By Félix Onajite
For players in Nigeria’s real estate sector, it has been part of a decade in winter. Hit hard by the 2016 recession, which caused the sector to fall by 6. 86% compared to the 2. 11% expansion recorded in 2015, the fragile post-recession was some other blow recovery through the Covid-19 pandemic. Post Covid, the sector is facing another monster in the loose fall of the naira and the inflation that accompanies it.
The immediate depreciation in the price of the local currency has continued to have a significant effect on all sectors of the Nigerian economy, from aviation to production and everything in between, and for real estate, in recent years and months, according to many, have been traumatic.
Most of the sector’s inputs are imported. Over the past 12 months, naira has risen from less than N400 per dollar to N700 per dollar in the parallel market. The immediate drop in the price of naira has resulted in sky-high prices, which naturally means that the final product is increasingly adjusting to the success of many potential buyers.
Industry resources say the sale of some of the luxury homes has also been suspended since the naira began its recent peak free fall.
For developers, this is a double whammy. Assets whose sale is denominated in dollars remained on the shelves months after the expression of interest. Some projects with deadlines have been delayed or halted mid-construction. Most of the amenities for developers are short-term and per dollar. -called, losses begin to accumulate long before staff are mobilized on site.
“Assuming it came in $1 million and goes to N500 million today,” said Dr. Alex Otti, former CEO of Diamond Bank, “but you have to get it back and you have to spend N700 million to get $1 million, from that perspective, it’s perceived to be tough.
Historically, some of the most demanding situations in the industry have been high interest rates and currency volatility. The recent rise in inflation prompted the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to raise the rate to 14% in an effort to engage it. But such measures seem more productive when the cause of inflation is exaggerated because of too much cash in circulation. In the case of Nigeria, however, other people are suffering to cope, and inflation has little. to do with demand, but everything to do with problems of origin. Thus, despite the efforts of the CBN, inflation reached a 17-year high in July with 19. 64%, compared to 18. 6% recorded last June 2022.
The real estate sector has been saved and, aggravated by exchange rate volatility, the sector has continued to struggle with headwinds.
“Most of the available loans we get are at double-digit rates, which makes it very difficult to get a decent return on investment,” said Uzo Oshogwe, managing director of Afriland Properties Plc. “The duration of the loan is some other challenge that developers face; Short-term loans are not suitable for long-term infrastructure projects.
Oshogwe, who highlighted the effects of dollar volatility on projects, said: “The private sector, the federal government and all relevant regulators want to come together to expand a framework that will protect against such demanding situations and agree on key measures that will herald a less expensive structure and encourage infrastructure progress in the country.
There is no doubt that the Nigerian sector has enormous potential. A 2020 real estate industry report by Agusto and Company valued the sector at $3. 96 trillion. But the sector, like Nigeria’s, has remained a giant with feet of clay hampered by lack of financing, inflation, currency volatility, among others.
The devaluation of the naira has affected the price of structural fabrics, as a peak has been recorded in recent months due to the Nigerian structural industry relying heavily on foreign imports of uncooked fabrics and structural appliances. With the naira in free fall, the price of buying those raw fabrics and appliances has skyrocketed, as have asset charges as wages rise and unemployment rises.
The National Bureau of Statistics (NBS) report on GDP for the first quarter of 2022 showed that, quarter by quarter, real estate GDP (in nominal terms) stood at -26. 75% in the first quarter of 2022, an indication of the struggle it faces.
Abdullahi Adamu, managing director of HXH Limited, one of Nigeria’s leading residential development companies, said in a recent interview that the cost of building materials, especially imported ones, has increased and this will be passed on to buyers, which It will cause delays and the appearance of problems. genuine real estate products.
“Professional labor shortages, value increases, monetary constraints, and supply chain bottlenecks are some of the demanding situations facing the sector. Not to mention the complex paintings of managing the suppliers needed to complete a single unit. These problems led not only to significant cost overruns and higher assignment charges, but also to setbacks in the speed of structure and consequent delays in the delivery of housing.
“In addition, existing projects would possibly suffer setbacks, adding delays due to the depreciation of the naira. Similarly, new housing projects will be affected depending on the source of financing.
“But I tell you, despite the challenges, this is the most productive time to invest in real estate, to buy houses because of the surplus value. The ownership charge will double until next year,” he said.
In his own speech, Adeniji Adele, a real estate surveyor and appraiser, blamed the currency market crisis on the poor implementation of government policies over the years due to double standards and inconsistency.
Adele, who is president of the International Real Estate Federation, Nigeria chapter, noted in an interview that “the market is reacting negatively to the continuation of the exchange rate that has affected the load of building fabrics and hard work in the built environment; real estate charges will never be the same again.
“The market value has gone up, while the borrowing rate is higher and monetary institutions are willing to lend to expand real estate inventory as they like to improve short-term amenities. “
– Written Onajite from Lagos, Nigeria.
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