By Maduka Nweke
Nigeria’s real estate sector brims with potential, offering notable opportunities for growth and investment.
Yet, the industry remains plagued by daunting challenges that stifle its progress and undermine its contributions to the economy.
Chief among these challenges, experts note, is the glaring lack of essential infrastructure like roads, electricity, water supply and sewage systems. Many regions, including several local government areas and states, suffer from infrastructural deficits, which escalate development costs and diminish the attractiveness of investments.
Amid these structural challenges, Nigeria’s economy is grappling with instability.
While the real estate industry should, ideally, be resilient against economic downturns, the escalating cost of construction materials and the declining standard of living have already begun to take a toll on the sector.
The struggling economy is casting a shadow over various sectors, with the real estate market and its supply chains not spared. The economic turbulence has become a defining factor for the industry in 2024’s first quarter, leaving renters groaning under the weight of soaring rental prices. Individuals, households, and businesses now face increasing financial uncertainties, forcing difficult decisions and trade-offs.
One of the most crippling challenges for the real estate sector is the meteoric rise of the naira-to-dollar exchange rate, now hovering around N1,450 per dollar.
The development has significantly disrupted supply chains, driving up the costs of key materials like steel and cement. Contractors and property developers are being compelled to renegotiate contractual terms, while prospective property buyers struggle to meet the rising financial demands of homeownership.
Burden on tenants and households
Renters, particularly those in urban and suburban areas, are bearing the brunt of the crisis. Over the past year, rental costs in some city suburbs have surged by more than 50 percent. This sharp increase compounds the effects of other economic challenges, including inflation, volatile exchange rates, naira devaluation, and the removal of petrol subsidies—all of which have sent the prices of basic commodities skyrocketing.
Speaking to Daily Sun, tenants shared stories of their landlords implementing steep rent hikes, often justified by rising building material costs, inflationary pressures, and increasing maintenance expenses. While some real estate operators make efforts to absorb the economic hardship, others exploit the situation, driven by greed. This approach adds to the already heavy burden on tenants, many of whom struggle with escalating living costs and reduced purchasing power.
Factors exacerbating the crisis
Nigeria’s real estate challenges are not confined to tenant woes and rising rents. The Land Use Act of 1978, which vests land ownership in the hands of state governors, creates significant bureaucratic hurdles. Land transactions are often fraught with delays, unclear titles, and disputes, making them risky and time-consuming.
Moreover, the high cost of construction, driven by inflation, import tariffs on building materials, and a lack of local manufacturing, continues to inflate property prices. This affects both developers and potential homeowners, limiting access to affordable housingPolicy inconsistencies and regulatory bottlenecks further exacerbate the sector’s struggles. Frequent changes in government policies, political interference, and regulatory inefficiencies create an unpredictable environment that deters long-term investments.
Additionally, the country’s insecurity—manifesting in terrorism, kidnapping, and communal conflicts—has made certain regions unattractive for development. Rapid urbanization and population growth, while increasing demand for housing, place immense pressure on Nigeria’s weak infrastructure. Environmental challenges like flooding, erosion, and climate change also complicate real estate development, necessitating investments in costly, resilient infrastructure.
Ripple effects on the real estate sector
The cascading challenges have resulted in decreased demand for real estate properties, as economic uncertainties force people to postpone significant financial commitments.
This, in turn, has led to declining property values and a rise in unsold properties.
Many businesses and individuals are unable to afford rents, leading to increased vacancies in residential and commercial properties. Developers have postponed new projects due to funding constraints and market uncertainties, further limiting the industry’s growth.
The financial sector has also tightened lending criteria, making it harder for prospective buyers to secure mortgages. Landlords, too, face difficulties collecting rent, affecting their cash flow and ability to maintain properties.
Need for holistic solutions
To navigate this economic meltdown, Nigeria’s real estate sector requires a multifaceted approach. The government must prioritise infrastructural development, simplify land ownership laws, and address policy inconsistencies. Strengthening the financial sector to provide affordable credit facilities for developers and buyers is equally critical.
Furthermore, promoting local manufacturing of construction materials, tackling insecurity, and developing climate-resilient infrastructure can help stabilize the industry. Only through deliberate and collaborative efforts can Nigeria unlock the immense potential of its real estate sector and mitigate the ripple effects of its economic challenges.
Land Use Act
Land ownership in Nigeria is fraught with complications. The Land Use Act of 1978, which vests land ownership in state governors, creates bureaucratic delays. Many properties lack clear titles or are embroiled in disputes, making transactions risky and frustrating.
High Construction Costs: Rising costs of building materials and labor, driven by inflation, import tariffs, and inadequate local manufacturing, make property development in Nigeria exceptionally expensive. This, in turn, affects the availability of affordable housing for buyers and renters.
Policy inconsistencies
Frequent changes in government policies and regulations create an unpredictable environment for real estate investment. Political patronage and cronyism exacerbate the challenges, creating bureaucratic bottlenecks. Additionally, Nigeria’s oil-dependent economy suffers from fluctuations in global oil prices, leading to economic instability, reduced disposable income, and declining demand for real estate.
Insecurity
Terrorism, kidnapping and communal conflicts have negatively impacted real estate development. Perceived unsafe areas are less attractive to buyers and tenants, further limiting growth.
Environmental issues
Challenges like flooding, erosion, and climate change require careful planning and investment in resilient infrastructure, driving up development costs and complicating projects.
Economic uncertainty has also reduced demand for real estate, leading to declining property prices and affecting developers and property owners.
Empty estates
Many businesses and individuals can no longer afford rent, resulting in a rise in vacant properties. Developers are postponing new projects due to funding challenges and market uncertainty.
Another issue is credit constraints. Stricter lending criteria and higher mortgage defaults are affecting the market. Buyers and sellers are hesitant to transact, leading to unsold properties and reduced investments.
A worthy challenge is regulatory delays as government budget cuts and inefficiencies are slowing project approvals, while property management firms struggle with maintenance and rent collection.
Economic hardships are equally driving demand for smaller, more affordable properties, while commercial properties face higher vacancy rates.