2023: Election, inflation to shape real estate market ~ Prestige Real Estate News

JOSEPHINE OGUNDEJI writes on the issues that will influence the real estate sector in 2023

Housing deficit has been a reoccurring issue in the country, growing from bad to worse on yearly basis. It is aggravated by the ballooning population, which is growing by about 2.6 per cent annually. Successive governments’ efforts have only scratched the surface.

The country’s housing deficit was recently put at 28 million, requiring about N21tn to bridge the gap. In 1991, housing deficit stood at seven million and worsened to 12 million 2007. And by 2019 it was N20 million.

The country’s housing challenges become daunting when compared with other African countries. Ghana’s housing deficit is 1.8 million; South Africa, 3.7 million; and Ethiopia, 400,000.

The challenge has been traced to Nigeria’s population which is currently at 2.6 per cent per annum and currently outpacing the housing provision in the country.

The Bank of Industry had noted in a report on Nigeria’s housing sector that “With a growing urban population, increasing construction costs, and declining household income, access to affordable housing is becoming more difficult for millions of citizens.”

Another report by the Federal Mortgage Bank of Nigeria titled “Institutional turnaround for the next level” indicated that although the Federal Government budgeted N470bn for housing in 2022, the sector would require trillions of naira to close Nigeria’s housing gap.

It stated that of the estimated 206 million persons in Nigeria, about 95.1 million lived below the poverty line, and as such, it was difficult for them to have access to their own homes.

The BOI, however, outlined some critical areas to be addressed to reposition the housing sector in Nigeria, stressing that adequate financial intervention in the housing value chain was required to boost development in the sector.

“Increased partnership with the organised private sector is crucial to unlocking opportunities in the real estate market,” the BOI report stated.

Soaring housing prices

The cost of low-income houses is fast becoming unaffordable to an average worker, an earlier report has found.

The report, published by Nigerian Proptech, Estate Intel, attributed this to the continued rise in the prices of houses, both rental and sale prices.

It stated that there had been a corresponding rise in construction costs, as cement prices had increased from N2,450-N2,510 in 2021 to N3,900-N4,200 in 2022 for Dangote Cement. It also stated that land prices have been on the rise, with areas such as Epe recording over 100 per cent growth in the last five years.

It noted that while all these costs had likely impacted rising home prices, a resultant increase in disposable income had not been recorded, making residential real estate unaffordable for the average Nigerian.

The rising cost of housing, particularly house rent, has eroded the purchasing power of Nigerians, pushing more people below the poverty line. According to the Executive Secretary, Association of Housing Corporations of Nigeria, Toye Eniola, poor implementation and mismanagement of the economic policies were largely responsible for the upsurge in the rising cost of general living which has continued to push more people below the poverty line.

He said, “Today, virtually everything in this country is determined by the price of foreign exchange market rate. This ineptitude of the manager of our country and their inability to stabilise the exchange rate is causing more damage to the economy and people are becoming poorer and poorer without visible hope for the people, especially the youths.”

The Chief Executive Officer, Riel Homes, Kolade Adepoju, blamed inflation for the rise in housing cost.

He said, “First thing we can say that is affecting the rise in the cost of housing is inflation and it is a global thing. Inflation is eating deep into every nation and industry. The cost of materials has increased by a minimum of 70–200 per cent, so automatically it is going to affect the price of housing.

“Second thing I will say is the lack of regulatory bodies, especially in Nigeria. Because we have no regulatory bodies, many companies and individuals are just increasing the price as they wish. Regulatory bodies should regulate the price even though there is inflation everywhere. It could be managed in a way that will not affect the people.

“The third thing I will say which is like a continuation of the second one is greed. Many people are greedy in this part of the world. They just capitalise on what is not. Many people use a rise in exchange rate as an excuse to increase the price of housing but in the real sense it may not be affecting them as they portrayed it. For example, everything we use for construction in Nigeria can be sourced locally with very good quality.”

The Managing Partner, Ubosi Eleh & Co, Chudi Ubosi, noted that the issue of the incessant hike can be looked at from a couple of perspectives.

He said, “Property development has continued to be an expensive venture from land acquisition to obtaining consent or good title to government approvals and then the actual construction, which involves buying building materials at the current high prices. The result is that upon conclusion, the developer wants to charge a premium to enable him/her to begin the process of recouping their investment.

“Another perspective is that real estate is an investment like any other investment. Investors sweat their investments to ensure they are getting maximum dividends from them at any time.

“In addition, the poor infrastructure and services in the majority of Nigerian neighborhoods should ordinarily bear to facilitate development in neighborhoods is usually borne by the developer. These costs have the ultimate result of increasing the cost of delivery of houses, which at the end of the day is transferred to the prospective tenant by way of high rents.”

While proffering a solution, National President, Nigerian Institution of Builders in Facility Management, Dr Akinsola Olufemi, stressed the need to strengthen the local currency and reduce reliance on imported building materials as a way of cutting down housing cost.

“Now that Ajaokuta Steel Rolling Mills is back on stream, it is expected to impact positively on the cost of steel reinforcement. The government should control the price of cement relative to what is obtained in other West African nations.”

Building collapse

Building collapse was one of the major issues that plagued the Nigerian real estate industry in 2022. No fewer than 61 buildings collapsed across the country. According to a report by the Building Collapse Prevention Guild, out of these structural failures, Lagos State recorded 20 incidents, representing 48.7 percent of the entire cases in 2022.

The immediate past president of the Nigerian Institute of Building, Kunle Awobodu, said it is an aberration when new buildings collapse frequently, while some old buildings are still intact after several years, meaning that something has gone wrong.

Awobodu said, “This brings us to the expiry date of a building. Theoretically, a building is assumed to have a lifespan of about 60 years. However, looking at the age of the Wiston Castle in London for instance, the castle has been there since 1070. Coming home to Nigeria, in some of the building surveys conducted by the Nigerian Institute of Building in 2020, it would be discovered that buildings like the Water House owned by Candido Da Rocha on Lagos Island were constructed in 1874 and were still stable when we conducted a structural integrity test on it.

“This means that the construction technology is questionable, and the durability of materials and professionalism is very essential when buildings are being constructed. In addition, the problem of quackery in the building construction industry in Nigeria has been a major cause of frequent building collapse.”

According to the former president, Nigeria has a systemic failure, where those who are putting up buildings don’t pay attention or abide by the building control regulations.

He noted that the construction of buildings should be executed by professionals licensed to build.

He said, “The construction stage of buildings should be handled by those who by training have experience in building technology, and are licensed to construct buildings. In this case, professional builders become liable if anything goes wrong outside natural disasters.”

Speaking on the real estate projection in 2023, the Executive Secretary of Association of Housing Corporations of Nigeria, Toye Eniola, stated that nobody can really say what 2023 will look like.

He said, “From my perspective, l do not think we should expect any spectacular thing different from the current situation. This is because 2023 is an election year and by the time the new government is sworn in and settles down, the year would be winding up. For any visible change to happen in the housing sector, it will be a function of choosing wisely a housing-friendly government that regards housing as a subset and key element of reviving the economy from current degradation and stagnation.”

The Executive Director, Housing Development Advocacy Network, Festus Adebayo, 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. Like 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.”

Eniola, however, claimed that if the housing market situation persists as it is currently, the government needs to declare a state of emergency in the housing sector.

Culled from PUNCH