Remarkably, activities in the real estate sector, as in other sectors of the Nigerian economy, are slowing, no thanks to adverse economic conditions at the macro level as reflected in the freefall of the naira against other currencies, high-interest rates and soaring inflation.
It is currently a disquieting time for real estate developers, including sundry players in the sector. Hit hard by the recession of 2016, which caused a 6.86 per cent decline in the industry compared with the growth of 2.11 per cent recorded in 2015, and the Covid-19 pandemic hard hit the post-recession fragile recovery period.
Post-Covid, the sector is confronting another monster seen in the free fall of the naira and surging inflation, both of which have combined to disrupt their projections and, by extension, their delivery timelines.
Most projects have deferred delivery dates, mainly commercial office space and high-rise luxury residential buildings. From late 2022 to the first half of this year, for instance, apart from Trinity Towers- a project of the Redeemed Christian Church of God (RCCG)-in Lagos, no other project of that size was delivered, and no groundbreaking to start a new development.
“Most project sites are quiet, and everybody has adopted a wait-and-see attitude to construction. We have seen about 35 per cent increase in the cost of construction and, to cap it up, we see contract default from both sides of the contract,” Damola Akindolire, Principal Partner, C23 Consulting Limited, said.
According to him, developers are busily evaluating and repricing projects, and those that can be continued are being continued while those that cannot are being dropped, adding that inflation has impacted project delivery by 30-40 per cent while house prices are expected to go up 40—50 per cent in the short-mid term.
Housing development in the country depends, up to 70 per cent, on imports especially finishing materials, meaning that most stories projected on N700/$, for instance, will have to delay given the current exchange rate of N850 and N900 to the dollar.
Similarly, the Monetary Policy Rate (interest rate) has climbed to 18.75 per cent from 16.5 per cent at the beginning of this year, meaning that the cost of funds has increased by 12 per cent within six months. This discourages borrowing and reduces the money for builders to do developments or delay ongoing ones.
The inflation rate has been on a steep rise since the beginning of this year, peaking at 24.08 per cent in July, according to the latest figures from the National Bureau of Statistics (NBS), up from 22.79 per cent in June.
This explains why, for several months, there has been a persistent increase in the price of cement and other building components, such as blocks and rings, in the building materials market. Also, prices of paints, reinforcement and sanitary fittings, sand, roofing sheet, tiles, and granite have increased by over 70 per cent.
Though this delay in project delivery squeezes developers, especially those exposed to bank credits whose interests are running while the projects are stagnant, it has a broader negative impact on the market. This is because while supply is shrinking, demand is increasing, increasing sales and rent.
Experts estimate that, across the board, the market has seen about a 40 per cent increase in sales and rents in the first half of the year up to the present moment. Frank Okosun, CEO of Knight Frank Nigeria, confirmed this: “We have seen a sharp rise in house prices to about 40 per cent due to inflation, both for sales and leases. Newly built properties reflect the increase due to the spike in inflation.”
Okosun noted that, on the supply side, the market uncertainty, coupled with the rising cost of goods, has made stakeholders adopt a wait-and-hold strategy, leading to a slowdown, especially for capital-intensive projects, which have left the capital to find its place in the market, for capital-efficient projects.
BusinessDay findings show that, in Lagos, house rent has gone up in all the market nodes, affecting both new and old buildings. This is why a mini-flat (a room and parlour self-contained) in a Lagos community that used to go for N400,000 yearly has increased to N600,000.
Ebenezar Okeke, a civil servant who lives in Ogba, a Lagos suburb, told BusinessDay that rent for a three-bedroom flat has increased from N800,000 to N1.3 million per annum. In contrast, a two-bedroom apartment in Egbeda, another suburb, now goes for N800,000, up from N450,000 a year ago.
In highbrow areas, Lekki Phase 1, a one-bedroom flat, which used to rent for between N800,000 and N2 million, now goes for N1.5 million and N3 million. In contrast, a three-bedroom apartment currently rents for between N6 million and ₦8 million per year from N4 million and N7 million.
Other cities are also affected by the rent increases. In Port Harcourt, Rivers State, a one-bedroom in Rumuokwuta is rented at N1.5m from N900,000 and N1.1 million, while a two-bedroom flat goes for N2.5 million from N2 million. A two-bedroom and three-bedroom apartment in GRA Phase 1 has increased from N700,000 to N1.5 million and N2.5 million to N4.5 million, respectively.
In Abuja, the federal capital territory, a 3/4-bedroom terrace house in Wuse that used to command N4 million as of 2020-2021 now goes for N6-7 million or more. The detached 4/5-bedroom house in Maitama costs N10-N15 million, but now landlords’ demand is as high as N25-N30 million.