Nigeria’s Economic Shift: Real Estate Takes the Spotlight from Oil & Gas

Historical Dominance of the Oil and Gas Sector in Nigeria’s Economy

For decades, the oil and gas sector has been the backbone of Nigeria's economy. Since the discovery of crude oil in Oloibiri in 1956, the industry has dominated export revenues, contributing over 90% of foreign exchange earnings and nearly half of government revenues for much of Nigeria's post-independence history. This reliance, while lucrative, has exposed the economy to the volatility of global oil prices, such as the price collapse of 2014-2016, which significantly impacted Nigeria’s GDP growth.

However, the oil sector’s dominance has been accompanied by challenges, including corruption, environmental degradation, and inadequate investment in refining capacity. These issues, coupled with the global energy transition and domestic pressures, have created room for other sectors, such as real estate, to emerge as significant economic drivers.

Key Drivers Behind the Rise of Real Estate

1. Urbanization and Population Growth:

   • Nigeria is experiencing rapid urbanization, with urban dwellers expected to constitute over 60% of the population by 2050. Lagos, Abuja, and Port Harcourt are among the fastest-growing urban centers, driving demand for residential, commercial, and industrial properties.

   • With a population exceeding 220 million and growing at 2.6% annually, the housing deficit is estimated at 28 million units, fueling investment in real estate. Experts note an annual requirement of 700,000 new homes to bridge this gap.

2. Economic Diversification Policies:

   • Government initiatives like the Economic Recovery and Growth Plan (ERGP) and the National Housing Fund have prioritized real estate development to reduce reliance on oil revenues. Policies such as tax incentives for developers and the establishment of mortgage institutions have spurred growth.

3. Rising Middle Class and Investment Appetite:

   • The expansion of Nigeria’s middle class has increased demand for quality housing, retail spaces, and leisure facilities. Simultaneously, real estate is attracting both local and foreign investors as a stable asset class compared to the oil sector’s volatility.

4. Technological Advancements and Innovation:

   • Proptech startups are transforming the industry by enhancing property transactions, valuations, and management. Platforms like Landwey and PropertyPro are bridging the gap between developers and buyers, making real estate more accessible.

Economic Implications of This Shift

1. Preliminary GDP Data:

   • Preliminary data from the ongoing rebasing of Nigeria’s Gross Domestic Product (GDP) and Consumer Price Index (CPI) reveals that real estate has overtaken oil and gas to become the country’s third-largest sector, ranking behind crop production and trade.

2. Sector Growth:

   • In nominal terms, real estate services grew by 46.52 percent in Q3 2024, a significant increase of 43.70 percentage points compared to the same period in 2023, though slightly lower than the growth rate recorded in the previous quarter. On a quarter-on-quarter basis, the sector recorded a growth rate of 16.15 percent and contributed 5.43 percent to real GDP in Q3 2024, a slight decline from the 5.58 percent contribution in Q3 2023.

3. Job Creation:

   • The real estate sector’s labor-intensive nature generates employment across various skill levels, from construction workers to architects and realtors.

   • Ancillary industries such as cement production, furniture, and interior design also benefit, creating a multiplier effect.

4. Revenue Diversification:

   • A thriving real estate sector reduces overreliance on oil revenues, providing a more stable income stream through property taxes, land registration fees, and real estate transactions.

5. Enhanced Living Standards:

   • Improved housing and urban infrastructure contribute to better quality of life and support other sectors like health and education.

Challenges and Opportunities for Both Sectors

1. Challenges:

   • Real Estate:

     • High construction costs, inadequate infrastructure, and limited access to affordable financing hinder growth.

     • Regulatory bottlenecks and land ownership disputes discourage investment.

   • Oil and Gas:

     • Declining global demand for fossil fuels due to the energy transition threatens long-term viability.

     • Persistent security issues in the Niger Delta disrupt operations.

2. Opportunities:

   • Real Estate:

     • Innovative financing models, including real estate investment trusts (REITs), can unlock funding.

     • Sustainable building practices and smart city initiatives present avenues for growth.

     • The Nigerian real estate market is projected to reach a value of $2.61 trillion by 2025, with residential real estate expected to dominate, reaching $2.25 trillion.

   • Oil and Gas:

     • Investments in gas infrastructure and renewable energy could reposition the sector for a lower-carbon future.

Comparative Analysis: Investment Attractiveness, Sustainability, and Growth Potential

• Investment Attractiveness: Real estate’s relative stability and consistent demand make it appealing, particularly for long-term investors. Conversely, oil and gas investments are increasingly viewed as high-risk due to market volatility and geopolitical factors.

• Sustainability: Real estate aligns with global sustainability trends, with green buildings and renewable energy integration gaining traction. Oil and gas, while vital, face growing pressure to decarbonize, necessitating significant adaptation.

• Growth Potential: The real estate sector’s growth trajectory is bolstered by demographic trends and policy support. It is anticipated to grow at a compound annual growth rate (CAGR) of 6.91 percent from 2025 to 2029, reaching a market volume of $3.41 trillion by 2029. In contrast, the oil sector’s future hinges on diversification into gas and renewables.

Future Trajectory and Economic Impact

The rise of real estate signifies a broader economic transformation in Nigeria. By reducing dependence on oil and fostering a more diversified economy, Nigeria can achieve greater resilience against external shocks. The real estate sector’s potential to address housing deficits, stimulate industrial development, and create jobs positions it as a cornerstone of sustainable growth.

Despite challenges such as reduced purchasing power, demand for real estate in Nigeria continues to grow. Luxury apartments in key cities are driving sectoral expansion, signaling a bright future for real estate development.

However, achieving this vision requires coordinated efforts to address sectoral challenges. Key priorities include improving infrastructure, streamlining land acquisition processes, and fostering innovation in housing finance. Meanwhile, the oil and gas sector must adapt by investing in cleaner energy and leveraging its expertise to support the energy transition.

In the coming decades, this economic shift could redefine Nigeria’s global competitiveness, positioning the country as a model for emerging markets navigating similar transitions. As Nigeria charts this course, the interplay between real estate and oil will remain a critical determinant of its economic destiny.