Lagos: The 28% Mortgage "Suicide" Trap

Lagos 2025: The Ultimate Real Estate Dilemma

Lagos is not a normal real estate market. In London or New York, the Buy vs. Rent decision is about yield spreads and tax breaks. In Lagos, it is a survival mechanism. It is about avoiding the "Annual Rent" shock, hedging against the Naira's freefall, and navigating a financial system where mortgage rates rival credit card debt in other countries.

As we move further into 2025, the landscape has shifted. The "Japa" wave has flooded the market with distressed sales in some areas, while the "Returnee" wave is driving up rent in others (like Ikoyi and Lekki). Inflation is stripping the purchasing power of rental income, forcing landlords to demand astronomical increases. Tenants are squeezed. Buyers are squeezed. So, who wins?

The "Annual Rent" Trauma

Let's start with the elephant in the room: the Lagos Rent Payment System. Unlike almost anywhere else in the developed world, Lagos rents are paid annually (or even biennially).

• The Cashflow Shock: If your rent is ₦10 Million, you don't pay ₦833k a month. You pay ₦10 Million on Day 1. That is a massive capital outlay that could have been invested in T-Bills (currently yielding ~20%) or a business.
• The Agency & Legal Fees: On top of that ₦10 Million, you pay 10% Agency Fee and 10% Legal Fee. That's another ₦2 Million gone. Vanished. Just for the privilege of moving in.
• The "Damages" Deposit: Add a "Caution Fee" of roughly 5-10%.

By the time you move in, you've parted with nearly ₦13 Million in cash. If you had invested that ₦13 Million in a simple Eurobond or even high-yield commercial paper, you could have earned ₦2-3 Million in passive income. Renting in Lagos is expensive not just because of the rent, but because of the structure of the rent.

The "Mortgage Suicide" Trap

"Why rent when you can buy?" ask the real estate agents. Here is why: The Interest Rate.

With Nigeria's Monetary Policy Rate (MPR) aggressively hiked to combat inflation, mortgage rates in 2025 are hovering between 24% and 28%.

The Math of Madness:
You buy a house for ₦100 Million.
You put 30% down (₦30M).
You borrow ₦70 Million.
At 26% interest over 15 years, your monthly repayment is roughly ₦1.6 Million.
Total Repayment: Over ₦280 Million.
Total Interest Paid: ₦210 Million.

You end up paying for the house three times over. Unless the property appreciates by more than 26% every single year (which is rare even in high-inflation Lagos), the bank owns your financial future. Buying with a mortgage in Lagos today is not investment; it is philanthropy for the banking sector.

The "Cash is King" Advantage

However, the equation flips completely if you are a Cash Buyer.

If you have ₦100 Million sitting in a Naira savings account, you are losing money every second due to inflation. Real estate in Lagos has proven to be one of the few asset classes that (mostly) keeps up with inflation over the long decade.

1. Capital Preservation: A plot of land in VGC or a terrace in Lekki Phase 1 might not double in dollar terms, but it will certainly hold its value better than cash in the bank.
2. Dollar-Linked Value: Properties in prime areas (Eko Atlantic, Ikoyi) are effectively dollar-denominated assets. Even if purchased in Naira, their value tracks the exchange rate.
3. Rental Income Growth: Landlords in Lagos have pricing power. When inflation hits 30%, rents go up 30%. As a landlord, you are protected. As a tenant, you are the victim.

The "Hidden" Costs of Ownership (Service Charges)

Before you rush to buy, consider the "Second Rent" - the Service Charge.

In serviced estates (which you want for security and power), the Service Charge covers diesel for generators, security guards, water treatment, and waste.

• Diesel Costs: With fuel subsidies gone, the cost of running 24/7 power has exploded. A standard 3-bed apartment in a serviced estate can easily attract a Service Charge of ₦1.5M - ₦3M per annum.
• Special Levies: Generator broke? Special Levy. Transformer blew up? Special Levy. Buying a house doesn't stop the monthly outflow of cash.

The Verdict: Buy or Rent?

Rent if:

• You rely on a mortgage. The interest rates will destroy your wealth faster than rent ever could.
• You are mobile. Tying up capital in an illiquid asset like a Lagos apartment (which can take 6-12 months to sell) is risky if you plan to "Japa" or move cities.
• You can invest your capital at high rates. If you can get 20% risk-free on T-Bills, earning a 5% rental yield by buying a house makes no mathematical sense.

Buy if:

• You have the cash. Eliminating rent from your life is a massive psychological and financial win in a high-inflation environment.
• You are buying in a "Blue Chip" location (Ikoyi, VI, Lekki 1). These areas hold value. Peripheral areas are riskier.
• You plan to stay for 10+ years. The transaction costs (Governor's Consent, Agency fees) are so high that flipping is difficult. You need time to amortize those costs.

In conclusion, Lagos real estate in 2025 is a game of Capital vs. Income. If you have the Capital (Cash), buying is a shield. If you rely on Income (Salary -> Mortgage), buying is a trap. The "Smart Money" in Lagos is currently renting luxury assets and investing their cash in high-yield instruments, or buying distressed assets with cash for cents on the dollar. Choose your battlefield carefully.