In 2023, the real estate sector faced significant challenges attributed to factors including fluctuations in the foreign exchange market and the removal of subsidy which impacted negatively on the industry, JOSEPHINE OGUNDEJI writes
In a continued saga of challenges for the Nigerian real estate sector, 2023 has, according to operators in the built sector, proved to be a year marked by stagnation and uncertainty, largely attributed to the dual impact of erratic fluctuations in the foreign exchange market and the removal of subsidies.
The repercussions of these factors rippled through the industry, casting a shadow on property values, investment trends, and overall market stability.
The real estate market in 2023 was characterised by minimal activity and hesitant investors. The anticipation surrounding elections created an environment of caution, leading to a slowdown in real estate transactions. As the new government assumed power, major policy shifts, especially in the foreign exchange market and the removal of oil subsidies, reverberated across the investment landscape, significantly impacting decision-making.
The aftermath of the elections saw the real estate sector grappling with the consequences of heightened uncertainty and policy adjustments. Investors, already cautious due to the election climate, now faced additional challenges as the government implemented changes affecting foreign exchange dynamics and subsidy structures. These policy shifts had a direct bearing on major investment decisions, further contributing to the stagnation witnessed in 2023.
Elections uncertainty
Nigeria’s Presidential election was conducted on 25 February 2023, but its effect on real estate brought uncertainty to investors.
In an earlier interview at the beginning of the year with the Executive Director, Housing Development Advocacy Network, Festus Adebayo, he noted that the housing sector in 2022 performed well solely for those at the top, particularly in the areas of luxury homes and commercial real estate; however, it has failed in the area of providing affordable housing.
He said, “Election will determine a lot of things in the real estate sector in 2023. Pre-elections, there is apathy, as investors are filled with uncertainties as to whether they can get the appropriate reward for their investment or not. However, immediately after the presidential elections, improvement in the sector would be seen depending on who wins the election, especially at the presidential level.
“Most importantly, for 2023, I am not seeing a poor real estate sector, but a real estate sector under a new regime to boost the development of the sector. As I earlier mentioned, what determines the level of the market picking up in 2023 would be dependent on the interest of the person that wins the election.”
Speaking at the tail end of 2023, the Executive Secretary, Association of Housing Corporation of Nigeria, Toye Eniola, said the real estate activities in 2023 were practically inactive with very little to show.
He added, “This was a result of the uncertainty in the market caused by the election which slowed down activities. Investors were cautious and when the new government came to power, there was a major policy shift, especially in the foreign exchange market and removal of oil subsidies which affected major investment decisions.”
Subsidy removal
Construction firms in the country have said that the removal of fuel subsidies and the currency devaluation that followed the naira’s floating has left a devastating mark on the built environment.
Operators in the industry who spoke with The PUNCH said many firms had been forced to abandon projects, while others had had to adopt survival mechanisms to survive the harsh economic consequences of petrol subsidy removal and naira devaluation.
The recent economic reforms, they said, had been having tremendous effects on construction firms in the country. Due to the reforms, they have experienced increased running costs spanning across logistics, labour, and building materials, among others.
While speaking at the 15th annual lecture series of the Lagos State branch of the Nigerian Institute of Quantity Surveyors, the Chief Executive Officer of Rainoil Limited, Gabriel Ogbechie, said the removal of subsidy had increased the operating cost of businesses and had come with far-reaching consequences on the construction industry.
According to him, the attendant rise in construction costs will affect the profitability of construction companies.
He said, “However, there are negative impacts of the fuel subsidy removal on the construction industry. Number one is the rise in construction costs and housing projects. Construction companies are faced with higher expenses in the price of building materials as well as an increase in the transportation of materials and equipment.
“For example, we have seen the price of cement increase between N3,900 and N4,200 per 50kg bag to an average of N4,600 per bag, which is going to N5,300 today. Consequently, there would be an upward pressure for project budgets potentially affecting the feasibility and profitability of construction ventures.”
Speaking with The PUNCH, The Chief Executive Officer of Reo Habilis Construction Limited, Kunle Awobodu, said the price of building materials had been increasing at a sprinter’s pace since the removal of fuel subsidy.
The former president of the Nigerian Institute of Builders further stated that due to the current cost of living crisis, the cost of labour had also increased significantly.
According to him, for construction firms to be able to deliver projects paid for before the removal of fuel subsidy, they may be forced to demand a review of pre-existing subscriptions.
He said, “The subsidy removal has affected all aspects of construction, and construction workers are demanding increments because of the cost of transportation and the cost of living.
“Hence, the removal has automatically increased labour prices and reduced labour activities, thereby, leading to abandoned projects because of the contesting demands, and when you have contesting demands, you might be forced to slow down on major projects, and this might also lead to the use of substandard materials.”
Forex
In an exclusive interview with the Managing Director of Interstate Architects Limited, Olusegun Ladega, he attributed the devaluation of the naira as another factor that triggered increased costs for construction firms.
He said, “It is still a dynamic and evolving situation because there are a number of these affecting the cost of buildings, not only the removal of subsidy but also the exchange rate increase because a lot of materials that go into the building of a property are imported.
“One of the things seen being done by construction companies is that some of them request non-payment, they have had to put in fluctuation plates and co, but there is still a kind of ‘let’s wait and see where this is going’ effect in the industry.”
He further stated that developers who had already sold off-planned projects to clients now face the dilemma of reviewing prices to make up for the substantial hike in delivery costs.
In the same vein, an Estate Surveyor, Olorunyomi Alatise, said the volatility of the naira has led to increased construction costs, as imported materials became more expensive.
He said, “This has made it harder for developers to deliver projects on time and budget. Second, inflation has led to increased property prices, making it harder for people to afford housing. Third, the high cost of financing has made it harder for developers to access capital, which has slowed down the pace of development.
“The high cost of imported construction materials, such as cement, steel, and glass, has been a major challenge for developers in Nigeria. This is due to a combination of factors, including the volatility of the naira, high energy costs, and supply chain disruptions. The rising cost of construction has made it harder for developers to complete projects on time and within budget, leading to delays and increased costs for buyers.”
Naira scarcity/redesign
In late 2022, the Central Bank of Nigeria initiated a redesign of the naira to enhance its value and reduce counterfeiting, aiming to transition to a fully cashless economy. The deadline for ceasing the old naira notes was extended to December 31, 2023, now an indefinite extension, with restrictions on withdrawals and deposits. However, the scarcity of new naira notes resulted in a severe cash shortage, affecting various sectors, including real estate.
The Managing Director of Fame Oyster & Co. Nigeria, Femi Oyedele said the real estate sector started on a good note in the first quarter of 2023 but suffered in the second quarter.
He said, “The real estate sector in 2023 began positively in the first quarter but faced challenges from the second quarter onwards due to cash scarcity resulting from the implementation of the cashless policy by the Central Bank of Nigeria under Governor Godwin Emefiele. The policy impacted the industry, leading to difficulties in transactions and contributing to a downturn in the real estate market throughout the remaining quarters of the year.”
Middle-class housing fizzling out
The Chief Executive Officer, Riel Homes, Dr. Kolade Adepoju, said the real estate sector in 2023 was very slow, due to the election uncertainties and the outcome of the elections.
He said, “As the year 2023 concludes, people are acclimating to the ongoing developments in the sector and adapting accordingly. In 2024, a notable industry boom is projected, with the notable caveat that the benefits of this upturn will primarily accrue to the upper class.
“The middle class would fizzle out, the richer would become richer and the poorer would become poorer because of the state of the economy, hence looking out for how high-end properties for the upper class are important and balancing it out with properties tailored towards affordability.”
Outlook
Eniola asserted that the sector was likely to face the same challenges in 2004, except there was a change in policies.
He said, “For 2024, the situation is likely to remain the same except there is a swift policy change that can reverse the hardship occasioned by inadequate and scarcity of forex which incidentally dictate the happening in the economy. As long as we continue with fluctuations in forex market pricing, the possibility of having a vibrant real estate market will remain almost impossible.”
In the same vein, the Director, Research and Innovations Office, University of Lagos, Professor Timothy Nubi, said if 2023 did not turn out well due to the policies enacted by the government, how would 2024 turn out?
He added, “There is a lot of fear on if the real estate sector would collapse or not, hence housing is a necessity that should be paid attention to first because it is a sector that can bring the economy out of recession, The Federal Government should grow the economy in 2024 through housing by consciously putting money into the housing sector because it is a sector that has a huge multiplier effect.”
Meanwhile, Oyedele asserted that 2024 would be better for the real estate sector as the government was showing signs of being settled.
He added, “Dangote Refinery and two others are about to start operations. This means that there will be more people engaged at work. With a high level of funds in circulation, they will find their way to the real estate sector. This is because housing is a basic need of everyone and a bundle of joy. It is a status symbol in Nigeria and a real store of value, especially against ravaging high inflation in Nigeria.
“In 2024, people will invest more in the real estate sector due to the high trust in the government and the high level of funds that will be in circulation with the Federal Government Budget of Renewed Hope proposal of N27.5trn. The Diaspora Nigerians are also interested in buying properties at home and with the creation of a mortgage system that can cater to their housing finance needs; I think the real estate sector will have a field day in 2024.”
