Inflation in Nigeria is like an untamed wildfire, it rages through Nigeria’s real estate, limiting the industry’s growth and commitment to Nigeria’s economic development.
Today, virtually all industries in the country are subjected to this economic phenomenon.
This piece attempts to explain how inflation affects real estate developments in Nigeria.
Inflation is a general increase in prices of items and a fall in the purchasing power of consumers generally. Taking Nigeria, which is the focus of this study, as an instance, months ago a 50kg bag of cement was selling from N4,000-N6,500.
Today, the cost of the same product sells from N9,500-N13,000, without any increase in the minimum wage across industries in the country.
Few weeks into appointment, the Central Bank of Nigeria Deputy Governor broke the news with the country’s inflation statistics.
Following this, Muhammad Sani Abdullahi, the Deputy Governor of the Central Bank of Nigeria, projected that the inflation rate will rise to 32.63% by March, 2024, having rose to 31.70% in February, 2024, from 29.90% in January, 2024.
Inflation is driven by various economic factors, which include demand, cost-push, increased money supply, monetary and fiscal policies, and currency devaluation.
Among all of this, currency devaluation and an unprecedented increase in money supply is the major cause of inflation in Nigeria today as the naira is in a not-so-winning battle with the leading foreign currency, the dollar. This is not without mentioning that the economy is largely import based too.
This subsequently causes goods and services prices to fluctuate in an increasing trend. As long as this persists, the prevailing increase in the price of goods will continue to remain in the market, and in the country’s real estate market.
In this light, the delivery of real estate developments and construction projects, which are a function of the cost of production items, are heavily influenced by this economic downturn.
Nigeria is swarmed with unfavorable impacts of inflation on its real estate industry.
These impacts include:
Threatened Quality Delivery: In the wake of high production cost, some real estate developers may be forced to consider compromising their constructional value delivery. As a result of this, only real estate company with sheer commitment to quality service delivery and safe work ethics to maintain this wave remains consistent.
Financing Challenges: Striking partnership deals or sourcing for developmental finances by real estate developers can become more difficult as investors become wary of putting their money in an unyielding economic venture.
Higher Labor Cost: One of the major production inputs for real estate developments is labor —whether skilled or unskilled. With inflation in the scene, the professionals and on-site experts like architects and engineers may be forced to request for salaries and wages increase. Inevitably, this increases overall production and developmental costs.
Increased Production Materials Cost: Inflation reduces the value of a project’s budget, forcing developers to increase their budget inevitably to cover the future increment in cost of production items.
Reduced returns on investment: inflation makes it harder for developers to blur the line between delivering quality products and getting a corresponding return on investment from each and every developmental project they work on.
On the preface of the above, and given the recent economic wins recorded by the country’s economic coordinators, there remains a positive hope that the inflation in the economy will reduce in no distance time, ushering a redefined positive economic growth.
Irrespective of this, the real estate sector is adaptive just like Nigerians, and it is projected to find a dichotomy between this negative slope and capital gains.
The seeming problem remains that while the populace hope on the government’s management of inflation, stakeholders must commit to the sectors growth regardless.
Author: Ayorinde Ejioye
Ayorinde Ejioye is the Co-Founder and Chief Operating Officer of Gidi Real Estate Investment Limite
