Rising Interest Rates: The Silent Killer of Real Estate Ambitions

ESV Charles Niyi Famuyiwa

For many aspiring homeowners and property developers, the dream of owning real estate is becoming increasingly distant. The culprit? Rising interest rates. While discussions around inflation and exchange rates dominate Nigeria’s economic narrative, the impact of climbing lending costs on the real estate sector is often understated. Yet, it is quietly strangling ambitions, stalling projects, and reshaping the property landscape.

Interest rates are the heartbeat of real estate. When they rise, the entire ecosystem from construction financing to mortgage affordability feels the strain. In Nigeria, where most housing projects are heavily dependent on loans or investor financing, higher interest rates mean increased borrowing costs. Developers must either scale back projects or raise property prices to cover financing expenses. This, in turn, makes homes less affordable for ordinary citizens, further widening the housing gap that already exceeds 20 million units.

The Central Bank of Nigeria’s monetary tightening, aimed at curbing inflation, has driven lending rates to record highs. Commercial banks, now more risk-averse, prefer short-term, high-yield investments over long-term real estate lending. Consequently, small and medium-scale developers are squeezed out of the market, while only a few large firms with deep pockets can stay afloat. For potential homeowners, the situation is equally grim. Mortgage interest rates in Nigeria remain among the highest globally, often exceeding 20 percent, making homeownership nearly impossible for the average worker.

The ripple effects extend beyond individuals. Rising interest rates also slow construction activity, impacting job creation and the broader economy. The real estate sector has historically been a key driver of employment, from construction workers to artisans and suppliers. When projects are delayed or abandoned, livelihoods are disrupted.

Furthermore, investors both local and foreign, are becoming more cautious, preferring liquid assets or dollar-denominated investments over long-term real estate ventures that now appear risky and less profitable.

However, the crisis also presents an opportunity for innovation and policy reform. Governments and financial institutions must explore alternative financing models such as real estate investment trusts (REITs), cooperative housing schemes, and public-private partnerships. These can help distribute risk, attract more participants, and reduce the reliance on high-interest bank loans.

Additionally, adopting mortgage-backed securities and improving land titling systems can give lenders more confidence, potentially leading to lower borrowing costs over time.

Developers, on their part, must rethink their strategies. Building smaller, more affordable housing units or exploring rent-to-own models could make properties accessible to a broader market. Meanwhile, leveraging technology in construction. such as modular building techniques can reduce costs and shorten project timelines, cushioning the impact of expensive credit.

In the end, rising interest rates are not just a monetary policy concern; they are a social one. If left unchecked, they threaten to turn homeownership into a privilege reserved for the few. Addressing this silent killer requires collaboration between policymakers, financial institutions, and industry players to restore balance, affordability, and hope to Nigeria’s real estate market.

Famuyiwa is a registered estate surveyor and valuer