Abuja - August 21 - (Viewpoint Housing News) – The Nigerian real estate and construction sector has been grappling with the effects of naira depreciation. The cost of raw materials, labor, transportation, and contracts has skyrocketed, causing challenges for industry players. However, despite the naira hitting an all-time low against the dollar, there is a silver lining for Non-Resident Nigerians (NRNs) and foreign investors.
With the weaker naira, investing in Nigeria becomes cheaper for NRNs and foreign investors. The continuous depreciation has had socio-economic effects on the real estate industry. Over 60% of building materials used in construction are imported, and the rising exchange rates have led to increased costs of production.
The depreciation of the naira has also impacted the cost of borrowing to finance real estate projects, with interest rates reaching about 30%. This increase in borrowing costs affects the affordability of housing for Nigerians. Additionally, the high inflation rate, the highest since 2005, has further limited Nigerians’ capacity to own homes or pay for rentals.
The property market has experienced a decline in patronage, and many developers are facing challenges due to the currency fluctuations. The President of the Real Estate Developers Association of Nigeria (REDAN) emphasized the need for the government to stabilize currency fluctuations through regulations and provide affordable finance to boost construction activity.
Foreign investors in the real estate market may be discouraged by the depreciation of the naira, which also distorts the cost of capital. The decline in the value of the naira can trigger inflation and hyperinflation, impacting property prices and rentals. This raises questions about whether property prices have been increasing in real or nominal terms.
The depreciation of the naira and inflation can distort projections in property investments and lead to an increase in lending rates and construction costs without a corresponding increase in property value. As a consequence, asset repricing will occur in the short-term, and diaspora investment in the real estate market may slow down. Price reviews for off-plan sale agreements will also be necessary due to increased costs.
In conclusion, the depreciation of the naira has significantly affected Nigeria’s real estate sector. The government needs to take measures to stabilize the currency and provide affordable finance to boost construction activities. Rational investors must consider the risk of inflation in their investment decisions, as it can impact lending rates and construction costs. The real estate market will need to adapt to the new economic realities and find innovative ways to sustain growth.
Clayton County Register.