Theorising the Relationship Between Financial System Development and Real Estate Market Depth in Nigeria

This dissertation develops and empirically tests a theory of the relationship between financial system development and real estate market depth in Nigeria, examining how different dimensions of financial development, including banking sector depth, capital market development, and non-bank financial institutions, have differential effects on various aspects of property market functioning. The relationship between financial and real estate market development is theoretically complex and bidirectional, with financial innovation enabling property market expansion while real estate assets serve as primary collateral for financial system growth. This bidirectional relationship has important implications for both financial stability and housing access policy but has not been theoretically integrated for the Nigerian context. The theoretical contribution is a Financial-Real Estate Co-evolution Framework that models the historical co-evolution of Nigeria's financial system and property market through five developmental phases, from the colonial banking period to the post-2008 financial sector reforms, identifying the key transmission mechanisms through which financial development affects property market depth in each phase. Empirical testing employs a time series analysis of long-run relationships between banking sector development indicators, capital market metrics, and property market depth measures for Nigeria from 1981 to 2023, using cointegration analysis and vector error correction models. Cross-country comparison with Ghana and Kenya provides external validity testing of the theoretical framework. Results confirm long-run co-integration between banking sector depth and residential property market liquidity, with banking crises demonstrating clear transmission to property market contraction. Non-bank financial institutions show stronger effects on commercial property market depth than the banking sector. Recommendations for sequenced financial and property market reform are developed. Keywords: financial development, real estate market depth, co-evolution theory, mortgage finance, Nigeria.