Real Estate Bubble Lagos Nigeria - The Housing Bubble Guide.
Free Real Estate Bubble Analysis And Property Price Tips.
| Wait. What is real estate bubble? Well, there are different schools of thought on the subject. Some experts refer to a housing bubble as the phenomenon whereby housing prices jump rapidly and then begin to drop when it reaches a peak. |
Others are of the opinion that the definition of real estate bubble, as mentioned above, merely addresses a part of the problem. Therefore, they think it is not a holistic definition.
Why?
The simple reason is because while a housing bubble may result because of rapid price increases over a short period of time, it could also be caused by slow economic growth that creates a situation whereby housing prices rise beyond what people can generally afford.
| In effect, the housing prices may not necessarily have jumped significantly over a short period but since the economy is not growing steadily (or at about the same rate as the housing price growth), a disconnect happens somewhere down the road. Consequently, the average person who gets, say, a 5 percent salary increase per annum will suddenly find himself too poorly paid to afford the category of apartment he use to live in 10 years earlier, if real estate values grow at 15 percent per annum. The Lagos Nigeria Housing BubbleThe real estate bubble hit Lagos Nigeria in the decade between 1998 and 2008. What does that mean? It means that prices kept on rising and rising in that decade. And many Lagos Nigeria real estate investors actually saw their investment grow by over 400-500 percent in 7-10 years. In that prosperous decade, properties in major areas saw a massive leap. For example, Lekki phase 1 prices grew by a record 40-45 percent year on year while Sparklight estate in the mainland area (this estate actually falls into Ogun state) has had a 25 percent growth year on year. An area that some considers to be local is New Oko Oba in Abule Egba area of Lagos Nigeria. This area use to be local because of bad roads that made real estate there unattractive. But things have since changed. |
A sudden shift in government road development plan suddenly saw a network of tarred roads appearing in new Oko Oba. And with it came property price increases.
Now if you work backwards, you will discover that this 'local area' has had as much as 25 percent increase in investment year on year.
Now the big question: what has been the impact of the global economic meltdown on the real estate bubble in Lagos Nigeria?
Three things happened when the property bubble in Lagos Nigeria burst?
1. Some locations saw a drastic decline in property prices
2. Some other locations saw a slowing down in the growth of property prices and
3. Still others saw a stagnation in real estate prices
The areas most hit by the pricing decline was the island areas of Lagos Nigeria. And this decline affected both rental price and sale price growth.
For example, the rental price for a particular luxury home in a fully serviced estate in Banana island use to be $100,000 USD per annum in 2008. Now that same flat goes for $85,000 USD (in 2011).
Another example.
In Lekki phase 1 estate, the sale price of a 900sqm plot of land rose as high as 95 million Naira in early part of 2008. But that same plot of land was sold for 50 million Naira in 2010, some two years after.
With respect to rental, many of the 3 bedroom flats that use to rent for 2.5 million Naira in Lekki phase 1 two years ago, still go for about the same price two years after.
The real estate bubble really went "Gbosa!" . . . the property-rise-ladder really exploded in Lagos!
Profiting From Real Estate - Keeping
It Real
What makes a property bubble what it is?
As discussed above, it's either due to . . .
1. Rapid rise in housing prices or
2. Steady rise in housing prices at a rate that exceed economic growth.
If you look closely, you will find that, unlike the case in developed economies, the real estate bubble in Lagos Nigeria did not affect every part of Lagos.
In fact, real estate prices have been rising steadily in some areas of Lagos even through the entire period of the economic meltdown.
For example, property prices in Sparklight estate, mentioned above, have continued to rise at a steady rate of 25 percent growth year on year, meltdown or no meltdown.
Similarly, property prices in Lagos Nigeria outskirts like Ipaja, Abule Egba, Ikorodu etc have continued to rise.
Why?
Simple. The sale prices have been rising at a rate that is at pal with the rise in rental prices.
What this means is this.
The real estate values for properties on the island were not real. And since it wasn't real and much of it was driven by market speculations, it was destined to crash.
For example, back in those old days, apartments that had rental price of $70,000 USD (10.5 million Naira) had a sale price of 300 million Naira. That is, 29 years payback period. Worst still, some properties on the island had over 30 years payback period.
Now compare this with mainland property pricing.
A block of flat that rents for 350,000 per annum will likely have a sale price of 28 million Naira. And that comes down to 20 years payback period.
In fact, one particular block of flat that was sold in Omole phase 1 estate in Ojodu Lagos had payback period of 16 years. The property commands rental value of 700,000 Naira per annum and was sold for 45 million Naira. Payback Time (PBT) equals 16 years.
Good deal!
Bottom line.
When real estate prices are fair and allowed to grow at a steady rate, everybody wins.
Real estate agents and consultants recommend 20-25 years payback time max. Beyond that, you're oiling the wheel of the real estate bubble. And it may just catch up with you.
The real estate investors who put their money in these over-priced Lagos island properties during the property bubble are now looking desperately for tears to shed.
Unfortunately, it's too late.
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