The litany of economic woes from hyperinflation, exchange rate crisis to high cost of borrowing has impacted negatively on property developers marketing off-plan homes. High costs of units and the inability of some operators to meet projected
timelines and specifications are among the challenges bedeviling schemes,
VICTOR GBONEGUN writes

The economic crisis ravaging the country has left a negative impact on property developers and contractors, frustrating the delivery of homes, especially off-plan sales and limiting further investment in reliable capital-raising strategies in the real estate sector.

With the low purchasing power of Nigerians, many buyers are handicapped to meet their obligations under the off-plan arrangement due to affordability issues, while aspiring homeowners are not keen anymore on subscribing to the programme. This has triggered weak demand and uncertainty in the property market as investors are concerned about return on investments due to fluctuations in the prices of building materials.

In the past one year, inflation and interest rate rose by over 33 per cent and 33.95 per cent respectively, a development that has directly impacted the prices of essential building materials such as cement, windows, doors, and iron rods by over 12 per cent within the period. Some building materials also doubled and, in some cases, rose four times than what it used to be in recent months.

An off-plan sale provides opportunities for developers to fund projects, while the subscribers/buyers can spread payments on houses before the completion. The scheme is popular in major cities such as Lagos, Abuja, Abeokuta, Port-Harcourt, Kano, Kaduna and Ibadan among others.

The flexible payment plans are designed according to buyers’ financial needs and preferences; including post-handover payment plans, as well as offer an advantage for subscribers to invest in units in high-demand areas or emerging neighbourhoods.

Through the concept, property developers offer discounts, installment payments to woo prospective buyers and showcase their projects and infrastructure. However, changes in the market due to the government’s policies have become a cause for concern to the players.

Currently, off-plan properties are associated with construction delays, and unstable prices, which developers trace to logistical challenges, inflation, lack of skilled labour, regulatory issues, and high cost of building materials.

For instance, in April 2023, the average price of cement was N4,300 per 50kg but by May 2024, the price rose to between N7,500 and N8,000 per 50kg, depending on the brands and location. In locations like Abuja, and Lagos, 50kg cement was sold recently at N13, 500, which was the worst in decades.

Within the same period, there was a rise of over 100 per cent in the cost of iron rods. The price of a 12mm iron rod increased from N8,000 in 2023 to N19,000 in May 2024, 16mm iron rod rose from N4,800 in May 2023 to N11,500 in 2024, a 10mm iron rod went up from N3,600 in May 2023 to N9, 500, and 8mm iron rod recorded a rise from N2, 500 to N6, 500 in May 2024.

Besides, the foreign exchange rate that ended 2022 at N448 to $1 is currently at about N1500 to $1, thus impacting the cost of importing some essential building components, while the maximum lending rate reached over 29 per cent.

Many developers have had to review house prices by over 40 per cent to remain in business. Housing units such as two-bedroom flat that were initially available at N35.9 million, were reviewed upward to N45 million, while a three-bedroom flat moved from N55 million to between to N75 million. The one-bedroom luxury apartment increased from N30 million to N40 million, and studio apartments increased from N12 million to N15 million depending on location, finishing and infrastructure.

Essentially, investing in off-plan properties exposes developer insolvency, where developers may face a financial crisis during construction. This can happen due to various reasons, such as mismanagement of funds, economic downturns or unforeseen challenges in the construction process.

Amid the challenges, some developers have benchmarked the prices of their properties in dollars to minimise the risk of materials price instability, losses and inability to deliver on promise. The Guardian learnt that in some cases contracts between buyers and developers/contractors have been terminated due to rising costs or failure to deliver on schedule and meet standards and specifications.

The Managing Director, Noble Ground Limited, a property development company, Olajide Dosunmu, told The Guardian that inflation is a major factor responsible for the high prices of housing, and called on the authorities to incentivise producers of building materials like cement, reinforcements and others to enable them to reduce prices.

Past president, Real Estate Developers Association of Nigeria (REDAN), Dr Aliyu Wamakko, who acknowledged the downturn in the global economy said the rising prices of construction materials is scaring most developers from off-plan developments.

Wamakko observed that in situations where there is low purchasing power among the people, whatever a developer builds now cannot be sold if the firm wants to make a profit. He lamented that the Nigerian situation is peculiar, and compounded by corruption, which has eaten deep into all facets of life and society.

“Most Nigerians, especially the downtrodden lack the purchasing power to buy homes and those who have the money will not buy but prefer to stock their money in dollars and hide it. That is why there is an economic problem and the challenges are enormous,” he said.

For him, until the government starts to encourage the local manufacturing of building materials and other products needed across all sectors, things won’t get better. ”Regrettably, everybody is trying to make easy money and some believe that the only way to make it is to cut corners because of the high cost of living and materials for production but the most important thing is to do the right thing,” Wamakko added.

Head, Research, Diya Fatimilehin & Company, Tola Oyenekan, confirmed low patronage on off-plan sales, and attributed the development to the reality that the operators of such concepts are grappling with the escalating cost of building materials.

He argued that not many contractors or developers can procure materials in advance as a hedge against the rising costs of materials for such projects.

He said many of the parties must return to the negotiation table for a possible price review, whereas contracts have been signed, which doesn’t go well with the investors or buyers, hence, legal issues arising from such projects.

However, Oyenekan said, forming credible partnerships and establishing strong regulatory systems could drive out quackery and revamp the once popular off-plan sales schemes.

However, the Vice President, International Real Estate Federation (FIABCI) Nigeria, Mr Akin Opatola, said not every buyer is turning away from off-plan sales because of its numerous advantages.

“We must recognise that getting credit and availability of funds is getting tighter with the economic challenges. With off-plan, potential buyers can pay flexibly and piecemeal depending on the description of the property. The essence of off-plan is that it is an ongoing development,” Opatola said.

He explained that some prospective homeowners still invest in off-plan property developments through professional agencies.

According to him, the issue of due diligence is crucial, asking questions about the credibility, integrity, record of delivering projects to time, specification and generally track record of the developer has become more important to property buyers as customers are now well informed.