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Property developers consider review of home prices on off-plan sales

By Victor Gbonegun
29 March 2021   |   2:56 am
These are not the best of times for property developers who have entered agreements with subscribers under the off-plan sales, as the present economic realities could not allow most of the schemes

These are not the best of times for property developers who have entered agreements with subscribers under the off-plan sales, as the present economic realities could not allow most of the schemes to continue without contract variations and change in house prices.

The Guardian learned that inflation and the dwindling value of the naira, especially in the foreign exchange market have made the review of the price of houses for certain units under construction inevitable.

According to industry players, the reduction in the value of naira has spiked the cost of imported building materials, while contractors and artisans are also demanding higher wages.

Essentially, most finishes and commodities for luxury homes are usually imported and denominated in dollars. As of last week, a dollar traded between ₦N411.55 and ₦N409.66.

Similarly, the recent economic recession and the impact of COVID-19 have eroded the earnings of some home buyers while few developers are selling at a loss.

A source told The Guardian that with the current economic reality, operators are considering re-negotiation and increasing prices as a means of survival.

“Devaluation of the naira is not bad for the real estate sector if the local capacity to produce/ manufacture building materials improves significantly.

“The more local content a developer can incorporate into his buildings, the better buffer against the impact of devaluation.”

The Managing Director, Smart Homes Projects and Investments Limited, Mr. Oludare Michael, observed that building contractors and estate developers are currently experiencing a nightmare working with old prices on their projects.
For instance, a bag of 50-kilogram cement, which sold for N2, 600 in March 2020, now sells for N4, 500 in March 2021, “obviously any property costing done before the naira crash would have gone out of place by now.”

“Hence, it’s apparent that in off-plan property sale, developers would have to alter quotations, if they didn’t include yearly interest to cover up for inflations in the first place,” he said.

He explained that some Nigerian-based property subscribers have static salaries and those operating personal businesses may have to deal with inflation on their income/revenue, they will definitely have difficult times.
According to him, for Nigerians abroad, this is the best opportunity to achieve their property desires as thousands of dollars now amount to millions of naira, which can lay claim to some level of property investments at this time, adding that Nigerians in diaspora, as well as foreigners, could benefit much in off-plan sales at this time.

“Frankly, little can be done, it can only stifle project scaling as well as make developers opt for cheaper means of development, while innovative building technology would have more priority.

For example, we are starting a steel recycling plant to help us achieve more with less in the modular building technology we have adopted here, this will help us make use of scrap metals to achieve more local production of steel for our developments than importing steel”, Michael said.

The Chief Executive Officer, Oaks Homes, Mr. Olukayode Olusanya, said most of the factors of production in Nigeria are import-based, stressing that what this implies is a nominal increase in the cost of production
Olusanya who is also a financial economist explained that “falling currency values basically means declining value of capital. Also, it implies that a lower-valued currency makes a country’s imports more expensive and its exports less expensive in foreign markets.

“A higher exchange rate can be expected to worsen a country’s balance of trade, while a lower exchange rate can be expected to improve it.”

He noted that an off-plan sale usually latches onto integrity and pedigree, adding that if a developer has to re-price for any reason irrespective of paperwork, it affects client/ developer relationships.
Unfortunately, he said the only way to mitigate this scenario is to improve local production and input. This, according to him, will greatly reduce reliance on foreign exchange.

“Irrespective of local production, importation is still cheaper than local production. Local content hasn’t helped in any case. Iron rods have moved from N220, 000 to N370, 000 per tonne, cement prices are ever on the rise. And these are mostly meant to be local,” he said.

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