The real estate sector in Nigeria showed signs of resilience in 2022 in the face of tough macroeconomic conditions; for most sectors of the economy, the business environment was challenging.
Though it was equally negatively impacted, the real estate sector, arguably, was the boon of the year as it remained resilient despite the shocks from hyperinflation, exchange rate regime and high energy cost, insecurity and flooding.
Inflation rate, which surged to a 17-year high of 21.47 per cent in November 2022 from 20.47 percent in the previous month, was the reason for skyrocketing prices of building materials such as cement, reinforcement, sand, roofing sheet, tiles, and granite, which peaked at 80 percent by year-end.
Inflation also crimped consumer purchasing power and eroded the value of people’s disposable incomes, making it almost impossible for them to buy new houses or change addresses. High maintenance costs also pushed up rents across the board.
The depreciation of the naira, which fell to almost 900 against the dollar, was the elephant in the room for the sector as developers had to pay more to buy building materials, especially finishing inputs, which are largely imported from abroad. That affected even labour cost for both professionals and artisans.
High energy cost was another major shock for the sector. The price of diesel, which rose from N320 per litre in February to N800–N850 in the second quarter of the year, caused upsets at construction sites while residents of serviced estates had to forgo several hours of comfort to curtail rising service charge.
This affected households as much as it did manufacturing companies that produced the input materials needed at building and constructions sites, leading to shortage in real estate products supply and increase in the prices of those that struggled to come to the market.
The average price of one-bedroom flats for rent in a highbrow location in Lagos, Abuja and Port Harcourt rose to about N900,000 per annum. Rentals for three-bedroom apartments now range from N1.9 million to over N4 million per annum.
Besides the macroeconomic impact, the sector also received shocks from the September—October flood disaster in the country described as the worst in the last decade as it submerged communities, farmlands and sacked homes.
“It was, indeed, a scary report from the Federal Ministry of Humanitarian Affairs , Disaster Management and Social Development,” according to Nasir Sani-Gwarzo, permanent secretary in the ministry, who also disclosed that over 500 people died from the disaster.
About 1,411,051 persons were said to be affected by the flood event. The displaced persons who moved out of their locations were up to 790,254 while about 1,546 persons that were displaced were injured.
While 44,099 houses were partially damaged, according to the permanent secretary, 45,249 others were totally damaged. In the same vein, 76,168 hectares of farmland were partially damaged while 70,566 hectares were completely destroyed.
Experts predicted that the flooding, which impacted residential and commercial properties in 18 states of the federation, could lead to about 5 percent–10 percent drop in demand and property value in those affected areas.
Apart from flooding, heightened insecurity was a major source of worry as, in some cases, houses were burnt, and developers, especially those in the Northern part of the country, could not go to site.
In spite these challenges, the sector remained resilient, with developers still doing developments and the sector contributing relatively significantly to the nation’s Gross Domestic Product (GDP).
“The market, product prices and values remained strong despite the strong economic headwinds. The upheavals in the foreign exchange market which impacted the economy and drove inflation to over 21 percent did not dampen real estate demand and values,” Chudi Ubosi, managing partner at Ubosi Eleh + Co, told BusinessDay.
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This, he said, was a clear indication that real estate remained a major asset investment class and is an asset class that many Nigerians should give serious thought to in 2023. “As much as possible, get onto the real estate ladder. No matter how low one gets, real estate remains a key store of value. And it is advised that people should go in with the long term in view,” he said.
Gbenga Ismail, vice chairman of Nigerian Institution of Estate Surveyors and Valuers, Lagos Chapter, attributed the recorded gains in the sector in the face of several challenges to ability of the sector to withstand socio-economic shocks, being private sector-driven, and carefulness by operators in financial transaction management.
This explained why both the construction and real estate sectors were able to contribute as much as N20 trillion to the GDP in three quarters, according to the National Bureau of Statistics (NBS). This, experts say, is quite significant.
The NBS data show that the construction sector contributed 9.5 percent to nominal GDP in the third quarter of 2022, which was higher than the 9.26 per cent it contributed a year earlier and higher than the 7.95 percent contributed in the second quarter of 2022.
It said the sector grew by 18.92 percent year-on-year in the third quarter of 2022 while on quarter-on-quarter basis, the sector growth rate was placed at 16.38 per cent. The contribution to nominal GDP in Q3 2022 stood at 4.96 percent, relative to 5.27 percent recorded in Q3 2021 and higher than the 4.95 percent reported in Q2 2022.
Festus Adebayo, executive director at Housing Development Advocacy Network, affirmed that the sector performed well in the year, saying, “In the first quarter of the year, the sector performed better than the last quarter of 2021 while in the second quarter, the contribution also increased.
“The last report from the NBS, affirmed that the performance of the sector has increased despite the inflation pressures, which led to high cost of building materials.”