HOW INFLATION IS AFFECTING REAL ESTATE OPERATIONS IN NIGERIA

ESV Douglas Omachugo,

Economically speaking, the Nigerian economy is having its worst moments ever. All macroeconomic indicators are in the reds. Inflation is unarguably the main driver behind the recent push in interest rates, and this is widely impacting investments and investments opportunities across all sectors of the Nigerian fragile economy. Higher financing rate and cost of capital has led to unimaginable cost-push inflation in both the service and non-service industries in Nigeria.

According to the National Bureau of Statistics (NBS), the headline inflation for May, 2024 was put at 33.95%. In a similar vein, the central Bank of Nigeria (CBN) through its Monetary Policy Committee (MPC) recently raised the interest rate to 26.25%.  The CBN Governor, Michael Olayemi Cardoso, justified the continued increase in interest for three consecutive times as continued efforts towards moderating inflation which reached an all-high rate. The CBN argued that to tame inflation, the MPC decision was for the good of the Nigerian economy.

The economic and social implications of the galloping inflation, high interest and exchange rates in Nigeria are affecting operations across the entire value chain of the real estate industry. In the midst of all these economic challenges, food inflation is equally so high and leaving so many Nigerians in a state of acute hunger and compulsory starvation.  In 2022, the NBS and its collaborative development agencies (local and international) reported that so many Nigerian are experiencing multidimensional poverty. According to the widely circulated report, 63% of persons living in Nigeria (133 million persons) are multidimensionally poor. That is a state of poverty that depicts the lack of money, education and basic infrastructure at the same time.

With the picture painted above, it is crystal clear that only few Nigerians can afford quality housing, and only few developers will equally commit to quality housing development. With the escalating prices of building materials, developers are one of the worst hit professionals in the Nigerian real estate space.  Going by the high exchange and lending rates, it is a difficult time for developers. Even when the houses are eventually developed, the prices are far beyond the reach of so many Nigerians because of the high cost of capital acquired by the developers in the course of development.  

In 2022, the Nigerian housing unit deficit was put at 28 million units. No doubt, this is a disturbing statistics. With the current inflationary pressure that is affecting housing development, this disturbing figure is expected to rise, and leaving so many Nigerian residents with low-quality houses and even without houses as being experienced in most  urban suburbs in Nigeria.

The way forward out of this economic, housing and inflationary hardship being witnessed in Nigeria today is for the government at all levels to provide a congenial environment for all businesses to strive.  Sustainable economic policies aimed at alleviating poverty and taming the inflationary pressures should be put in place and implement to the latter without out bias and political colorations.

ESV Douglas Omachugo is an Abuja based registered Estate Surveyor and Valuer.