this it is not the best of times in the Nigerian real estate sector as the current state of the economy is adversely affecting it as construction activities are down sharply and property sales are very low.
The economy, weighed down by various factors from all sides, has been in a tailspin for about seven years now, and there seems little hope of a turnaround any time soon.
For example, the country’s inflation rate rose to a nearly 17-year high in July, fueled by rising food, energy and transportation costs.
The consumer price index, which measures the rate of change in the prices of goods and services, published by the National Statistics Office on Monday, August 15, 2022, showed a jump to 19.64 percent in July, from 18.60 percent in the previous month. month. The rate is the highest recorded since September 2005. The figure is also 2.27 percentage points higher compared to the rate recorded in July 2021, which was 17.38 percent.
The report added that food inflation rose to 22.02 percent in July, up from 20.60 percent in June.
The steady decline in the naira exchange rate against the dollar and other international currencies is also a major problem for the economy. On Thursday, black market operators sold $1 for N702 in the parallel market, where most users rely on the supply, while the official rate of the Central Bank of Nigeria stood at N427.43 to $1.
The steady decline in production of the country’s main source of revenue, crude oil, is also having a negative impact on the economy. Oil production stood at 1.183 million barrels per day in July 2022 from a record 2.4 million barrels per day in 2016. The decline is largely due to crude oil theft due to pipeline vandalism.
Because of all this, the once bubbling Nigerian real estate industry is currently gasping for breath, with experts lamenting the situation.
For example, the number of new housing units coming on the market has decreased dramatically over time, while many of those already on the market remain unsold, with potential buyers apparently not interested in buying.
Those who took out loans to build some houses were found to have high rates of repayment defaults, while many homebuyers who took out mortgages struggled to meet their obligations.
A former President of the Nigerian Institute of Estate Surveyors and Valuers, Mr. Bode Adediji, says the country is currently going through an unprecedented economic crisis caused by a myriad of factors including insecurity, poor governance, corruption, a dire national debt profile, stagflation, global recession. and management challenges, among others.
Adediji stated: “The real estate sector has been practically paralyzed by factors such as declining household income, unemployment, inflation and rising land and real estate prices, the continued collapse of the mortgage system and infrastructural deficit, among others.
“Accordingly, the professional-business aspect of the real estate sector is in serious danger more than ever before. The government must review the entire economic system and pursue targeted policies and programs to prevent total collapse. The widening gap between the tiny rich and the poor majority should be a cause for concern.
Stephen Jagun, a Lagos-based real estate surveyor and valuer, shared the same sentiment, saying the impact of the current economic situation on the real estate sector is huge.
For example, he said, the high exchange rate of the naira to the dollar is causing the price of construction materials and accessories to continue to rise, increasing the cost of buildings.
Jagun stated, “The Nigerian economy and market is difficult to predict. There is a lot of dirty money in the economy and people launder money through the real estate sector. Despite the fact that real estate prices are rising, those with undisturbed funds don’t mind investing in real estate.
“For those who invest in the property market to make a profit, it is now a buyer’s market as they now influence prices; because the sellers want to relieve what they have, they succumb to the prices.’
According to him, the situation is bleak for developers selling off-plan as they cannot store building materials like cement for too long.
Buying a property off-plan means that the client accepts the concept and design of the development with the hope that the implementation process of the project will be favorable and that the final product will meet their expectations.
Jagun said: “When building prices are set before construction starts, it’s usually difficult to go back to buyers who have paid or put down deposits and say prices have gone up. A lot of such developers have burned their fingers. Buyers may default on their financial obligations and developers find it difficult to keep their promises due to rising costs.
“People’s purchasing power is falling, people are struggling and the mortgage system is not working. People who don’t have ill-gotten wealth can’t play the market.”
He added that the Economic and Financial Crimes Commission is focusing on the real estate sector because those with illegally acquired assets hide their funds there and launder them through it.
“Due to the destruction that followed the #EndSARS protests, those with the right means want to move and live in gated estates for the security it offers, and as a result property values in such estates are rising,” he added. .
Among those from the middle class, some sell real estate even below the market value and move abroad, Jagun said.