Macroeconomic Challenges and how they affect Rental Values and Property Prices in Nigeria

By: ESV SAMSON CHURCHILL BABAJIDE, MNIVS, RSV

Nigeria’s real-estate sector has been confronted since 2022 by a set of macroeconomic headwinds namely elevated inflation, currency depreciation, steep borrowing costs and constrained fiscal space. These factors have pushed up construction and housing-finance costs, squeezed households’ ability to buy homes, and redirected more demand into the rental market — thereby increasing floor rents and nominal property prices in many locations. The federal government has numerous housing-intervention programmes for example the Federal Mortgage Bank of Nigeria (FMBN) and the National Housing Fund (NHF) and most recently the Ministry of Finance Incorporated Real Estate Investment Fund (MREIF) which is designed to provide long-term, low cost mortgage finance and development guarantees. While these programmes mark positive steps, they remain insufficient in scale given macro instability, input-cost inflation, and supply bottlenecks. Learning from international models (such as those from Singapore and Germany) suggests a package of macro-stabilisation, targeted housing finance, and supply-side reform. On that basis, we recommend a three-pronged approach combining short-term stabilisation and demand support, medium-term finance innovation and supply leverage, and regulatory reforms to improve effectiveness.

Macroeconomic challenges and how they affect rental values and property prices in Nigeria

a) High inflation and input cost escalation
Inflation in Nigeria remains elevated, driven by food, energy and imported goods pressures. High sustained inflation increases the cost of building materials (cement, steel, fuel), labour and logistics. The higher replacement cost of housing means developers and owners raise asking prices and rents to maintain margins or cover escalated costs. At the same time, real incomes are squeezed, reducing affordability of mortgages and shifting more households into renting.

b) Currency depreciation and imported input shock
The naira’s depreciation increases the local-currency cost of imported building materials, construction equipment and fuel. This cost-push effect further steepens housing development costs, leading developers to raise prices or delay completion. Some property owners respond by setting asking rents or sale prices partly in foreign currency or indexed terms as a hedge, increasing volatility of local-currency rental values.

c) High interest rates and constrained mortgage finance
To combat inflation and defend reserves, the Central Bank of Nigeria (CBN) maintained high policy (and market) interest rates, which translates into expensive mortgage lending. High cost of credit means fewer households can afford to buy; this prolongs the time households spend renting, increasing rental demand and putting upward pressure on rents. Meanwhile, developers find it harder to borrow for construction, reducing new housing supply, which also drives rents and prices up due to constrained supply.

d) Fiscal constraints, land/titling delays and supply-side bottlenecks
The federal budget is under pressure, limiting large-scale subsidy programmes or major public housing provision. Meanwhile, land-titling, planning approval delays and cost escalation slow down new supply of housing. Reduced incremental supply means existing rented housing becomes more valuable, driving up rents and nominal prices.

Transmission to rental values and property prices

Cost-push channel: higher input/development costs higher construction or replacement costs higher asking sale prices and floor rents.

Demand-shift channel: home-buying becomes less affordable more households rent rental vacancy falls upward pressure on rentals and eventually on sale-prices.

Speculative/currency hedge channel: property is used as inflation/FX hedge investors bid up prices increased competition for rental units (higher rents) and higher sale prices.

Taken together, these channels mean that in many urban centres in Nigeria, rental values are increasing in nominal terms despite real income erosions, and property prices are diverging depending on location and quality, making affordable housing access more difficult for average earners.

Federal government intervention (with focus on MREIF) and its limitations

Existing programmes
The FMBN and NHF provide housing finance and development support for various income groups. In addition, the Ministry of Finance Incorporated (MOFI) has launched the real-estate fund known as MREIF. MREIF is described as a “bold public-private initiative to tackle Nigeria’s housing deficit, provide affordable long-term mortgage financing and off-take guarantees to encourage real estate development.” More specifically, MREIF has begun a pilot disbursement of ₦1 trillion across selected states (Abia, Lagos, Abuja, Kano, Rivers, Enugu) offering low-interest mortgages of up to 20 years and providing credit enhancement for developers via off-take guarantees.

Conclusion

The Nigerian property sector’s trajectory is heavily shaped by underlying macroeconomics — inflation, currency, interest rates and fiscal constraints – which raise costs, reduce affordability and shift demand into the rental market, thereby lifting rents and property prices in nominal terms. The Government’s introduction of MREIF is a critical step: it addresses both financing and supply-confidence gaps. But MREIF must be embedded within a broader framework of macro-stabilisation, supply-expansion, housing finance deepening and regulatory reform. In doing so, Nigeria can better moderate rental inflation, improve access to homeownership and stabilise real property values for the medium-term.