Why Nigerian Govt. bonds are better than the Nigerian Real Estate Market

    The pursuit of profit is the driving force behind all investments, as every investor wants to turn their money into something profitable and get a high investment return, but safety and liquidity are also very critical in today’s investment climate

    FGN bonds are widely considered one of the safest forms of investment in the country. Unlike individuals’ assets that are highly unlikely to default.

    FGN bonds are relatively safe and liquid, but the safer the bond investment, the lower the yield.

    The DMO has proposed a 2-year FGN Savings Bond due 14 June 2025 at an annual interest rate of 10.301%. The second issuance will be a three-year savings bond due June 14, 2026, with an annual interest rate of 11.301%, according to the DMO.

    Such returns are rarely achieved in the real estate market.

    FGN Bonds Features and Benefits

    FGN Bonds offer the benefit of regular income with semi-annual interest payments. For investors looking for a regular income stream while retaining capital, this is a viable investment option.

    Additionally, bonds can be easily sold to other investors before their maturity date, providing an easy way for investors to resell their bonds.

    FGN bonds are tax-exempt, including infrastructure bonds, which generally have maturities of more than 5 years.

    Challenges of real estate investment in Nigeria

    The Nigerian real estate market is still new and not as transparent as the Fixed income market space, where buyers and sellers can easily get in via their investment banks or brokers.

    Additionally, the Nigerian real estate market is largely unregulated, so fraud can occur.

    For example, many unlicensed brokers in the country can mislead investors about property valuation.

    Additionally, significant communication barriers can make it difficult to find the right property or work with the right agent.

    Building collapses across the country show that the building materials used by some contractors are substandard.

    This means that some of these contractors in Nigeria lack the necessary educational qualifications and work experience.

    Government real estate laws are generally poorly enforced in Nigeria, often resulting in investors being stripped of the legally acquired land.

    This is common in developed parts of the country like Lagos and is mostly carried out by a group of land thieves called the Omo Onile.

    These notorious real estate scammers tend to harass investors using the label “transaction fees.” They are also frequently seen at construction sites where construction projects are taking place and use force or deception to intimidate them.

    FGN Bonds Advantages and Economic Impact

    All FGN bonds generally have a term (effectively the term of a loan). At the end of the term, the federal government returns the original amount (principal) to the lender.

    FGN bonds offer a risk-free investment opportunity with tax-exempt income and can be used as collateral for loans.

    It also encourages long-term investment in the economy and alternative sources of government funding, promotes self-reliance, and reduces over-reliance on external funding.

    Real Estate Investment Challenges – Illiquidity and Depreciation

    Real estate is extremely illiquid compared to other assets. The reason for this is that it takes time to sell real estate, so it cannot be converted into cash immediately.

    Even if interest in a property grows quickly, it can take some time before the sale closes. Also, real estate can depreciate over time.

    Therefore, if you have owned the property for many years, you may need to sell it for much less than you paid.