre of politics and government administration.

Top luxury property locations in Lagos are Banana Island where a house, depending on size and type, sells from N450 million; Nicon Town, N320 million; Ikeja GRA, N250 million, and Lekki Phase 1, N140 million. In Abuja, an average Maitama house sells from N430 million; Asokoro, N418 million, and Jabi, N400 million, while a GRA Phase 2 house in Port Harcourt sells for N145 million.

The Roland Igbinoba Real Foundation for Housing and Urban Development (RIRFHUD) in its recent report on ‘The State of Lagos Housing Market’, noted that consumer spending on luxury homes in Lagos has been spurred by thriving business and the state’s economic growth with a GDP size of $136.6 billion, projected to reach $355 billion by 2025.

According to the report, the state’s 2015 internally generated revenue was N268.2 billion which was almost 40 percent of the N682.7 billion generated by all the states in the country.

“Unlike Lagos, buyers of luxury properties in Abuja and Port Harcourt are mainly political elite and expatriates”, says Roland Igbinoba, RIRFHUD’s executive vice chairman, adding that demand for luxury homes increased due to the rising number of high net worth individuals (HNWIs) in Nigeria, changing investment climate and favourable demographics.

Described as persons with net assets valued at more than USD1 million, the HNWIs are major drivers of consumer spending in luxury properties in Lagos and, according to a 2015 report by New World Wealth, the number of these persons averages 15,400 with 61 percent of them residing in Lagos.

Igbinoba notes that increase in income levels means higher purchasing power for people with interest in real estate, giving a breakdown of HNWIs’ financial assets which shows that 23.2 percent of their assets are held in real estate compared to 22.7 percent in cash and cash equivalent while 19.6 percent is in fixed income, 19.1 percent in equities, and 15.4 percent in alternative investments.

Luxury residential homes have a very narrow market populated by these HNWIs who can afford what the market offers. A typical luxury home sells for amounts ranging from N80 million to N1.3 billion in Lagos. In Abuja, the range is from N75 million to N1.4 billion. House-types called condominiums sell for much lower prices between N20 million and N60 million. High rise or penthouse apartments sell for prices between $1 million and $3 million.

Lagos luxury residential market is, at the moment, on the thresh-hold of experiencing oversupply with many luxury developments still under construction. Before now, rental prices had been rising as well as the service charges which come with luxury amenities.

In some of these developments, rents are collected in dollars and at the moment, such houses are experiencing hyperinflation following the devaluation of the naira. In Ikoyi, prices had gone up from N16 million to N21 million by the third quarter of 2015, but because of the present economic crisis and low demand for these houses, developers have been forced to drop rents by as much as 20 percent.