House prices, rents seen jumping on CBN’s rate hike

The Central Bank of Nigeria (CBN)’s recent hike in interest rate to 27.75 percent could raise construction and maintenance costs across the nation, operators in the Nigerian real estate sector said.

They noted that banks could be lending at almost 40 percent, shutting out developers from the credit market.

The situation will stifle housing supply and force owners of available ones to jack up prices and rents.

“Real estate developers are investors. Any change in the price of building materials or cost of funds will push them to mark up their prices or rents because they have to recoup their investment and make profits,” Odunayo Ojo, CEO, UPDC Plc, noted in a chat with BusinesDay.

Ojo said with the new interest rate, both house prices and rents will increase. He noted that house prices will rise faster than rents in response to the new rate, given that most tenants pay rents annually.

“It is on the anniversary of rents that increases are implemented,“ he said.

Olubisi Shaola, a property lawyer and Lagos-based real estate developer, also sees higher house prices and rents coming, explaining that, at the current rate, not many developers would go for bank credit as banks will charge rates close to 40 percent – which is not sustainable.

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“If you take a loan, it will be subject to variation with rate increases. So, to be honest, no one is going to the bank. The implication is that the rent people pay now will go up. Do you know why? When developers are not given money to build more houses, housing deficit increases because supply is reduced while demand is getting higher,” he explained.

He noted that as demand rises, prices go up, increasing the number of homeless people in Africa’s most populous nation. “The rent for one-bedroom self-contained apartment going for N500,000 per annum in Surulere now will move up to between N850,000 and N1 million. This will force a tenant who may be working in Ikoyi to relocate to Ikotun or Egbeda.

“You can imagine the man-hour such a person will be wasting on the road commuting from Egbeda to Ikoyi. The productivity of such a person is anything but encouraging,” Shaola said, noting that the situation in the country today is beyond human redemption, hence the need for God’s intervention.

Besides house prices and rent increases, it is also anticipated that rent defaults and delayed project delivery or suspension will rise.

Already, rent default is tearing landlords and their tenants apart, as the tenants, burdened by rising cost of living, find it difficult to pay bills, including rents.

According to Gbenga Olaniyan, chairman, Estate Links Limited, the big irony in the CBN’s rate increase is that, while it is said that the new rate is aimed to stabilise the naira and tame inflation, the actual fact is that it is making things worse.

“Just on Wednesday, someone said that the price of blocks would go up because those vehicles carrying them use fuel or diesel. At the end of the day, all of these will impact on house prices and rents. Income isn’t going up, but rather it is being rubbished by inflation.

Read also: Abuja residents seek government help on rising house rents

“There’s a project we have in Ikoyi, Lagos. We had to renegotiate with the contractor despite having given him a large deposit upfront. The deposit was used to buy materials, pay for labour and reinforcement which, in the bill of quantity, was N700,000. Right now, it is N1.4million per ton,” he said, stressing that the delivery of many projects will be delayed because of these rising costs.

Olaniyan also noted that there will be rising defaults in the payment of rents and service charges. He pointed out, however, that this will be more prevalent at the mid-income market unlike the high end where most of the problems happened about three years ago.

“For example, at the high-end service apartments, even if diesel goes up to N2,000 per litre, they will still buy because they can afford it. But at the mid-income level, there is a challenge,” he said.

After a two-day Monetary Policy Committee (MPC) meeting in Abuja, which ended on Tuesday, September 24, 2024, Olayemi Cardoso, governor of the CBN, announced that the apex bank has raised the monetary policy rate (MPR), also known as the benchmark interest rate, to 26.75 percent with the hope of battling inflation and creating a favourable environment for foreign investment.

This, in the opinion of some Nigerians, is going to worsen the already bad macro-economic condition where inflation has taken commodity, especially food, prices to the roof-top, leading to hunger and starvation in many homes.