THE EFFECT OF HIGH INFLATIONARY TREND ON REAL ESTATE MARKET IN NIGERIA

ESV Vincent Veldong Agwo

The economy of Nigeria is described by many as a middle-income, mixed and emerging market gradually expanding in manufacturing, financial, services, real estate, technology, communication. However, the Nigerian economy is faced with a very harsh operating environment and possible lack of political will which has undermined businesses across all sectors with the real estate sector as one of the worst hit sectors in Nigeria today.

As a fall out of the many challenges, Inflation rate has continued to trend higher. The May 2023 inflation figure was put at 22.41% from 22.22% in April, 2023. This trend has affected both the cost of building materials as well as the cost of managing housing facilities since prices are generally the determinant forces.

Sourcing foreign exchange for the importation of building materials by developers has not been an easy task. The recent government policy on the exchange rate harmonization between the official and parallel market exchange rate resulting in the scarcity of dollars has affected all businesses including the importation of building materials. The fluctuations in the foreign exchange market have badly derailed and negatively affected real estate developments and the entire real estate ecosystem with direct implications on the quality and quantity of houses being developed in Nigeria.

For a country with an acute housing deficit, meeting the housing needs of Nigerians will not come anytime soon going by the impasse currently faced in the real estate sector.

Consequently, access to credit facilities for real estate development from the established institutions such as deposit banks and other mortgage institutions is cumbersome if not impossible.

At its last Monetary Policy Committee (MPC) meeting, the Central Bank of Nigeria (CBN) further increased the interest rate from 18% to 18.5% implying that real estate developers cannot cheaply access credit facilities from commercial banks and other lending institutions.

The abrupt removal of subsidy on Premium Motor Spirit (PMS) in May 2023 by the current government was an economic shock to so many sectors of the economy, including the real estate sector.  This is one policy that all businesses are managing to cope with and this has reduced the volume and frequency of transactions in the real estate sector.  According to the National Bureau of Statistics (NBS), the Federal government’s debt was N67.3 trillion as at March, 2023. Since the government is in a huge foreign and domestic debt. Who will bail out critical sectors of the economy like housing?

Now that the exchange rate has been harmonized, the only way Nigeria as an oil producing country can comfortably earn foreign exchange and assist critical sectors like real estate is to earn more dollars through production and massive exportation. Sadly, and unfortunately, Nigeria is a consumption economy and not a production economy.

 The country’s low oil production which has not improved for a very long time due largely to the unrest and smuggling activities in the Niger Delta oil producing region is a serious economic drawback to critical infrastructural investments like housing.  These problems have hitherto resulted in the inability of the country to meet its OPEC quota of 1.8million barrels per day and its continued debt servicing are all part of macroeconomic drawbacks.

The following are suggestive of the way forward; the government should create a congenial macroeconomic environment through policies and harmonisation of foreign exchange that will favour and boost businesses like the real estate.

The government should ensure an efficient and specialised mortgage institution. if possible, the need to create a REAL ESTATE BANK that will ease and lower lending/interest rate to a single digit for the growth of the real estate sector to serve as its spring board is necessary.

 Essentially, both local and foreign investments in the real estate sector should be encouraged, funded and protected by the government at all levels. Nonetheless, the political will, favourable business environment and the needed macroeconomic policies that would accord a push as well as drive these solutions are more needed now than ever.

ESV Vincent Veldong Agwo is a registered Estate Surveyor and Valuer, and works for the Nigerian Maritime Administration and Safety Agency (NIMASA).

He sent in this piece from Lagos.