The President Bola Tinubu administration has come up with a number of policies that are affecting the people and the economy in a number of ways that observers say is far-reaching.
In the last five months of the administration, Nigerians have seen some policies which, in their opinion, are the reasons for the unbearable high cost of living, crippled national productivity, crashed businesses and massive job losses that have led to poverty and hunger.
In the real estate sector, the situation is just dire and the players in this sector are not finding it easy in many areas, especially development, material sourcing, marketing, financing or cost of funds, etc.
According to a recent report by Northcourt Real Estate, in the mid-term, property buyers will have to come to terms with the new policy as prices are adjusted to reflect new realities. The report expects the construction sector will resume with adjustments in offerings.
“The developer and investor class alike will adjust design concepts for projects and this will feature more predominantly in the mid to low-income residential submarket in Tier one cities where competition for land is high,” Ayo Ibaru, the company’s CEO, noted.
He reasoned that housing on smaller lots and more intense land uses would see increased demand as a result of the high cost of capital, weak aggregate demand and tight revenue margins.
In specific terms, the report says the policies will lead to unsavoury impacts such as:
Exit of low-risk developers and investors: The report says that short-term costs will pile pressure on real estate market players with a low-risk appetite, forcing their exit to other investment options such as government securities as they post mouth-watering returns.
It adds that growth will, however, continue with mixed sentiments opening up the market to newer investors looking to invest long-term when the dividends of foreign exchange harmonisation and fuel subsidy removal policies begin to yield.
Increased infrastructure development: It is not all doom, however, for this sector in relation to the policies as fuel subsidy removal, particularly, has positive impact. According to Nigeria Extractive Industries Transparency Initiative (NEITI), the government spent more than N13 trillion on fuel subsidies between 2005 and 2021.
Looking at the opportunity cost of this huge amount spent on subsidies, the initiative says it is equal to the total budget for healthcare, education, agriculture, and defence over the same period. This, it notes, could have been used to build electrical facilities that would have added 10,000MW to the national grid.
The money was also enough to provide 23,000 solar-powered boreholes with storage tanks, 70,000 classroom blocks, 38,700 irrigation units, and 3,870 health centres. It could have also funded 260 academic research programmes.
“The removal of fuel subsidies presents an opportunity for the government to redirect its financial resources and prioritise investment in infrastructure,” the initiative noted.
Increase in abandoned projects: In the mid-term, the removal of fuel subsidies, coupled with escalating construction material costs, labour expenses, and transportation charges will likely contribute to the abandonment of construction projects.
These factors combine to guarantee that the refinancing required will be unattainable. On-going housing estates may face the risk of abandonment as plans are put on hold with investors reassessing their involvement.
Increased urban congestion: The removal of fuel subsidies and the subsequent increase in living costs have resulted in higher transportation expenses. As a result, occupiers are on track to spend more time near their homes, seek accommodation with friends or opt for shared apartments.
This surge in population density will drive the demand for co-living spaces as people seek affordable and accessible housing options within these congested urban centres.
Adjustment to the finishing regime: In the construction sector, ongoing projects will likely experience a delay in delivery due to the foreign exchange policy change. It is expected that some developers may stop construction temporarily due to the difficulty in accessing funds.
Others might have to change the construction and finishing materials to a more affordable standard to curb the rising prices. The removal of the fuel subsidy will disrupt the supply chain for inputs, leading to a delay in the delivery of properties.