Property developers rethink financial models on soaring costs

Though the full effect of the ongoing economic reforms of the President Bola Tinubu administration may not be felt in the real estate market until the next four to six quarters, the impact on commodity prices including building materials is already unsettling developers.

The developers are, therefore, rethinking their building methods, product offerings and financial models. While cost management and creative building methods have become more crucial for most of them, some others are ensuring market efficiency as the next 6-12 months could be make-or-break for all developers.

It is expected that yet another group of developers will simply down tools, unable to deal with the current circumstances. These implications, it is also expected, will have widespread effects on development projects in the immediate run as many of them will be put on hold.

Northcourt Real Estate, in its recent report on ‘The State of the Nigeria Real Estate Market’, notes that besides the fuel subsidy removal, which has pushed the pump price of petrol from N184 per litre to N488 per litre with catalytic effects on logistics costs, inflation is also of grave concern.

This increase in petrol pump price has affected the cost of haulage, workers, and overheads, causing an increase in the wages and salaries of artisans, technicians, professionals, and other workers in the construction industry, as well as an increase in the prices of haulage.

According to the report, Nigeria’s inflation rate has maintained an upward trend since the beginning of this year. Starting at 21.82 percent and advancing to 22.79 percent in June, the inflation rate has increased consecutively for five months.

“The major drivers of the surge in inflation are the rise in food prices, energy prices, and pressure on the currency, clothing, and transport,” Ayo Ibaru, the company’s CEO, told BusinessDay.

Ibaru noted that in the past 15 months, the increase in the price of cement has affected other components, saying that the prices of paints, reinforcement and sanitary fittings, sand, roofing sheet, tiles and granite rose by an estimated 70 percent, citing a recent survey which says that a 50kg bag of cement previously sold at N3,500 last year, is being sold from N4,700.

A 9-inch block previously sold at N370 is being sold at N380/N400, while a 6-inch block is sold at N370, up from N340/N350.

“High costs of building and of urban land acquisition have been established as challenges public and private sector housing developers face. As house rents and inflation continue to rise amidst rising costs of living, an increasing number of low-income tenants will likely relocate to low-income areas,” Ibaru said.

Worthy of note, however, is the fact that public sector developers are still doing development amid tightening economic conditions. The Bauchi State government, for instance, secured a N3.4 billion loan from Family Homes Funds for the provision of infrastructure to 1,882 housing units in the state.

The Hydro Power Producing Areas Development Commission has commenced the construction of 160 housing units in new settlements created in Niger comprising 120 at New Muregi and 40 at Ketso.

Similarly, under the Federal Integrated Staff Housing Programme in Gwagwalada, Abuja, construction work has started on 116 housing units while Real Estate Developers Association of Nigeria has secured N26 billion from Shelter Afrique to finance housing project in each of the 774 local government councils of the federation.

Lagos State government, on its part, commissioned the Ndubuisi Kanu Housing Estate along Oworonshoki Expressway comprising 72 units. In addition to that, 660 homes in Odo-Onosa/Ayandelu as well as 144 resettlement homes for displaced persons in Agbowa area were commissioned.

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In Anambra State, 254 housing units built and financed by the federal mortgage bank of Nigeria (FMBN) were commissioned by the state government as part of a 404 housing-unit estate. These 404 housing units are also part of the 1,520 housing units in nine projects that the federal government embarked upon in Enugu State.

The Northcourt report reveals that the FMBN has spent an estimated N10.2 billion on the 1,520 units, adding that the federal government commissioned 748 housing units in the Zuba area of Abuja, comprising 336 units of 1-bedroom flats, 264 units of 2-bedroom flats, and 128 units of 3-bedroom flats.

Due to the prevailing economic condition, Ibaru noted that “construction engineering talent retention will likely be challenged by revised salary expectations, adding, “last-mile fuel dependence will likely reduce output and increase logistics costs in the short term.”