Real estate shows resilience in the face of high building material costs

Nigeria’s property sector has shown resilience as growth accelerated to 4.44% in the first quarter of this year amid rising construction material costs and headwinds in the economy reflected by a galloping inflation, high interest rates and a volatile exchange rate.

The growth shows a significant increase from the 2.26% it recorded in the last quarter of 2021 and 1.77% in the first quarter of 2021.

This means that the sector still offers prospects for investors, but it is especially for those of them who have patient capital and a long-term view of the market. It also means that investor confidence in the sector remains strong despite what experts describe as a fragile recovery in the economy.

Experts have attributed the industry’s growth to increased activity, which they say shows that investors have ignored economics and high material costs to pursue investments and developments.

At his monthly breakfast at the Lagos Business School, Bismarck Rewane, CEO of Financial Derivatives Company, said spending on real estate assets would increase ahead of the general election, describing the sector as a beneficiary of money laundering .

MKO Balogun, CEO of Global PFI, said the sector’s growth is a result of the investment opportunities it offers, adding that it is the only asset class that is reassuring investors at the moment.

Also read: Why real estate is an easy target for investing laundered money

“The capital market is not doing well, and there are a lot of concerns about cryptocurrency and all these investment interests in real estate, which is also a low-risk asset,” Balogun said.

According to him, real estate is flexible, allowing investors to buy and sell when they want.

He pointed out that growth is also coming from changes in the location and size of products, making it easy for young people to adopt them, unlike in the past when houses were large in size and occupied only by the elderly and the rich. “There are also affordable rents now on the market and all of that has contributed to the growth we’ve seen,” Balogun said.

He said the positive movement in the sector is not just about Nigeria. This aligns with Rewane’s projection that the global real estate market will grow 150% to $85.1 trillion over the next three years.

Rewane said Lagos, the commercial nerve center of Nigeria, would continue to be the main driver of Nigeria’s property investment landscape, adding: “Rising insecurity is fueling demand for gated communities and residential assets in Abuja, while prices and sales values ​​in major cities for land and residential apartments have increased.”

Rampant inflation in the country has altered commodity prices across the board, and in real estate this has been compounded by other macro-economic issues such as high interest and exchange rates.

These have affected the prices of building materials such that the average cost of a bag of cement in Nigeria is N4,200 for retail quantities and N3,800 for wholesale quantities (loading the trailer) or what is called the non-deposit price.

Across the country, prices for building materials have increased significantly. In Lagos, for example, a 50 kg bag of Dangote brand cement sells for N4,500 and that is the retail price. A 50 kg bag of Lafarge cement sells for N4,000 (retail price) while the aggregate sale price of 600 bags is N2,275,000. The Ibeto brand of the product costs N4,100 (retail price) while the wholesale price of 600 bags is N2,270,000.

In Imo State, Eugene Nweke, a construction engineer and developer, revealed that prices for building materials had risen in the southeast. “The cost of cement in Owerri is now 4,300 naira,” he said.

“A granite truck (30 tons), which sold for 240,000 Naira, is now being sold for 350,000 Naira, which is an increase of 46 percent,” he added.

Livinus Nwankwo, a building materials dealer in Zaria, Kaduna state, told BusinessDay that rising building material prices are having multiplier effects on the industry, adding that many projects are on hold in due to the cost of materials.

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The implication of these developments is that affordable housing will remain elusive to the common man; furthermore, some developers might cleverly drift into using substandard materials just to survive the challenge.

Nwankwo said the cost of the roofing sheet (020) has increased from N33,000 to N37,000 (12%) within six months, while the price of the iron rod (12mm) is went from 4,200 N to 4,700 N. (12%) in the same time frame,” he said.

The price of steel rebar, also known as rebar, is a major concern in the construction industry. From N275,000 per tonne in September 2020, the price rose to N345,000 per tonne in January/February this year and is now over N400,000 per tonne.