Soaring Building Materials Prices Defy Real Estate Investors’ Apathy

In an unfortunate turn of events, the hopes for lower construction costs among prospective homeowners have been shattered once again, as the prices of building materials in the market have experienced fresh increases. According to a survey conducted by The Guardian, these prices have risen by over 70 percent between January 2022 and May 2023.

The surge in prices has presented significant challenges for housing developers and contractors in their efforts to provide affordable housing for the more than 75 percent of Nigerians lacking access to adequate accommodation. Furthermore, the skyrocketing prices have led to increased costs of houses, especially newly constructed buildings, and have caused delays in project completion.

The latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) reveals that the consumer price index, which measures the rate of change in prices of goods and services, rose to 22.04 percent in March 2023, up from 21.91 percent in the previous month. This marks the third consecutive increase in the country’s inflation figure since the beginning of the year.

Over the past 15 months, the price of cement has been a primary driver for the increase in prices of other building components such as blocks, rings, paints, reinforcement and sanitary fittings, sand, roofing sheets, tiles, and granite, which have all risen by over 70 percent.

The survey highlights that a 50-kilogram bag of cement, which was sold for N3,500 last year, now ranges between N4,700 and N4,800. Producers attribute this price increase to the rising costs of raw materials such as limestone, clay, and gypsum, driven by haulage expenses and fluctuations in the exchange rate.

The prices of cement-based blocks have also surged, with a nine-inch block now sold at N420 compared to its previous price of N380/N400, and a six-inch block priced at N370, up from N340/N350. The average price per tonne of iron rods in the building material market is N420,000, reflecting a general increase of N10,000 across the board.

Mr. Sola Adewuyi, an iron rod dealer, explains that the increase originates from the factory as producers attribute it to rising production costs. Consequently, sales have drastically declined, with many contractors opting to purchase in smaller quantities rather than by the tonne to reduce overall expenses.

Cement dealer Mr. Sunday Ilesanmi, based in Ikeja, confirms that dealers have added about N100 to the price of cement, resulting in the current rates of N4,700 to N4,800 per bag.

While construction materials typically constitute the largest portion of building production expenses, developers in major cities are currently struggling to maximize profits. As a consequence, new housing construction has been affected, leading to a decline in available rental accommodation in major cities such as Lagos, Port Harcourt, Abuja, Kano, Ibadan, and Enugu.

For the average renter, the dream of obtaining a two-bedroom flat at N500,000 has become elusive. Rental prices for newly constructed buildings have surged to as high as N850,000 and N1 million.

Mr. Kenneth Nduka, a past president of the Nigerian Institute of Building (NIOB), attributes the rising cost of materials to the forces of supply and demand, low production capacity in the economy, and an insatiable appetite for foreign goods. He laments the lack of standards and price control in Nigeria, allowing opportunistic exploitation of the system’s weaknesses through indiscriminate material price increases.

Nduka suggests that the government should venture into social housing initiatives and provide subsidies, similar to what is done in the petroleum industry. Under this approach, estate developers would purchase materials at regular costs, while the government would subsidize the building costs for the end-users. Additionally, he proposes that the government introduce tax exemptions for developers, which would reduce the overall cost of buildings for potential buyers. Nduka believes that housing should be treated as a commodity, where the government can intervene by buying excess housing stock during times of oversupply and releasing it when there is a scarcity in the market.

Mr. Hakeem Ogunniran, the Founder and Chief Executive Officer of Eximia Realty Company Limited, identifies several challenges that hinder construction delivery. These include a lack of minimum local content in terms of building materials, supply chain difficulties, and exchange rate volatility. He attributes the rising cost of housing delivery to substantial increases in the prices of key inputs like steel, cement, and Mechanical, Electrical, and Plumbing (MEP) fittings. Ogunniran also highlights the shortage of land and the high cost of borrowing as additional factors contributing to the overall increase in housing costs.

According to Ogunniran, critical factors for a successful housing model include materials, finance, land availability, a supportive regulatory framework, macroeconomic stability, and government commitment through policy frameworks, tax incentives, and subsidies, as observed in other jurisdictions.

The persistently soaring prices of building materials have dealt a blow to the aspirations of prospective homeowners and have posed significant challenges for the construction industry in Nigeria. Without concerted efforts from the government, developers, and stakeholders, the goal of providing affordable housing for a majority of Nigerians will remain elusive.

by: Victor Gbonegun

Source: The Guardian (Reference: The Guardian, 15 May 2023, 4:28 am)

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