Rising Cost of Building Materials: Its Implication in the Nigerian Property Development Market

ESV Patrick Ogunjobi.

In every economy, the real estate sector plays a pivotal role in the overall economic growth and development, and there are specific macroeconomic elements that influence the trajectory of this important sector of the economy. Paramount among these factors is the cost of building materials otherwise known as the cost of real estate development.

Property development is a very important sub-sector of the real estate space both in developed and developing economies of the World. The property development sub-sector is clearly responsible for the provision of the housing products upon which other real estate functions rely on. Simply put, without land and housing, other real estate functions like valuation, marketing, property rating, estate agency, property management, facility management, and auctioneering cannot take place. Thus, property developers hold a centre stage in the real estate space.

The Nigerian property development market is being faced with a lot of challenges and the most pressing of them all is the rising cost of building materials as occasioned by the ailing Nigeria economy. Macroeconomic factors like the high exchange rate, rising inflation, high cost of importation, and of course the very fragile economic and political environment are all threats to the growth of the property development sub-sector of the Nigerian real estate space. Property developers in Nigeria depend largely on importation of materials needed to develop the housing needs for the Nigerian economy, and as long as the exchange rate remains high and fluctuating, planning and achieving set goals by developers will remain a challenge.

Across markets in Nigeria, the cost of buying building materials are on the rise, almost on a weekly basis. The cost price of 9-inches blocks is between the price range of N250 to N300. This is as a result of the high cost of buying cement which is a very key building material.  In Nigeria today, 50Kg of the popular Dangote cement is sold between N4,000 to N5,000. This when compared to the prices of cement few years back is a serious economic challenge being faced by property developers in Nigeria.

Other key building materials like steel rods, concrete, laterites, roofing sheets, windows, doors, tiles, nails, plywood, aluminium roofing sheets, among others have been on the rise in recent times. For developers that have been able to keep pace with the rising cost of building materials, the cost of delivering real estate projects is high and thereby making the houses available but not affordable to investors and real estate consumers who are in need of the buildings.

Labour cost of hiring professionals for real estate development is equally on the rise. Of course, to deliver a state-of-the-art structure in line with the international standards, many professionals in the built environment must make their input. The hyper inflationary trend in Nigeria has eroded the purchasing power of consumers, and the only way to meet up with the economic challenges is for the professionals to charge reasonably high.

To address these aforementioned challenges, the economic climate in Nigeria must be brought to normal by the government at all levels through its agencies. The current cash crunch, both in foreign and local currencies must be addressed by the Central Bank of Nigeria (CBN) through the money deposit banks. The financial intermediation function of Money Deposit Banks (MDBs), otherwise known as commercial banks should be fully carried out in addressing the challenges of cash crunch.

Measures to regulate the exchange rate should be put in place by the Central Bank through its monetary policies. Forex should be made available to importers of building materials.  Tax holidays and waivers should also be granted to the importation of key building materials.
Mortgage institutions like the Federal Mortgage Bank should quickly come up with a product aimed at addressing the many challenges that are facing real estate developers in Nigeria.
ESV Patrick Ogunjobi, a registered Estate Surveyor and Valuer, he is the Lead Partner at Patrick Ogunjobi & Co, a leading Firm of Estate Surveyors and Valuers with specialisation in property development. He sends in this piece from Lagos, Nigeria.