By Chinedum Uwaegbulam
Nigeria’s housing market recorded a rise by about 40 per cent in cost of leases and sales in the first half of 2023, according to a recent survey. Amid inflation headwind, rising interest rates and attendant dip in new investments, the cost of lease or purchase of residential properties in major cities like Lagos, Abuja, Enugu, Port Harcourt and Kano has catapulted beyond the reach of many.
Though the development is partly dynamic, stakeholders have complained about the lack of standards and price control which have created opportunities for operators to exploit the weaknesses of the system culminating in indiscriminate increase in prices of commodities. The Monetary Policy Rate (Interest Rate) has climbed to 18.75%, from 16.5% at the beginning of 2023. This implies that the cost of capital has increased by 12% within six months, discouraging borrowing and reducing the volume of money circulation in Nigeria’s economy.
For the real estate and construction sector, construction cost has also risen and the eventual result is the delay in real estate supply, which can further exacerbate the pressure already on property prices. For several months, there has been an increase in the price of cement and other components, such as blocks and rings in the building materials market. Prices of paints, reinforcement and sanitary fittings, sand, roofing sheet, tiles and granite rose by over 70%. Rentals have remained resilient in core city centres with sustained growth in affordable and highly-accessible neighbourhoods. Sales have remained relatively stable, driven mainly by Diaspora spending and focus on off-plan properties.
Activities are concentrated in the new gated neighbourhoods and towns across these locations. Developers are more concentrated on one, two and three bedroom apartments and terraces, as their demand and supply have remained strong. Property experts have seen similar trends nationwide although the percentage change might not be the same for different classes of property.
In Lagos, increase in rent is happening in new and old buildings, and it is affecting the entire market. A mini flat such as a self-contained room and parlour in Agidingbi, Ikeja that used to be N400, 000 yearly has increased to N600, 000. In Ogba, an average three-bedroom flat has increased from N800, 000 to N1.3 million per annum. In posh areas like Lekki Phase 1, one bedroom flat, which used to range between N800,000 and N2 million, now goes for N1.5m and N3 million, while a three bedroom flat now rents for between N6 million and ₦8 million per year from N4 million and N7 million.
In Port Harcourt, Rivers State, one bedroom in Rumuokwuta is rented at N1.5m from N900, 000 and N1.1million. Its two-bedroom variant now rents for N2.5 million from N2 million. A two-bedroom and three-bedroom flat in GRA Phase 1 went up from N700,000 to N1.5m and from N2.5 to N4.5m respectively.
In Abuja, for instance, 3/4-bedroom terrace in Wuse that used to command N4 million as at 2020-2021, now goes for N6-7 million or more, currently. Detached 4/5-bedroom house in Maitama would command in the region of N10-N15 million, but now demands from landlords are as high as N25-N30 million; while an ambassadorial 4/5-bedroom detached house is now N40-N70 million from N25 million – N30 million.
Chief Executive Officer, Knight Frank Nigeria Ltd, Mr. Frank Okosun said: “We are experiencing a sharp rise in house price to about 40 per cent due to the inflation, both for sales and leases. Newly built properties reflect the increase due to the rise in inflation.”
On the supply side, the market uncertainty, coupled with the rising cost of goods, has made stakeholders adopt a wait and hold strategy leading to a slowdown, especially for capital-intensive projects, leaving capital to find its place in the market for capital-efficient projects. Given the sustained inflation growth and the consequent reduced purchasing power, landlords can justify the recent increase in rental prices and take advantage of the increased demand as a result of individuals’ rational preference to rent rather than buy.
Okosun disclosed that inflation, coupled with the uncertainty as a result of the elections, have impacted investors’ confidence and slowed down real estate activities in these city centres. “Developments have been delayed due to rising cost of construction materials. Sales activities are being driven by the Diaspora with special focus on off-plan properties and distressed sales, while rental prices have continued their upward surge with the market seeing more local renters than buyers. In Abuja particularly, developers are more inclined to terraces than other property types as a function of the highest and best use,” he said. For the remaining part of the year, Okosun said there may be no significant shift in demand for properties.
“However, we are still optimistic and bullish as activities might pick up this half. So far, the new administration has shown they are not scared of doing the difficult things and the free floating of the naira is one of those moves.”
The Chairman, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Lagos branch, Mr Gbenga Ismail, said the market has remained buoyant due to inflation, which has led to price increase in certain areas. “Definitely, inflation has impacted on prices largely due to replacement cost implications. The increase in Lagos is about 30% to 50%; however, Abeokuta and Ibadan are 30%,” he said. According to him, residential development remains the leader in the market; land transactions have also been frequent on the back of residential development. “Demand has remained stable, and has continued to fuel the demand and supply curve, as well as keep the valuation equilibrium in place.
On the impact of the Central Bank of Nigeria’s interest rate regime on the market, he said: “The property market exists on a full cash basis, so monetary policy may not necessarily impact the property ecosystem. Fiscal policy rather impacts more. There are less mortgage loans given to the market that will cause a reaction,” he said.
In the remaining part of the year, Ismail expects that “demand and supply will still continue to increase, which means land prices will continue to be on the rise. “The percentage increase in land is higher than that of the finished products. Land as an asset is currently best performing in the urban centre in most states.”
The Chairman, Association of Capital Market Valuers (ACMV), Mr Chudi Ubosi, said the half-year had been quite restraining, as investors adopted a wait and see attitude towards major investments in real estate. However, he noted that demand for residential homes remains strong. “Residential sector homes under the N25/35million price range remain very strong, especially flats, terraces and townhomes.” Ubosi, who said new policies have not impacted the real estate sector, is optimistic about the other half of the year and anticipates an upsurge in activities, as well as transactions.
The Chief Executive Officer, Northcourt Real Estate, Mr Ayo Ibaru, said an increasing number of low-income tenants would likely relocate to low-income areas due to the hike in house rents and rising inflation, adding that such relocations by this income class have been recorded from city centres like Wuse and Utako in Abuja to Niger, Nasarawa and Kogi States. He added that budget-friendly accommodations would continue to drive the demand for short-let apartments in cities, such as Ibadan, Abuja, Port Harcourt and Lagos. “Barring any major financial injections into the economy, there will be little relocation in the residential real estate market and likely be a reduction in the number of residential project completions. A large proportion of the funding available for investment will go to land, pending further investment direction from the government,” Ibaru added.
A property developer and Managing Director, NISH Affordable Housing Ltd, Dr Yemi Adelakun, reckoned that housing development in the first half of the year slowed down due to elections and transition to a new government. Similarly, removal of subsidy, which led to increase in prices also contributed to low activities in the housing market. “Tension created by the elections and the outcomes, as well as the after effect of naira crunch in the economy generally affected housing in all parts of the country, especially Lagos, Port Harcourt and Kano. Increases in cost of construction materials expectedly affected prices in the housing market. Even wages payable to artisans increased drastically. Supply of new houses may reduce in the short and medium term and the full effect on prices will only be realized in the second half of the year.” He said the high-end housing market remains strong as some buyers have resources to buy regardless of inflation. “Mortgages, which have been inadequate, will become even more unattractive with increase in interest rates. This will have adverse effects on both demand and supply of housing,” he said.
