By Sanni, Oseni Zuwedu (FNIVS,RSV).
Abuja – February 27, 2024 – Viewpoint Housing News.
Real estate is an asset that is procured in order to generate additional wealth through investments, capital gains, portfolio diversification, leveraged investments, prestige or political gain.
Every resource used in the creation of real estate has a competitive use or opportunity cost, for whatever reason.
This article is an attempt to examine the impact of the rising cost of building materials on Nigeria’s real estate investment market, its goal is to inform developers, investors, and legislators on the issues surrounding the rapidly rising cost of building materials and their impact on the housing sector, on businesses, and on investments, and social welfare programmes.
Nigeria’s housing sector is already stifled by a large deficit, according to UN estimates, Nigeria’s housing deficit in 2023 was 28 million units, with a population predicted to grow to 23.8 million. Additionally, as of the review period, around 28 trillion naira were needed to close the deficit. The Nigerian government, at all levels, investors, and real estate developers are putting a lot of effort into finding a solution to this issue. The exponential increase in the price of building materials, particularly cement, has presented a new problem for the players in the real estate value chain. Within a week, the price of cement went from N5, 000 each bag weighing 50 kg to almost N10, 000. In the real estate industry, questions over price, accessibility, and return on investment are being raised by the inflation of this important building material.
Historically, investment portfolio managers believed that real estate would act as a cushion against inflation. However, the current devaluation of the Naira has called into question this view and conviction, which may lead to a paradigm shift in real estate investment.
The predicament of devaluation includes currency erosion translating into a higher construction cost and ultimately higher selling prices and rent. This creates scarcity and pushes real estate out of the reach of many accommodation seekers and investors. While rental income nominally increases the ability to pay as at when due, maintenance cost and other outgoings may not keep pace with inflation for investment leverage. The problem poses challenges for investment in real estate by way of uncertain returns, limited liquidity, and shifting market dynamics. Despite these difficulties, people always need a place to live and do businesses.
This requirement sustains real estate investment, through the use of locally sourced building materials, dollar-dominated transactions, investment in prime locations, professional guardianship. Also purposeful government policies meant to stabilize the naira against major currencies and increase local production of building and other construction materials will make investment in real estate viable.
Real estate will always be important to the economy of any nation as it is a valued asset class, a source of income and capital gains, a source of revenue for the government, serves as a means of employment generation and also contributes to GDP.
In order to navigate these investment challenges or threats in the real estate space and continue to explore the investment opportunities in the Nigerian real estate market, investors must be more calculative in the risk and uncertainty and mitigate them through careful planning, strategic investment, and professional guardians.
Sanni, Oseni Zuwedu (FNIVS,RSV), is a Fellow of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), and registered with the Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON).