Improved economic policies will encourage investment, say experts
With continuous dependence on importation, inflation is hitting the building market as prices of construction materials rose by over 50 percent between January 2022 and January 2023, according to The Guardian survey.
The unabated rise in the cost of materials is impacting rentals and delivery of affordable housing in parts of the country. Industry experts fear that the development could further slow down 2023 construction plans and spike housing prices.
Many developers and housing managers are already exploiting the situation to hike the prices of homes, especially newly constructed buildings. Nigeria’s inflation rate climbs to a new 17-year high, accelerating for the 10th straight month to 21.47 percent in November 2022 from 21.09 percent in October and above market estimates of 21.15 percent. With the highest spending devoted to materials in the building production process, developers are not enjoying the best of times in the industry as they find it hard to maximize profit.
Operators had to embark on an upward review of prices of housing units in their stocks last year, as well as delay the timeline for project completion. Other encumbrances like scarcity of skilled labor/building artisans, high foreign exchange, and high cost of land have not helped the industry.
A fresh cause for concern is the 2023 elections, which experts fear might make real estate investors adopt a ‘wait and see’ posture before investment.
In the last two years, prices of essential building materials like cement, reinforcement, paint, sanitary fittings, sand, roofing sheet, tiles, and granite, rose by over 50 percent.
The increase in the price of cement affected other products like blocks and rings, which utilize cement as a major ingredient for production.
Specifically, there has been a fresh hike in the price of cement in the last month as the price per bag rose from N3, 200 to N4, 700. The Guardian gathered that in locations like Ogun, Osun, Imo, Rivers, Anambra, Lagos, Abia, and Enugu states among others, the price for a 50kg bag hovers around N4, 300 and N4, 700.
A tonne of 8mm reinforcement sold for N350, 000 early 2022, presently goes for about N488, 800. The same is applicable to paints and other components in the building material market.
For paints, the price of a 20 liters general-purpose type remained between N15, 000 and N18, 500 depending on the color and location while prices of tiles are as high as N6, 200 for 40 by 40 royal and N4, 500 for 40 by 40 packets of goodwill products.
The market survey for building blocks shows that the market retained between N370 to N450 price for six inches while the nine inches maintained its price at N380 depending on locations.
Consequently, the price of rentals in the city centers of Lagos, Abuja, Ogun, Ibadan, Port Harcourt, Anambra, Abia, and Kano, are rising with homeowners and property managers increasing rent by over 75 percent.
In highbrow locations of Lagos, a one-bedroom flat for rent is as high as over N1m yearly. Rentals for two bedrooms start from N850, 000 to over N1.5 million. Before now, landlords charged between N650, 000 and N900 for a two-bedroom apartment.
In Oyo, where rent for an apartment rent used to be N1 million, there is an upsurge to over N1.6 million. The same thing is applicable in Abuja, where rent for one bedroom is as high as N1.2m/N1.5 million in strategic locations. In highbrow areas of Ogun State, particularly the Abeokuta GRA axis and others, a duplex could go as high as N2.7 million yearly, while a two-bedroom apartment could go as high as N850, 000 per year depending on the building finishing.
A cement dealer based in Lagos, Mr. Sunday Ilesanmi, who confirmed the increase in the price of the product told The Guardian that, a 50kg bag of cement now sells for N4, 500.
He said: “Before now, it was N4, 200 but we have been selling at N4, 500 for almost a month now. The increase is directly from the factory. Whenever the festive season approaches, we usually see a surge in the prices of building materials including cement, which is an essential ingredient for building. The price of cement is not the same across locations; it is even higher in some locations than others. But generally, there has been an increase in price.”
Ilesanmi observed that it would take an act of God and a determined mind to continue construction projects with the current prices of building materials, adding that the development is a sad story for the industry.
“I think this will slow down construction work across the country. This is because the money that a developer should use to buy a tonne of cement may at the end of the day not be enough to buy half of a tonne. Of course, when you spend more money in building your house, one will expect that if you are going to give it out for rent, you will definitely increase the rent because of the cost of production,” he said.
Speaking on reinforcement, a dealer in the product, Alhaji Saka Aliu, told The Guardian that within the last two years, prices of the product rose by over 200 percent.
He said: “ In July 2020, 12mm per tonne was about N220, 000 now it’s N490, 000, the same thing applies to 16mm and 10mm. The 20mm and 25mm per tonne, which was previously N225, 000 is now N500, 000 and we don’t know what may happen this January. The complaint we got from the factory is that the manufacturers blame the hike on the cost of production, most especially the cost of diesel.”
The former Chairman of the Lagos Chapter of the Nigerian Institute of Quantity Surveyors (NIQS) Jide Oke, said the instability in the dollar-to-naira rate has not helped the construction sector, which is predominantly dependent on the importation of building materials.
He said: “Most building materials in this industry are imported from China, Europe, and other Asian countries. To import the materials, you have to change the currency from naira and this has made prices of materials soar high in the building market. The present political situation also affects our currency, as politicians’ demand for dollars is high. They don’t store naira but dollars and other valuable currencies and so, there will be scarcity and there is no way it will not have ripple effects on our building material sub-sector.”
According to him, once the cost of building materials keeps soaring, it will slow down construction activities, as the cost of construction will be affected because building materials are a major input for construction.
“In any cost of a construction project, building materials takes about 60 percent, not to talk about labor and other things. The only way we can begin to have some respite is when our local manufacturing companies can produce. This has been a problem because most of the building materials are not produced locally but are imported. If you import everything, we are not going to have any form of respite until the government starts by first creating an enabling environment,” he said.
The former NIQS chairman emphasized that if the enabling environment is created, more firms will start production activities in the construction sub-sector.
He said: “We have some of them but just a few manufacturers. We need to have more companies producing paints, tiles, and others. If more is produced in the right quantity and quality, the prices will come down and people will prefer to use them rather than waiting for materials coming from Spain and other countries.”
Oke warned that if prices of construction materials continue to rise, a developer that used N50 million to build a structure instead of N10 million will have to increase his or her rent when the property is ready for the market.
“If I want to take a tenant into the property having been charging N500 per apartment before, I will have to increase it to N1, 000 because it will make economic sense for me. As much as prices keep going up, rents will keep soaring too. We need the government’s intervention because if there are an abundant supply of houses in the country, there will be enough supply to meet demand. And rent will come down.
Those investing in the construction sector now spend so much money to build and will have to recoup their investment, which is the law of economics. There should be economic policies that will encourage investment; people are not bringing in enough money into the construction industry now because we are going into elections and so, people are keeping their money,” he said.
