How property developers sidestepped inflation in 2022

The number one factor that had a crippling impact on the Nigerian real estate sector in 2022 was inflation – rising building materials prices. Others were high cost of funds as reflected in the exchange rate crisis, high energy cost, and flooding, which impacted on property values in the affected states.

Though some developers were able to ride the tide to deliver projects, a good number of them adopted a wait-and-see attitude while a lot more others closed shop as they could not bear the ensuing shocks.

Last year, inflation accelerated to its highest in 17 years. According to figures from the National Bureau of Statistics, the inflation rate rose for the 10th straight month to 21.47 percent in November, up from 21.09 per cent in October.

This, experts say, is above market estimates of 21.15 percent and it affected commodity prices including those of building materials, which account for about 60 percent of total construction cost.

Just last December, the building materials market recorded a fresh hike in the price of cement, which is a major component of building and construction. The price per 50kg bag of cement rose from N3,200 to N4,700.

Findings reveal that across the country, especially in locations such as Ogun, Osun, Imo, Rivers, Anambra, Lagos, Abia, Enugu states, the price for the 50kg bag now hovers around N4,300 and N4,700.

A tonne of 8mm reinforcement (iron rod) sold for N350,000 early last year presently goes for about N488,800. The same is applicable to paints and other building components.

Prices of other inputs like paints and tiles also witnessed a hike. The price of paints, for instance, rose from N10,000 to between N15,000 and N18,500 for 20kg, depending on the colour and location, while prices of tiles are as high as N6,200 for 40 by 40 royal. Prices of other brands are a bit lower, though.

However, despite the headwinds and price hike shocks, developers and sundry investors were able to innovatively and creatively work round the roadblocks to deliver projects and sustain their business.

Apart from values, which, according to Chudi Ubosi, managing partner at Ubosi Eleh + Co, remained strong in most markets, especially at the upper end, many projects were delivered to the market, while those that needed just finishing touches like Famfa Oil Towers and Dangote Towers are expected in the market in the first quarter of this year.

“Talking about Nigeria with respect to the economy and its impact on the real estate industry, inflation has more than doubled and has increased costs. You start off a project and you don’t have an idea of how much it will cost you to finish it,” Oladipo Idowu-Agida, group managing director of Dradrock Real Estate, said.

The way around this, according to him, was to “go ahead and frontload.” He said they bought all they needed for their projects ahead of time, and also imported all their finishing materials on time. “For real estate, the exposure to inflation is critical because it affects the cost of raw materials,” he said.

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Recognising that there is nothing of worth that is not accompanied without a set of hurdles, Olubisi Shaola, a property law expert and real estate developer, revealed that one of the major ways they were able to escape the effects of inflation in 2022 was to lock in deals with distributors, importers and some local manufacturers at the beginning of each project.

Shaola, who is also the founder of West Charms Global Services Limited, the parent company of Finn Grey Projects, said they did this knowing that there was a possibility of having an inflation-powered increment down the road.

“So at the outset, we procure a bulk of the materials that are susceptible to price fluctuations like tiles, doors, railings, black cement, and POP materials, and that helped in limiting our exposure to the effects of inflation,” he said.

Shaola said that on a daily basis, developers jump through hoops as they deal with different situations, pointing out that outside building material cost, there are other challenges bordering on logistics issues due to bad roads, and extortion from ‘area boys’, among others. “And these easily hamper the pace of any project,” he said.

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