Property developers, who have entered agreements with subscribers on off-plan sales, are challenged by the present building materials’ price fluctuations and contract variations, which continue to undermine their initial house prices. The development is throwing up litigations, especially among recalcitrant parties.
Following project costs variations due to challenges posed by the increase in construction material prices, foreign exchange and interest rates, private developers are reviewing their off-plan sales prices by over 30 per cent.
The real estate industry has experienced a slowdown in construction activities and transactions over the past six months due to a lull in the economy, leading to investors’ apathy. The industry still battles poor land acquisition policy, increase in the cost of building permits and excessive taxation. Consumed by these issues, most Nigerians spend over 33 per cent of their yearly income on rent.
In the midst of these conditions, developers have had to deploy off-plan products. Under the scheme, which has dominated the residential market, subscribers put down an initial deposit of 10 per cent or more, with installmental payments until completion of projects.
However, industry operators say with the rising inflation, and reduction in the value of naira, the scheme is no longer feasible, as spike in cost of building materials, higher wage demand by artisans are impacting on projects costs and delivery dates.
Currently, real estate firms are recording poor sales, as low purchasing power of Nigerians is affecting subscriptions to offerings in their off-plan schemes. The Guardian gathered that many property developers are battling litigation from their subscribers, following attempts to review prices and inability to deliver projects to specifications.
With current variation in material costs, prices of these housing units have increased by over 30 per cent in major locations in Lagos. As of November 2022, a three-bedroom apartment with BQ was delivered to subscribers at N93.5 million under off-plan sales in location like Ikota, two bedroom at N63 million in Shomolu Lagos and three- bedroom apartments at N73.5 million at the same Shomolu. Also, a two-bedroom apartment was sold at N84 million in Lekki and three-bedroom Terrace with BQ for N126 million.
Managing Partner, RefinHomes, property development firm, Mr. Kazeem Owolabi, who confirmed the development, said off-plan sales is becoming an unfashionable format for funding projects with the instability in government policy and the economy.
Owolabi lamented that a large number of transactions in off-plan sales has issues concerning pricing. “There is a huge gap in the price of finishing projects right now. There is a gap in the prices of construction and sales. If you have sold off-plan and before you finish the development within weeks, prices would have changed, there will be a difference when you eventually complete construction,” he said.
He said developers have to go back to the drawing table with subscribers that bought property to change the prices, adding that most of the buyers don’t find it funny.
“Most of the buyers have disposable income issues and if you’re one of those that bought property with a loan, the interest rate would have gone up again, will you ask the person to go and borrow more money again? It is a major issue and off-plan is not a fashionable way of securing projects, but before now it used to be one of the most important ways of securing a project.”
He called for understanding and collaboration between the buyers and property developers. “This is important, because the buyers will not want the developer to reduce the quality of the projects. Both parties have to work together to reach a compromise. If there is no roundtable, it will mean they will have to settle issues in the court.
“There is a lot of litigation going on right now as a result of misunderstanding between buyers and sellers. Some of the property buyers will even say they want to pull out and when they pull out, the cash flow, which the developer had banked on, will not be available, which will mean delay in project deliverables. The ripple effect is so huge.”
Chairman, Real Estate Developers Association of Nigeria, (REDAN) Federal Capital Territory (FCT) chapter, Mr. Osilama Osilama, affirmed that off-plan sales are now exposed to great risk with economic instability affecting prices of building materials.
Osilama said with the removal of fuel subsidy by the Federal Government, which brought about an upsurge in pump price of fuel from N185 to N617, there is a general increase in the cost of building materials starting from cement, which hovers around N4, 800 and N6, 000 in some locations, high cost of reinforcement, sanitary fittings and other material components.
He said: “Most of these building materials are produced in far locations and transported to the consumers and cost of haulage is high; the developer shares in it, as well as consumers of their products. Developers are left with no choice than to review off-plan products. For instance, a duplex that was initially agreed for N45 million can no longer be delivered at that price because of variations in price of materials.”
With the development, he said developers are calling subscribers to a roundtable and discussing the reality in the market. “Subscribers that are willing to pay additional money will pay and those who cannot afford to pay, the developer may have to sell their units and pay them off. The developer can now recoup investment when the property is sold out.”
According to Osilama, the government needs to create an enabling environment for developers, as well as create special windows of support to improve the supply of housing in the country.
REDAN chairman, South-West, Mr. Debo Adejana, told The Guardian that in the current economic situation, there will be variation in contracts, review of prices, delay in delivery of projects and litigations, especially from some subscribers.
Adejana said: “Some developers might have factored in an uncertain economic situation like this in the contract agreement, but on the other hand if they have not done so, there may be a need to have a roundtable between the developer and subscribers to explain things to them and fashion our way forward.
“In the case of some recalcitrant subscribers, l think communication is key, you may need to reach out to them on a one-on-one basis rather than collectively because some may not be able to agree during a roundtable and will prefer to go to court. But it is better to settle amicably rather than going for litigation.”
