Rising Inflation Impacts Real Estate Sector, Delays Projects
The real estate industry in Nigeria is facing significant challenges due to rising inflation and market uncertainties. This has led to the need for renegotiating contracts and delaying projects. The increasing prices of building materials and other critical components of infrastructure development have created a rift between real estate developers and contractors.
Many real estate projects have experienced a significant difference between the quotation prices agreed upon at the beginning of the project and the actual market prices during execution. As a result, developers are reluctant to bear the additional cost and are seeking to pass it back to the project owners. This has resulted in back-and-forth negotiations that not only slow down the pace of work but also prolong the delivery dates of these projects.
The impact of rising inflation is not limited to ongoing projects. It has also led to an increase in the rent of houses and offices in urban areas across the country. The continuous surge in prices of cement, sand, aluminum materials, and roofing materials, among others, is affecting the cost estimation of housing projects.
Real estate players, including property developers, contractors, and construction business experts, are concerned about having to re-price contracts and evaluate costs to combat the inflation in building reinforcements. The sector is struggling with the fall of the naira and surging inflation, which have disrupted commercial projects and their delivery timelines.
The Principal Partner of C23 Consulting Limited, Damola Akindolire, explained that developers are evaluating and re-pricing projects. While some projects can continue, others have to be dropped due to the increase in construction costs. Inflation has impacted project delivery by 30-40%, and house prices are expected to rise by 40-50% in the short- to medium-term.
Housing development in Nigeria heavily relies on imports, especially for finishing materials. With the current exchange rate, projects that were benchmarked at N700/$ will have to be delayed. The inflation rate has been steadily rising, reaching 24.08% in July, up from 22.79% in June, according to the National Bureau of Statistics (NBS). This explains the persistent increase in cement prices and other building components in the market.
The delay in project delivery not only affects developers but also has a broader negative impact on the market. As supply shrinks and demand increases, sales and rent prices have risen by approximately 40% in the first half of the year.
Frank Okosun, CEO of Knight Frank Nigeria, confirmed the sharp rise in house prices due to inflation. Newly built properties reflect the increase, affecting both sales and leases. Market uncertainty and the rising cost of goods have led stakeholders to adopt a wait-and-hold strategy, slowing down capital-intensive projects.
The impact of rising inflation is evident in the rental market as well. House rents have increased in all market nodes in Lagos, affecting both new and old buildings. The rental prices of different types of apartments have significantly risen in various areas across the city.
It is clear that rising inflation is causing disruptions in the real estate sector in Nigeria. Developers are facing the challenge of re-pricing contracts and evaluating costs, while the rental market experiences significant increases. The effects of inflation are expected to continue in the short- to medium-term, impacting project delivery timelines and further influencing house prices and rents across the country.
