The single largest investment in every family’s portfolio globally is presumably real estate. The majority of middle class households in Lagos make the largest financial investment in their homes. This perception has been strengthened in many regions of the world by the fact that property prices have increased dramatically. It’s not unusual to hear instances of 100 times appreciation occurring over a 50-year span. It’s crucial to remember that this is by no means an exceptional rate of return. A property’s annual growth rate is less than 10%, even though it has increased 100 times in 50 years.
Factor #1: Zoning Regulations
The zoning of land is one of the major reasons for price changes in the real estate sector. For example, 50 years ago, the population of Nigeria was not as large as it is today. As a result, much land was set aside for agricultural purposes. Agricultural land has a lower commercial value. As a result, the prices of these properties were lower.
As a result, when zoning laws change and the land can be used for both commercial and residential purposes, the value of the land rises. Changes in zoning laws have contributed significantly to appreciation over the last 50 years. This is especially true in areas adjacent to major cities like Lagos, Kano, Port Harcourt etc.
Over time, cities tend to grow in size, and as a result, the agricultural land adjacent to them tends to become more valuable. However, many cities around the world are already overextending. So what happened in the last 50 years may or may not be repeated in his next 50 years.
Factor #2: Infrastructure Growth
If residential and commercial construction is permitted on a specific plot of land, infrastructure development must follow suit. New roads must be constructed. Also, when markets, hospitals, and schools are built nearby, livability improves. Infrastructure development is a long process. This stage could last for more than a decade. However, if changes are continually visible, the price of land will continue to rise.
Factor #3: Connectivity in the workplace
People especially in high density places like Lagos are fed up with lengthy journeys. The time they spend commuting to and fro work is not compensated. The commute definitely wastes some of the day’s most productive hours. As a result, Lagosians favor lodging close to their places of employment. As a result, a location that is close to a place of employment starts to attract a higher and premium price. The likelihood of price growth in certain locations has been established by the shifting of major business districts to the outskirts of various cities. But nowadays, individuals do not purchase vacant pieces of property. Instead, they invest in developed properties. Therefore, the developers keep the majority of the appreciation that comes from workplace connectivity.
Factor #4: Network Externalities
When a location becomes popular among residents, it becomes a hub for a variety of social activities. Hobby classes, restaurants, shopping malls, multiplexes, sport centers and other businesses begin to operate in that area. This fits many people’s lifestyles, so properties in this residential market begin trading at a premium. The more developed a location becomes, the more people want to live there, and prices rise accordingly.
Factor #5: Inflation in general
Finally, the cost of developing properties rises year after year. This is due to the fact that the cost of inputs such as cement, steel, and skilled labor tends to rise year after year. As a result, general inflation raises the cost of real estate. If the nominal value of the property does not rise by 2% to 3% per year, the owner is actually losing money in real terms. This is due to the fact that inflation is rising while property prices are not!
