… Inflation and Exchange Rates Hit Property Prices Hard as Housing Deficit Deepens Amid Economic Challenges
…High Construction Costs Stall New Projects as Interest Rate Hikes Make Financing Unattainable
…Developers Struggle as Building Costs Soar
…Population Growth Fuels Demand Despite Economic Strains
The real estate market across Nigeria is facing significant challenges, with property prices skyrocketing and sales slowing down in many parts of the country.
This was disclosed in a statement released in Abuja by Festus Adebayo, the Executive Director of the Housing Development Advocacy Network (HDAN), who highlighted the dramatic impact of inflation on the real estate sector.
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Adebayo pointed out that the steep rise in property prices is partly due to inflation and the high cost of building materials, exacerbated by the devaluation of the Naira and the rising costs associated with importing construction materials. This inflationary pressure has also led to increased challenges for estate developers, who now face difficulties in securing buyers, despite resorting to extensive advertising efforts.
In light of these challenges, Adebayo emphasized that it is a particularly tough time for real estate sales nationwide, with similar trends observed in other major cities like Lagos and Port Harcourt. Developers are under pressure to innovate in their construction methods, funding models, and financing options for buyers to sustain their businesses in this difficult economic environment.
For the Nigerian economy’s real estate sector, 2024 has not been a favorable year. This is clearly reflected in the sector’s performance during the first half of the year. According to recent figures from the National Bureau of Statistics (NBS), despite contributing a substantial ₦11 trillion to the Gross Domestic Product (GDP) alongside construction, stakeholders expressed concerns that their experiences have been far from positive.
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The Central Bank of Nigeria (CBN) has also introduced several reforms aimed at stabilizing the economy, including controlling inflation, enhancing revenue collection, reducing budget deficits, managing public debt, and stabilizing the exchange rate. Unfortunately, these measures have yet to succeed in curbing inflation.
This surge in inflation has led to a decline in consumer purchasing power, directly impacting the real estate market. Inflation has also driven up construction costs, challenging the viability of new projects and reducing the number of new developments.
The costs of building materials have soared, labor costs have skyrocketed, and house prices have followed suit. Even maintenance costs have risen, unsettling the rental market and squeezing renters.
Beyond inflation, volatile and high interest and exchange rates have further hampered the sector. In an effort to encourage savings and reduce money in circulation, the CBN has raised interest rates to a point where borrowing has become unfeasible for developers.
Meanwhile, the exchange rate has been erratic, with the naira once trading at ₦1,600 to the dollar in the parallel market. Since over 70% of building materials are imported, this exchange rate regime has forced many projects to halt.
Though there are signs of easing volatility, it’s not yet time to celebrate for developers and investors, especially since the dollar remains scarce. Moreover, the state of the economy has shifted priorities, with many Nigerians focusing more on basic necessities like food and healthcare rather than purchasing luxury homes.
In Abuja, prime locations such as Maitama have seen a dramatic increase in property prices. For instance, a 5-bedroom fully detached duplex in Maitama that previously sold for ₦800 million now costs between ₦1.5 billion and ₦2 billion, reflecting over a 100% price hike. Similarly, in Katampe Extension, a 5-bedroom fully detached house that once went for ₦500 million is now priced at around ₦1 billion to ₦1.2 billion, depending on the finishing and size.
Even in less central areas like Kubwa, property prices have surged. Houses that used to sell for ₦40 million to ₦60 million are now going for between ₦150 million and ₦200 million, depending on the finishing and location within the area.
Also, the cost of renting properties has increased substantially, with rents in Maitama for a 5-bedroom duplex rising from ₦15 million-₦25 million per annum to as much as ₦40 million-₦45 million.
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Despite the economic hurdles, population growth remains a significant driver of residential real estate demand, especially in mid-market areas. The widening housing deficit continues to be a major concern among stakeholders. A recent World Bank report, referenced by Matthew Ashimolowo, Senior Pastor at Kingsway Christian Centre (KCC), Maryland, Lagos, during the opening of the 18th Africa International Housing Show (AIHS) in Abuja, highlights this issue. The report estimates the housing shortfall at 20 million units.
Speaking at the AIHS conference in Abuja, Ashimolowo underscored the severity of the situation, stating that to close the housing gap, Nigeria must build 700,000 units annually for the next 20 years. He projected the financial requirement to address this deficit at ₦7 trillion, emphasizing the urgent need for substantial investment in the sector.
Arc. Ahmed Dangiwa, Minister of Housing and Urban Development, also addressed the issue at the AIHS event, aligning with Ashimolowo’s concern but offering slightly different figures. Dangiwa indicated that Nigeria needs to construct 550,000 housing units each year over the next decade to address the estimated 20 million unit shortfall. He suggested that an investment of approximately ₦5.5 trillion would be necessary and urged for stronger private-sector partnerships to tackle the housing crisis effectively.
Adebayo also called on the government to intervene by subsidizing land acquisition for credible developers and providing the necessary infrastructure to reduce overall development costs.
Additionally, he suggested that the government should enhance financing options for homebuyers through institutions like the Nigerian Mortgage Refinance Company (NMRC) and the Family Homes Fund Ltd. The HDAN Boss also recommended that the government should either subsidize locally sourced building materials or reduce the cost of importing them to make housing more affordable.
As the real estate sector grapples with these challenges, HDAN adds that without significant intervention and innovation, the dream of affordable housing may remain elusive for many Nigerians. “Developers, investors, and government agencies alike must work together to navigate these tough times and secure a sustainable future for the real estate market in Nigeria,” Adebayo added.
He said it is time for real estate developers to innovate and create new methods of funding and building new houses if they must remain in business.
