Surge in cost of building materials escalates home prices | Prestige Real Estate News

The increase in prices of building materials across the country is compounding the woes of the housing sector. Experts want the Federal Government to initiate policies that could ameliorate challenges, especially those fostered by exchange rate to boost supply and accessibility to affordable housing, Prestige Real Estate News reports.

Persistent high inflation and volatility in foreign exchange are taking a toll on building materials as prices of essential construction ingredients keep rising since the last one-year. The development has triggered ripple effects on Bills of Quantities (BOQs), prices of homes across board and rents in major cities.

Prices of essential building materials like cement, blocks, doors, reinforcement bars, sands, timber works, paints and tiles have risen by over 75 per cent in the last 10 months and this has become a source of concern to operatives because of the direct impact on supply, affordability and accessibility to housing, especially for low and middle-income Nigerians.

Rental prices are also increasing in low-income settlements with a two-bedroom flat increasing from N400, 000 to N600, 000 while the three-bedroom rose from N500, 000 to N800, 000 and could be higher depending on location. For the same type of units in highbrow areas, a two-bedroom is as high as N1.2 million while three bedrooms go for N1.5 million and above.

Nigeria’s inflation rate for September climbed to 26.72 per cent, marking a 0.92 per cent increase from the previous month’s 25.80 per cent. The recent upsurge in inflation is mainly linked to the removal of petrol subsidies and the devaluation of the official exchange rate, both exerting substantial impacts on consumer prices. According to a report by the National Bureau of Statistics (NBS), the September 2023 headline inflation rate increased to 26.72 per cent relative to the August 2023 headline inflation rate, which was 25.80 per cent.

In active construction sites in Lagos, Ogun, Port Harcourt, Kano, Abuja, Anambra, and Oyo states, the high price of essential materials is impacting project schedules, thereby slowing down construction activities. Many are abandoning sites waiting for better days. Investigation revealed that a developer, who had expended N50 million to construct a building last November, would end up spending about N100 million for the same type of project due to inflation.

The exchange rate crisis has worsened the woes of the building sector. The direct effect of exchange rate is being felt more on imported materials like windows, doors, ceramics, tiles, plumbing appliances and sanitary wares, which represent 23 per cent of materials in the building market. The prices of the local materials, which account for 37 per cent of materials in the market, have also been affected by increase in the cost of production and transportation to the end-users.

The depreciation in the value of the naira directly affects the prices of virtually all building materials in the construction industry. Material components of a building accounted for about 60 per cent of the building cost. With the present economic situation, the downward trend of the value of the naira, cost of materials continues to escalate at a higher rate.

The Guardian monthly survey revealed that as of last December, a 50kg of cement, which was N4, 300 now cost between N5, 100 to N5, 300 for popular products. Although BUA Cement announced a slash from N5, 500 to N3, 500, many retailers have refused to adjust prices amid scarcity of the product in the building materials market.

For others like sandcrete block, which was previously N350 for 9 inches, the price has gone up to N450 and N500, while price of reinforcements across diameters, which was previously N450, 000 now hovers between N500, 000 and N555, 000 per tonne. Price of imported doors has equally increased from previous N32, 000 to over N35, 000. The same situation applies to paints, sanitary wares and others.

The high cost of construction materials has also slowed-down demand for housing, as many cannot afford to build or buy a home. Sources among materials dealers told The Guardian that foreign exchange rates, transportation costs, and government policies contributed significantly to the high cost of materials.

Exchange rate fluctuations, they say, can have a substantial impact on the cost of building supplies, causing price rises or decreases, while transportation costs, such as fuel price, roads, and security, could have a substantial impact on the cost of building supplies.

A Lagos-based dealer in building materials, Eze Simon, said the situation has turned bad as materials are imported with high cost of dollars, adding that for a 40-feet container, an importer can spend about N11 to N12 million to clear the goods.

“When you now bring the goods into the market, people cannot afford to buy because there is no money. So, the situation is difficult now. Sometimes, when you open a shop, during the day you may not see a single customer and those that may come will complain of high prices. Some of us just locked up our goods in the warehouse,” he said.

He blamed the situation on government policy. According to him, the high costs of clearing goods at the ports also make the situation worse.

A cement dealer, Mr. Sunday llesanmi, said ideally, a 50kg of cement should not be more than N2, 700 or N3, 000, if the government promotes competition in the market by granting more licenses to manufacturers to operate in the cement sector.

However, the price surge compounds the poor state of the economy, especially the cost of doing business where producers spend a lot on diesel and petrol to power their equipment.

“The cost of logistics; transporting cement has increased and also some of the labourers that help to offload the product from trucks ask for increased payment. Those collecting for instance N100 before are now asking for N200. Those that book the product from the factory also add their money. These activities impact the prices we sell at the end of the day.

“Most of the dealers still focus only on selling a product that customers demand mostly. We are hoping that before the end of this year, the price will crash greatly,” he said.

The Chief Executive Officer of Tetramanor Limited, a property development company, Mr. Femi Beecroft, told The Guardian that the high cost of materials reflect in the price of houses. He lamented that after developers have invested huge amounts of money on property, homebuyers are not ready to pay high prices.

To alleviate the high cost of building materials, players in the building industry argued that government policies, such as taxes, tariffs, and restrictions; can have a substantial impact on the cost of building materials. High taxes or tariffs on imported building materials, for example, can raise the cost of construction, whereas policies that encourage local production or reduce taxes can lower prices. Simon urged the government to review its policies and put things in order.”

Former President, Nigerian Institute of Building (NIOB), Mr. Kunle Awobodu, said the inflationary trends have created different fluctuations on the Bill of Quantities (BOQs) and contract sum of many projects in the country.

Awobodu said the increase has also created inconsistencies in pricing of projects, adding that it is not a good development in any sector to keep reviewing prices of items because it creates misunderstanding between clients and contractors.

He argued that the issue is a grim situation for the building industry but emphasised that since it has become a reality, the Federal Government needs to facilitate initiatives by establishing a special foreign exchange window for importers of building materials.

Awobodu explained that with what Nigerians are witnessing now, there will be much increase in home prices across the country.

“It is only those Nigerians in diaspora and developed countries that earn in dollars that can easily purchase houses today because the purchasing power of most Nigerians has been depleted by the present economic crisis in the country. That is why the demand for houses for rent has dropped drastically. The same applies for houses for sale,” he said.

According to him, the housing sector is going through a critical period, whereby those involved in building production need to be encouraged not to fall into the temptation of reducing the quality of projects to save cost.

He warned that reducing the quality of buildings could trigger unprecedented records of building failures in the country.