Alternative Financing Models for Real Estate Development in Nigeria

ESV Oladeji Eniola Macellina,

Real estate development in Nigeria faces significant financial constraints due to high construction costs, limited access to traditional bank loans, and stringent mortgage conditions. The reliance on commercial bank loans, often burdened with double-digit interest rates, has made real estate investment challenging for both developers and homebuyers. As a result, alternative financing models have emerged as viable solutions to bridge the funding gap and drive sustainable real estate growth in Nigeria.

One of the most promising alternatives is Real Estate Investment Trusts (REITs). REITs allow multiple investors to pool funds into a professionally managed real estate portfolio, generating returns from rental income and property appreciation. This model provides developers with access to long-term capital without the burden of conventional debt financing. Nigeria’s capital market has REITs listed on the Nigerian Exchange (NGX), but regulatory bottlenecks and low investor awareness have hindered widespread adoption.

Public-Private Partnerships (PPPs) have also proven to be effective, particularly in large-scale housing and infrastructure projects. In this model, the government collaborates with private investors to develop real estate, offering incentives such as tax breaks, land allocation, and reduced regulatory constraints. Successful examples include housing projects spearheaded by state governments in partnership with private developers. However, policy inconsistencies and bureaucratic delays remain challenges to fully leveraging PPPs.

Another innovative approach is Crowdfunding, which leverages digital platforms to raise small amounts of capital from multiple investors. This method democratizes real estate investment, allowing individuals to co-own properties with lower capital requirements. Platforms such as Coreum and Realty Africa have introduced this model in Nigeria, but regulatory uncertainties and investor confidence remain areas that need improvement for broader adoption.

Cooperative Housing Schemes provide an alternative for low- and middle-income earners. These schemes involve groups of individuals pooling funds to finance real estate projects, either through monthly contributions or collective savings. Many cooperative societies in Nigeria have successfully acquired land and developed affordable housing for their members. While effective, this model requires strong governance and financial discipline to prevent mismanagement.

Foreign direct investment (FDI) and Diaspora Funding also present viable financing options. Nigerians in the diaspora contribute billions of dollars annually in remittances, a portion of which can be directed into real estate development through structured investment vehicles. Government-backed incentives, such as tax breaks and legal protections, could encourage more diaspora investments into the housing sector.

Lastly, Islamic Financing has gained traction as an ethical, non-interest-based alternative for real estate funding. Sharia-compliant financing models like Ijara (lease-to-own) and Musharakah (equity partnership) offer risk-sharing structures that provide sustainable capital for developers. Islamic banks in Nigeria, such as Jaiz Bank, have started offering real estate financing products that align with this model.

While alternative financing models provide opportunities for real estate development in Nigeria, their success depends on regulatory support, investor confidence, and innovative implementation. By diversifying funding sources, Nigeria can unlock new possibilities for affordable housing and commercial real estate, reducing dependence on traditional financing and fostering a more inclusive property market.

ESV Oladeji Eniola Macellina, a registered Estate Surveyor and Valuer, writes from Abeokuta, Ogun State, Nigeria.