Disproportionately, high rents and low mortgage rates have triggered a real estate boom in Nigeria. The run on single-family houses and other residential property is quite understandable. This is because owners of residential property benefit from many advantages.
Advantages of Owning a Residential Property
Avoid overpriced rent
Cheap rental apartments are rare. Depending on the location, rental prices for comparable apartments have more than doubled over the past 25 years. Wages have only participated in a fraction of this development. Thus, the expenses for rent have increased disproportionately. Young people and low-income households in particular have to spend a large part of their monthly budget on rent. If you want to spend less on living in the long term, the right choice is to buy a residential property.
Benefit from record-low interest rates
Mortgage rates are at a record low. While you used to have to pay six to seven percent for a long-term fixed – rate mortgage , today you can get fixed-rate mortgages under 1 percent. The reason: After the financial crisis in 2008, interest rates fell sharply worldwide. Due to the expansive course of the central banks, the interest rates also fell steadily in the following years.
John Smith, 65, took out a 6% mortgage of 400,000 naira to buy his house 25 years ago . At that time, his expenses amounted to 24,000 naira per year. Now he pays just 4,000 naira per year for the same mortgage and saves 20,000 per year. Thanks to these savings, he has enough money available for his new passion, farming.
Owning a Residential Property as an Investment
A lot of savings have to be invested in purchasing a single-family house or any other residential property. A high proportion of the property is therefore in the property and is dependent on its value development. In the recent past, this has always paid off due to the rising prices on the real estate market. Of course, there is also the risk of a loss of value. Nevertheless, real estate in Nigeria is considered of stable value. Compared to stocks or other securities, a house is a safe investment. In contrast to account balances, you are also protected from strong inflation.
Owning a Residential Property as a Pension
If you buy a house between the ages of 30 and 40 and take out a mortgage, you can pay off a large part of it until you retire. As a pensioner, you have a significantly lower income, but this is offset by lower fixed costs for the mortgage . If the house with garden and stairs becomes too cumbersome for you in old age and would therefore prefer to move into an apartment, the sale gives you a solid financial basis for the last phase of life.
Flexibility thanks to high security
Anyone who has taken out a mortgage is better equipped for unforeseen events – e.g. a new car or high medical expenses. To bridge the emergency, you can apply to the bank for an increase in the loan. As with borrowing, whether you get this approval depends on the loan and affordability.
Your own four walls
Home ownership not only offers financial advantages: You have something of your own and can do whatever you want with it: paint the walls, design the garden, buy a new kitchen and much more. A house with a garden offers many advantages over renting an apartment, especially for families with small children.
Owning a Rental Property gives you Tax Advantage
Debt interest is 100 percent deductible from taxable income. In return, the imputed rental value of the property is added to the income. This amounts to around 60 percent of a market rent for the property in question. The mortgage debt is deductible from the taxable assets. The tax value of the property is added, but is far below the market price.
Furthermore, value-preserving investments in the property can also be deducted from taxable income. Skillful renovation planning reduces the tax expense considerably. Indirect amortization with the 3rd pillar enables further tax optimization.
Owning a Residential Property – it’s worth it
Buying a home offers various advantages and opportunities. The basic requirements are sufficient capital and a solid income. Those who meet these conditions currently benefit from a win-win situation. High rents, low interest rates – two good reasons for buying a home.
Are you also interested in buying your own home? SDG Realties offer you the best deals on residential properties in choice areas. Check out our latest property listing and contact us for more information.