Inflation: Price fluctuation deepens construction sector’s woes

Operators in the construction sector have said that the persistent price fluctuation in the building material market has continued to dampen construction activities in the country.

In the past 24 months, the price of essential building components like cement has been a primary driver for the increase in prices of other construction ingredients such as blocks, rings, paints, reinforcement and sanitary fittings, sand, roofing sheets, tiles, and granite.

Prices have all risen by over 60 per cent across states including the Federal Capital Territory where a 50kg bag of cement was sold at about N13,500 early in the year.

The Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) showed that the consumer price index, which measures the rate of change in prices of goods and services, rose by a significant percentage between May and June.

The headline inflation rate for June 2024 increased to 34.19 per cent relative to the May 2024 headline inflation rate which was 33.95 per cent. Consequently, the June 2024 headline inflation rate showed an increase of 0.24 per cent points compared to the May 2024 headline inflation rate.

On a year-on-year basis, the headline inflation rate was 11.40 per cent higher compared to the rate in June 2023, which was 22.79 per cent. The headline inflation rate in June 2024 was 2.31 per cent, which was 0.17 per cent higher than the rate witnessed in May 2024. Invariably, the increase of average price level is higher in June than the average price in May of the same year.

The unprecedented hike in prices has posed significant challenges for property developers and contractors, who were handicapped in their efforts to provide affordable housing for the majority of Nigerians, who lacked access to quality, cheap and comfortable shelter.

The rising prices have triggered increased costs of houses, especially newly constructed buildings, and caused delays in project completion and a review of contracts and housing prices.

For instance, a two-bedroom apartment fully furnished now goes for about N30 million in a major location, while a one-bedroom is sold at N20 million to N25 million. The cost of rent is also high with a self-contained apartment given out at N500,000, two-bedroom rent costs about N1 million and three-bedroom N1.5 million.

However, a recent survey of the materials market revealed that prices of materials such as cement, wood, roofing sheets, and iron rods have recorded a significant decrease over the past three months, providing some relief to contractors and developers, who have been grappling with inflated costs and abandonment of ongoing projects.

According to a survey conducted by The Guardian in July, the price of a 50kg bag of Dangote cement, which was sold at N8, 500 in April, has now dropped to N7, 600. The price of sharp sand has witnessed a slight increase from N130, 000 to N140, 000 per tipper load, while the price of soft sand rose to N160, 000 from the previous N120, 000.

The most notable price reductions were observed in the cost of timber. The cost of hardwood has nearly halved, with a 2x6x12 piece that previously cost N4, 500 now priced at N2, 300.

Similarly, 2x4x12 timber decreased from N3, 000 to N1, 800, and 1x1x12 size was reduced from N7, 000 to N4, 200. Additionally, softwood prices have increased, with 2x2x12 doubled from N700 to N1, 400 while 2x3x12 size timber rose from N1, 000 to N1, 600.

The prices of doors have recently experienced a decline, with plain Idle China flush doors dropping from N75, 000 to N60, 000, and Nigerian flush doors reduced from the previous N80, 000 to N55, 000.

Also, reinforcement, a crucial component in construction, has seen a significant price decrease. All sizes of TMT bar brands have dropped by more than 50 per cent from April to June. For example, an 8mm TMT bar that was priced at N1.5 million in April is now sold at the cost N750, 000.

Experts and materials distributors told The Guardian that the fluctuations in building materials could be attributed to the unstable exchange rate and inflation. Although they said the price reductions may provide temporary relief, distributors and vendors are still concerned about the underlying causes.

Lagos-based panel door distributor, Mr Chukwudi Nwoke, said: “Some materials in Nigeria are imported, and their prices change with the exchange rate. When the Naira is strong, the price drops,” he added.

Another door supplier, Mrs Amaka Nze, said: “As the price of general products and services rise, so will the cost of building materials, especially for the locally made ones. Higher costs in transportation and logistics also affect material prices.”

A sand supplier, Mr Femi Dawodu, explained that transportation cost is a major cause of the price spike, adding that the increase in fuel and diesel means spending more to transport sand from the source to the construction sites.

The dealers are worried that the price drops in materials could be temporary, thus making it difficult to anticipate future price trends, causing uncertainty for their businesses.

A steel vendor, Taofeeq Adebayo, expressed concerns about how the price fluctuations are impacting his business, saying: “I purchased some of my stock when prices were high but now the prices have dropped, I have to adjust my selling prices accordingly. This leaves me with some losses.”

Reacting, a former Chairman, Nigerian Institute of Building (NIOB), Lagos Chapter, Mr Sunday Wusu, told The Guardian that the major reasons for price fluctuations were transportation and inflation. “When fuel price increases, the transporters will add to their own cost, which includes cost of living,” he said.

Wusu said the development has caused many projects to be put on hold, saying: “These are chain reactions. The price of everything has skyrocketed and to sell a building, all these will be factored into it.

“An erudite builder will look at the market and when prices keep increasing, he knows that is his cue to stop and wait for the prices to stabilise, so, he will not lose money. He also understands that sometimes there is the danger of fake products entering the market.”

He lamented that the government is not helping matters as they are supposed to provide an enabling environment for builders. “The cost of an assessment tax right now is about N7 million,” Wusu added.

A Lagos-based project manager, Ikenna Ekeghasi, said: “Inflation and the exchange rate are affecting projects. Many projects were put on hold because of this issue; you plan to get materials for a project at a price and buy half at the start of the project. When the time comes to get the rest, you find that the prices of the remaining materials have skyrocketed.

“For some materials that are not available in Nigeria, the cost of importing them affects the general price of the finished products.”