The developer’s dilemma is real. In Nigeria’s fast-evolving real estate landscape, especially across Lagos, access to capital often makes or breaks projects. With the market’s high capital requirements, tight margins, and economic complexities, securing financing remains one of the biggest hurdles for both small developers and large institutions.
But here’s the good news: Whether you’re looking for traditional bank loans, institutional funding, or innovative financing solutions, options are plentiful, if you understand how to leverage them effectively.
This guide aims to break down the diverse financing options available, their pros and cons, and help developers select the most suitable structure for their projects, from conventional debt to alternative equity solutions.
What we’ll cover:
– Traditional sources of debt financing
– Institutional and innovative equity solutions
– Creative, alternative strategies
– How to position yourself for successful funding
The Traditional Routes: Debt Financing
This involves raising capital by borrowing money that must be repaid with interest over a set period. It does not require giving up ownership in the business and can be used to cover expenses, finance operations, or fund growth. For example;
Commercial Bank Construction Loans
These are the most common sources of financing for Nigeria’s real estate projects. Typically disbursed in stages (drawdowns), they cover construction costs over 1–3 years. They are short-term, project-specific loans and are disbursed depending on construction milestones.
Pros:
Lower cost of capital if rates are favorable (around 14–18% in Nigeria). | High collateral requirements (30–40% of project cost).
A long-standing process familiar to most developers.
Flexible drawdown schedule.
Cons:
Interest accrues during construction, increasing the total cost.
Slow approval and disbursement process.
High collateral requirements (30–40% of project cost).
It is advisable to build a strong project proposal, demonstrate early equity investment, and maintain good banking relationships to improve approval odds.
Mortgage Banks & Financial Institutions
This form of debt financing is focused on residential developments. Federal Mortgage Bank of Nigeria (FMBN) and other mortgage institutions offer loans or mortgage-backed schemes.
Pros:
It is a government-backed scheme (e.g., NHF) with lower interest rates (around 6–9%).
It helps facilitate off-take via mortgage financing for buyers.
Cons:
Bureaucracy and strict project criteria
Limited to certain project types and sizes.
Ideal for developers supplying affordable housing or leveraging government programs.
Mezzanine Financing
This is a hybrid form of short-term debt that fills capital gaps between primary debt and developer equity. Usually comes with higher interest rates but provides more flexible funding.
Pros:
Quicker access than traditional bank loans.
Less dilutive compared to issuing new equity.
Cons:
Higher costs (interest can be 20–25%).
Lenders often require equity participation or warrants.
It is best suited for projects with proven cash flow potential or when you want to minimize equity dilution.
Institutional & Innovative Equity Solutions
Some examples of innovative equity solutions include:
Real Estate Investment Trusts (REITs)
REITs are companies that pool investor funds to acquire and manage income-generating real estate. Some, like Nigerian REITs (N-REITs), are beginning to serve as partnership platforms for developers to sell completed, income-yielding assets (such as commercial, retail, or office properties) and raise equity funding during development phases.
Pros:
Access to large investor pools; liquidity if listed.
Long-term capital input and shared risk.
Cons:
Less control; requires aligning with REIT investment criteria.
Possible profit-sharing.
You can use REIT partnerships for funding stabilized assets also, especially in Lagos’s commercial hubs.
Real Estate Crowdfunding
This refers to the practice of pooling money from a large number of investors through online platforms to fund real estate projects. For instance, platforms (like PropertyPro or Require Nigeria) enable developers to raise funds from many individual investors online.
Pros:
Quicker and more flexible access to capital.
Suitable for niche or smaller projects.
Cons:
Platform fees and investor management.
It’s best for small to mid-scale developers developing boutique projects or high-yield schemes.
Private Equity Funds & Institutional Investors
Pension funds, insurance firms, and large investment houses seek high-yield projects for equity participation, and it can be a source of income for developers.
Pros:
Heavy capital infusion; access to expertise.
Removes debt obligations, reducing project risk.
Cons:
Significant equity stake, reducing control.
Demands high transparency, reporting, and governance.
Alternative & Pre-Financing Strategies
Off-Taker / Pre-Sales Financing
It refers to selling units before or during construction (via off-take agreements or milestone-based pre-sales), using it to fund subsequent development phases. For example, off-plan properties. It is effective in Lagos, where high demand for pre-construction units exists. Properties like Greystone residence, Ile Aje Plaza, Vedura resort are a few examples. It requires trusting buyers and legal agreements to mitigate risk.
Benefits:
Improves liquidity without incurring debt.
Demonstrates demand, attracting further financing.
Joint Ventures with Landowners
Also, partnering with landowners (“Omo Onile”) can secure land initially contributed for a share of project profits or units. It is highly effective in Lagos’s land-rich environment. Although proper legal documentation is critical to avoid disputes.
Benefits:
It reduces upfront land costs.
It leverages land assets, minimizing financing needs.
Blended Finance
This is a strategy that combines public or philanthropic capital with private sector funding to make projects financially viable. It combines multiple sources, including development Finance Banks, government grants, and private capital, to fund affordable housing or large-scale projects, and it is suitable where the project scope involves social impact or government incentives.
In conclusion, choosing the best financing option depends on project size and scope, the developer’s experience and reputation, risk appetite, and strategic goals.
No one-size-fits-all; the most successful developers use a mix of financing solutions tailored to each project’s needs, and you can do that also; all you need to do is develop a robust approach by focusing on:
Transparency & Data: Accurate valuations, clear titles, detailed projections.
Reputation & Experience: Establish credibility through past successful projects.
Exit Strategy: A well-documented plan for how funding will be recovered (via sales, lease income, or REIT sale)
Again, navigating Nigeria’s complex financing environment demands expertise. Engage financial advisors, banking relationships, and legal counsel to structure optimal deals.