Nigerians may be waking up to more green buildings coming to the property market as real estate product suppliers adjust to the harsh impact of President Bola Tinubu’s administration’s economic policies and reforms.
In quick succession, the Tinubu administration developed policies that included removing fuel subsidies, floating the local currency, and lifting foreign exchange restrictions, leading to economic hardship for the citizens and high operational costs for businesses across sectors.
In the real estate sector, it is expected that developers, in a bid to reduce operational costs, will focus more on introducing green features in their buildings to lower energy costs primarily.
Green buildings refer to the structure and application of environmentally responsible and resource-efficient processes. They are sustainable buildings that minimise energy and water consumption and are vital to sustainable urban development that seeks to combat climate change.
According to close market watchers, these policies will have short, medium and long-term impacts on real estate, noting that, in the short term, the effect of the fuel subsidies removal, for instance, will result in changes in the cost structure of the built environment.
“Increased pump prices will directly lead to the overall cost of construction as some site equipment/machines are fuel-powered,” Tayo Odunsi, a Doctoral Researcher at the School of Real Estate & Planning, Henley Business School, said.
Odunsi added that labour costs would also be hit as higher pump prices mean increased logistics costs and daily wages, noting a large proportion of construction projects rely primarily on road infrastructure to transport building materials to the site or dispose of away debris.
Market expectation is that, in the short term, too, there will be an increase in property maintenance costs, leading to an increase in service charges for gated communities in core cities. Residential and commercial occupants who use generators will be faced with the decision to use more efficient alternative energy sources.
Odunsi says, “Property management, brokerage and facility management firms are already adjusting their operational cost models – impacting both real estate asset owners and occupiers. The efficiency of artisans, technicians and machine operators involved in construction projects will be affected as the overall input costs may moderate decisions to visit facilities for repair works.”
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To optimise investment outcomes, developers are expected to attempt to intensify their residential and commercial developments by increasing floor levels and incorporating a land use mix. The ongoing run of mixed-use developments will increase, especially in urban areas with high demand for residential use.
Investment experts see developers who had secured dollar-denominated credit facilities and reported revenues using the Central Bank of Nigeria (CBN) pegged rate of N460 to foreign investors returning to the drawing board to adjust revenue targets.
“This is partly because developers were buying materials at black-market rates and selling projects reflective of this. The effects will be more pronounced with Proptech startups as valuations are revisited,” John Onyeanusi, a property technology expert, said.
Onyeanusi said there would be increased rent defaults, explaining that the residential sub-market would see a surge in rent defaults as households prioritise spending on groceries and energy.
“Tenants will struggle to meet rental obligations in the short term as they are forced to navigate increased pump prices.
“Barring any efficiently executed interventionist policies by the government in the short term, the removal of petrol subsidies will inevitably reduce individuals’ purchasing power. This will continue into the mid-term,” he said.
He noted that projects that rely on subscribers making instalment payments might encounter delays in project delivery due to some subscribers being unprepared for the change in project cost.
The market also expects a shift in Diaspora investment as investors in this class who have long benefitted from the multiple exchange rate regime because low dollar amounts could afford more naira will have to rethink.
“With the new exchange rate policy, the reverse is likely the case and may disincentivise diaspora investors. In the last five years, residential property developers have reported a spike in diaspora purchasing, often as an investment option through Buy-to-Let arrangements and maintaining ties with their home country,” Onyeanusi said.
