Property developers edgy as rising material costs cripple projects

Rising costs in Nigeria are increasingly hitting the construction industry hard, with many projects put on hold and developers and contractors on edge.

While households are contending with soaring food prices and energy costs, the construction industry is choking as building materials prices have almost doubled in the last 12-24 months on the back of surging inflation.

Contractors are groaning under the weight of diesel cost. Almost all the contractors in the construction value chain such as pilers, welders, mechanical and electrical engineers need diesel to power their generators to do their work.

Inflation, which rose to 17.7 percent in May 2022, has pushed up the price of building materials, notably cement, reinforcement bars (iron rods), roofing sheets, tiles, paints, and even sand by about 50 percent. The price of a litre of diesel has gone up by over 100 percent, from N300 per litre to N815 per litre.

The rise in inflation, according to experts, is underpinned by factors ranging from the pandemic impact to the Russia-Ukraine war, which has led to a surge in fuel prices and the cost of other commodities.

In Nigeria, a 50kg bag of cement, for instance, now sells for N4,500, up from N2,600 in 2019 while the price of iron rod has increased from N300,000 per tonne to N415,000, depending on the location of the market at which it is bought.

“Projects have slowed because the cost of construction materials has gone out of control. But we are carrying on with our projects because we manage our procurement very well,” Odunayo Ojo, CEO of UAC Property Development Company, told BusinessDay.

“When we engage contractors, we normally mobilise them substantially so that they can buy all they want to buy and keep.”

Ojo said that the aim of substantial mobilisation of their contractors was to avoid cost variation, which he said was putting many projects at risk at the moment.

Debo Adejana, South-West chairman of Real Estate Developers Association, said some of their members were actually adopting a wait-and-see approach to rising prices of building materials in the market.

“It is very real but what is happening mostly is that developers are watching the prices, especially for off-plan projects so that cost variation will not totally stall projects,” he said.

Adejana said both developers and independent builders are pulling out of sites, adding that the way out for most people has been to ask and settle for negotiated reviewed prices.

According to him, in the South-West states, Lagos, which is the commercial nerve centre of Nigeria, is the most prominent in terms of abandoned projects due to high cost of materials.

He attributed the development to the high number of ongoing projects in the state.

On Lagos Island, many high-rise commercial and residential building projects are either on hold or progressing at a very slow pace.

Most builders, especially independent ones who are building their private residences, told BusinessDay that they were holding on and watching prices of building materials.

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Cornelius Chikwendu is a stockbroker carrying out a project in Agbara, Ogun State. He told BusinessDay in a telephone interview that now is not the time for big projects. “The projects that most of us have now are our stomachs and our children’s school fees. Those are the major projects for most families in Nigeria and they don’t even come off easy these days,” he said.

“You can imagine buying a bundle of roofing sheets for over N17,000 and l will require more than six bundles. l have to concentrate on more pressing needs first like payment of my children’s school fees. Let me survive first by eating well with my family. I hope the price will come down soonest, and then l may consider resumption of work on the project,” he said.

Kazeem Owolabi, managing partner at Refin Homes Limited, said abandonment of projects had become the reality of today’s construction industry. “Lots of projects are left either uncompleted or uninhabitable due to high cost of building materials, and this usually leads to project overrun.”

According to him, projects become uninhabitable when most developers are drastically reducing quality of materials and project specification just to break even, and the market is not responding to such developments and this has now further compounded the housing shortage.

“Most independent builders are now developers. The only difference is in the structure. The rise in cost of building materials affects all; however the direction being taken now is to increase the property price rather than totally abandon the site. Invariably, what this means is that we now have fewer people with the capacity to buy properties,” he said.