Bridging the Capital Gap: Leveraging Institutional Capital and Creative Financing for Real Estate Development in Nigeria | Gidi

Nigeria’s housing crisis is vast: estimates of the national deficit range from 20 to 28 million units. Lagos alone, Nigeria’s most populated state (of over 20 million people), faces acute shortages of affordable homes. Yet formal housing finance is almost nonexistent.

Experts note that mortgage penetration has languished below 1%, while bank home loans charge interest rates of 18–27%. At these rates, even basic mortgages exceed a third of borrowers’ incomes, effectively excluding all but high earners.

The result is chronic underproduction (Nigeria must build ~550,000 homes annually to close the gap, vs. a fraction achieved today) and a glut of informal or substandard housing. In Lagos, the city government warns that rapid urbanization “exacerbated” its own deficit (now an estimated 22 million units nationwide). Without new funding sources, home ownership will remain a distant dream for most Nigerians.

The Financing Shortfall
Fragmented policy efforts have failed to mobilize capital. Government mortgage agencies exist, but their reach is limited. Indeed, analysts report that Nigerians earning below about N500k/month effectively cannot qualify for mortgages. In 2025 one expert summarized the situation: “Mortgage penetration in the country is still below 1%… (with) interest rates ranging from 18% to 27%.”

High inflation (20%+) and a weak Naira further weaken real incomes. These factors, along with costly land title procedures under the old Land Use Act of 1978, keep formal housing credit out of reach. Without subsidy or guarantee, even Family Homes Fund or Central Bank schemes struggle to convert savings into home loans.

The Finance Ministry observes that housing contributes only ~5% of GDP (compared to the potential for far higher) because financing “remains elusive.” Developers routinely cite expensive capital and short-tenor loans as stumbling blocks. Private experts urge stretching loan tenors beyond the current 7–10 years and better risk mitigation. In short, Nigeria needs radical new vehicles to “bridge the capital gap” between abundant savings and scarce mortgages.

Mobilizing Institutional Capital
Nigeria has large pools of institutional savings, and policymakers are eyeing them as new sources of housing finance. The country’s pension industry alone is worth over ₦22.5 trillion (US$~30B). Although current rules limit non-traditional investments to 5%, reforms are imminent: regulators plan to raise the 5% cap on infrastructure and private equity exposure.

Notably, pension funds have already allocated about ₦5.51 trillion of their assets to infrastructure, private equity, real estate, and sub-national loans. Pension Fund Managers report significant movement into property: as of March 2025, Pension Fund Administrators (PFAs) held ₦69.7 billion in Real Estate Investment Trusts (a 168% jump year-on-year) and roughly ₦259 billion in direct real estate assets.

These funds seek stable, inflation-hedging returns, suggesting that more liquid, compliant real estate products could attract even larger allocations.

Insurance companies and institutional investors likewise sit on massive bond-like portfolios. Nigeria’s sovereign wealth fund now manages about US$2.4 billion and even launched a “Family Homes Fund” in 2016 (targeting 500,000 affordable homes). If structured properly, such state-backed funds can provide long-term, low-cost capital to developers.

Even diaspora Nigerians are bankable: the government’s Diaspora NHF mortgage lets overseas workers save into the National Housing Fund and secure home loans back home.

In fact, Nigeria’s 2017 diaspora bond raised $300 million with a 5.6% coupon, demonstrating that overseas remittances (over $20B annually) could be tapped for development.

The key is creating instruments that appeal to these investors. Green and sustainable bonds, for example, are already on Nigeria’s agenda: the Federal Government’s Green Bond framework explicitly lists “green and affordable housing and resilient urban infrastructure” as eligible uses. Reforming real estate tax regimes can also free up capital.

Nigeria’s listed REIT market remains tiny (only ~$600m in 2024), partly because of double taxation on REIT income.

Experts argue that adopting a global “pass-through” tax model would turn REITs “into a magnet for both local and foreign capital.” In short, by making real estate investments more attractive (tax-efficient, liquid and transparent), pension funds, insurers, and even the diaspora could be coaxed to channel far more funds into housing.

Innovative Financing Models
Beyond traditional mortgages, creative structures are emerging to lower barriers. For example, developers are experimenting with off-plan financing and fractional ownership. In a recent international conference in Lagos, a UAE developer noted that blockchain-based tokenization could allow ordinary Nigerians to buy into housing projects with as little as $150, democratizing access.

Similarly, crowdfunding platforms and proptech are beginning to match small savers with construction projects. Rent-to-own schemes are also gaining traction: the Federal Mortgage Bank’s long-running rent-to-own allows tenants to gradually buy their homes, while Lagos State has cooperatives where participants pay just 5% down and can own after a few years.

In fact, the Lagos Mortgage Board reports assisting over 20,000 low-income residents through rent-to-own and mortgage programs, with 312 people achieving full home ownership to date. These incremental models stretch scarce cash, making home acquisition feasible for the middle and lower-middle classes.

Public-private joint ventures and partnership vehicles are another route. Lagos, for example, has negotiated with private lenders to finance 800-unit projects for first-time buyers. State governments can offer land or infrastructure to anchor projects, sharing the upside with developers. A bold Lagos plan would allow owners of old family compounds to contribute their land as equity in vertical apartment blocks, thereby sparking urban renewal.

Other novel instruments include diaspora bonds (as noted above) and green bonds. Given Nigeria’s young, urbanizing population, “green” affordable housing—energy-efficient buildings financed by climate funds—is a natural fit. International development agencies (World Bank, IFC, AfDB) are already partnering on Nigerian housing programs and could tie funding to sustainability benchmarks.

Finally, crowdfunding intermediaries are becoming regulated in Nigeria, raising the possibility that vetted affordable housing projects could tap thousands of small savers, much like peer-to-peer lending for solar panels.

Lagos—Case Study
Lagos State, Nigeria’s commercial capital, illustrates how policy and innovation can combine. In six years, the Babajide Sanwo-Olu administration has completed over 10,000 homes and is building an additional ~4,000 across 21 estates. Crucially, these efforts target low-income citizens: mortgages are stretched to 10–15 years, and many units are sold to first-time buyers. Lagos leverages its balance sheet and land banks to anchor deals.

For example, the state offered equity in consolidated public land to float a ₦50 billion bond, funding 10,000 homes at below-market rates. Another initiative created a “coupon” system allowing civil servants (teachers and health workers) to bid for units. On the demand side, Lagos legalized cooperatives and micro-loans for home buyers: one plan lets a family build equity through six years of payments. These subsidies and innovative programs have already generated jobs and stabilized communities.

If Lagos’s model shows anything, it is that government can act as a catalyst. By streamlining approvals and partnering on pilot projects, Lagos gives confidence to investors. Its example also highlights the need for transparent allocation (balloting) and good governance, since trust has been a barrier in past housing schemes.

Finally, Lagos’s experience underscores that urban land is finite: development is moving vertical, and creative equity arrangements (turning plots into high-rise blocks) will be needed to maximize supply.

Policy Reforms and International Lessons
To unlock funding at scale, Nigeria must address underlying policy obstacles. The Land Use Act—vesting land control in state governors—should be modernized to cut title delays and reduce costs. Clear, digital land registries (like Nairobi’s) would make mortgages safer. Regulatory tools can also help: credit guarantees or first-loss funds (as seen in Nigeria’s InfraCredit for infrastructure) could backstop housing loans.

Allowing pension and insurance funds easier investment into vetted housing bonds or mortgage pools will channel trillions of naira toward building. The planned REIT tax reforms would especially free up institutional and diaspora capital by ensuring returns aren’t eaten by double taxation.

In conclusion, bridging Nigeria’s real estate capital gap requires both bold policy and financial innovation. The country’s vast domestic savings are sitting idle relative to the housing needs. By crafting attractive, diversified instruments (from reformed REITs to diaspora bonds and blended-finance funds) and by removing bottlenecks (land, titles, taxation), Nigeria can channel institutional capital toward housing. Lagos’s own housing experiment suggests that pairing public-sector commitment with private drive can yield results.

If the right levers are pulled, the multi-trillion-naira potential of Nigeria’s real estate sector could be unlocked: meeting demand, spurring construction, and delivering the affordable homes that millions of Nigerians urgently need.