The real estate sector in Nigeria showed signs of resilience in 2022 in the face of difficult macroeconomic conditions; for most sectors of the economy, the business environment was challenging.
Although equally negatively affected, the real estate sector was arguably the blessing of the year, as it remained resilient despite the impacts of hyperinflation, the exchange rate regime and the high cost of energy, insecurity and floods.
The inflation rate, which rose to a 17-year high of 21.47% in November 2022 from 20.47% the previous month, was the reason why prices of construction materials such as cement soared. , reinforcement, sand, roofing sheets, tiles and granite. , which peaked at 80 percent at the end of the year.
Inflation also reduced the purchasing power of consumers and eroded the value of people’s disposable income, making it nearly impossible for them to buy new homes or change addresses. High maintenance costs have 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 construction materials, especially finishing inputs, which are largely imported. of the outside. That even affected the cost of labor for both professionals and craftsmen.
The high cost of energy was another big shock for the sector. The price of diesel, which increased from N320 per liter in February to N800-N850 in the second quarter of the year, caused disruption at construction sites, while residents of serviced housing estates had to give up several hours of comfort to reduce the service charge increase.
This affected both households and manufacturing companies that produced the necessary inputs for buildings and works, which caused a shortage in the supply of real estate products and increased prices for those that were struggling to reach the market.
The average price of one-bedroom flats for rent in a prime location in Lagos, Abuja and Port Harcourt increased to around N900,000 per year. Rents for three-bedroom apartments now range from 1.9 million naira to over 4 million naira a year.
In addition to the macroeconomic impact, the sector was also hit by the country’s September-October flood disaster, described as the worst in a decade, submerging communities, farmland and looting homes.
“Indeed, it was a terrifying report from the Federal Ministry of Humanitarian Affairs, Disaster Management and Social Development,” according to Nasir Sani-Gwarzo, the ministry’s permanent secretary, who also revealed that more than 500 people died in the disaster.
Around 1,411,051 people were said to have been affected by the flooding. Displaced people who moved from their locations numbered up to 790,254 while around 1,546 people who were displaced were injured.
While 44,099 homes were partially damaged, according to the permanent secretary, another 45,249 were totally damaged. Similarly, 76,168 hectares of farmland were partially damaged and 70,566 hectares were completely destroyed.
Experts predicted that the floods, which affected residential and commercial properties in 18 federal states, could cause a 5 to 10 percent drop in demand and property values in the affected areas.
Aside from the flooding, increased insecurity was a major source of concern as, in some cases, houses were burned and developers, especially those in the north of the country, were unable to go to the site.
Despite these challenges, the sector remained resilient, with developers still making developments and the sector contributing relatively significantly to the nation’s Gross Domestic Product (GDP).
“The market, product prices and values remained strong despite strong economic headwinds. The turbulence in the foreign exchange market that affected the economy and pushed inflation to more than 21 percent did not affect demand and property 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 was still an important asset investment class and is an asset class that many Nigerians should give serious thought to in 2023. real estate ladder. No matter how low one is, real estate is still a key store of value. And people are advised to go in thinking about the long term,” she said.
Gbenga Ismail, vice president of the Nigerian Institution of Surveyors and Property Appraisers, Lagos Chapter, attributed the gains recorded in the sector in the face of various challenges to the sector’s ability to withstand socio-economic shocks, being driven by the private sector and careful by operators in managing financial transactions.
This explains why both the construction and real estate sectors were able to contribute up to 20 trillion naira to GDP in three quarters, according to the National Bureau of Statistics (NBS). This, experts say, is quite significant.
NBS data shows that the construction sector contributed 9.5% to nominal GDP in the third quarter of 2022, which was higher than the 9.26% it contributed a year earlier and the 7.95% it contributed in the second quarter of 2022.
It said the sector grew 18.92 percent year-on-year in the third quarter of 2022, while on a quarterly basis, the growth rate of the sector stood at 16.38 percent. The contribution to nominal GDP in Q3 2022 was 4.96%, compared to the 5.27% registered in Q3 2021 and higher than the 4.95% registered in Q2 2022.
Festus Adebayo, Executive Director of the 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 latest NBS report stated that the sector’s performance has increased despite inflationary pressures, which led to a high cost of construction materials.”