Nigeria : Dealing with unbearable cost of housing

  • 01 April 2022 / News / 511 / Fares RAHAHLIA

Nigeria : Dealing with unbearable cost of housing

 Haulage cost, falling naira raise building material prices amid crisis
• Tougher times ahead of domestic builders

The unending inflationary spike and absence of implementable policies to support the built industry, which is cautiously recovering from economic recession and the COVID-19 pandemic, have made the sector very costly for most Nigerians.

Prices of building materials have leapt to an all time high in the housing market, raising fears among prospective homebuilders of tougher times ahead.

Beyond the inflationary challenges, the sector has also been hobbled by such factors as the exchange rate, port charges, haulage costs and cost of diesel.

This development, coming in the wake of current global economic meltdown, investigations revealed, has unsettled private developers, independent builders and triggered calls for the intervention of government.

With a population of nearly 200 million, this development, no doubt, will further affect the country’s housing deficit, which is growing at an alarming rate.

Industry experts say as of 1991, Nigeria’s housing deficit was estimated at seven million and rose to 12 million in 2007, 14 million in 2010 and is currently estimated at about 20 million units.

While government and private sector intervention to bridge the huge gap have yielded little over the years, property developers and investors have consistently grappled with materials cost that has shot up by over 50 per cent in the last one year with inflation rising to about 15.7 per cent as of February 2022.

Statistics show that about 50 per cent of building components are imported materials amid steady rise in exchange rate, at N560 to a dollar.

Also, 60 per cent of the total cost in building construction goes to materials, while the remaining 40 per cent is spent on labour.

Essentially, all materials for construction ranging from cement, reinforcement, paints, door, roofing sheets, sanitary wares, sands and others have become overpriced. Most complex building projects in the country require a lot of building material importation from Europe and Asia.

Materials such as windows, doors, ceramics, tiles, sanitary and plumbing appliances and others are imported, enduring significant impact from foreign exchange and customs duties.

The locally produced building materials like cement, steel, paints, wood, stone and brick/masonry are also affected by the inflation trend. For instance, a 50-kilogrammme bag of cement that was sold for N2, 600 in 2020 has now gone up to N4, 200/N4, 500 depending on location; Iron rod increased from N300, 000 per tonne to N415, 000, price of nine by nine and six by six block rose from N280 and N250 respectively to N350 and N300.

The Guardian findings show that building a moderately furnished one- bedroom apartment, aside the cost of land may cost about N2.5 million, while three bedroom may cost over N5 million.

As the situation worsens, property owners, who build new homes or renovate existing houses are forced to transfer the cost to tenants, who now pay exorbitant rates for rents. In some neigbourhoods in Lagos mainland, a one-bedroom and two bedroom flats that attracted N300, 000 and N500, 000 months back, now go for N400, 000 and N700, 000 respectively.

The Guardian learnt that most contracts in the construction and real estate sector are being reviewed due to price variation in the market. There are fears that the impact might be greater as some projects may be abandoned.

The age-long unresolved tenure arrangements, access to infrastructure, deficiency in housing finance arrangements, stringent loan conditions from mortgage banks, delays in processing legal documents and inadequate government housing policies have also remained major issues affecting housing delivery in Nigeria.

Reason for increase in prices
OPINIONS are divided among professionals and heads of institutions in the sector as reason for increase in prices of materials.

President, Nigerian Institute of Building (NIOB), Prof. Yohana Izam, said the building materials market is part of the national economy and could hardly be isolated from the general inflationary trend.

The situation in the building industry, he said, seemed to be worse and precarious than what is happening in other sectors because of the industrial nature of production of the key components and materials like cement and rods, with most of them having foreign elements, which are also subject to foreign exchange component.

He said: “The first thing is to acknowledge that the inflationary trend is bad. Secondly, if you look at the impact, a lot of contractors started projects way back, which have now become untenable.”

Izam, who is also the Vice Chancellor of Plateau State University, said managers of the national economy at the micro-level must look at ways by which the situation can be moderated.

The NIOB president said: “The crisis started with the COVID-19 pandemic, we are coming out of the experience now. So, we need economic and fiscal policies that can help the market to stabilise. The other thing is the age-long yearning, which is the development of local materials.”

The President, Real Estate Developers Association (REDAN), Aliyu Wammako, told The Guardian that the current situation has been affecting his members. According to him, cement is a primary product in all aspects of building construction.

“It has affected REDAN members to a large extent as inflation is catching up with most items, even the ones produced locally, there are fluctuation in prices. We have been changing Bills of Quantities (BoQ) after one or two months, especially on projects we’re doing with the government,” he said.

While blaming some of these increases on distributors and dealers, the President, Nigerian Institute of Quantity of Surveyors (NIQS), Michael Shonubi, said BoQ is being reviewed quarterly for most projects in the industry due to inflation.

He disclosed that the industry is import dependent and prices of local reinforcements have increased as a result of scarcity of scraps, diesel and chemicals used in production processes as well as the Russian invasion of Ukraine and haulage cost by dealers.

Shonubi is worried that low-cost housing may not be achieved with increasing cost of materials in the market.

The president, Nigerian Institute of Architects (NIA), Enyi Ben-Eboh, said, “these are, in deed, trying times not only for architects, but also for the majority of Nigerians, who daily, have to live with inflation, exchange rate volatility and the rising cost of building materials. These days, prices of materials cannot be guaranteed beyond a few days, to be modest. The high exchange rate also meant that architects had to contend with the high cost of the latest software they need to drive office processes and production.”

Ben-Eboh said: “At times like these, when new commissions are few and far between, a lot of firms have had to downsize, while others have opted to outsource to freelancers, who are paid on a project-by-project basis. Some others have diversified to other aspects of the value-chain such as interiors, building components manufacture and procurement. A few more have sought greener pastures with the rising tide of brain drain.”

The Vice President, Lagos Chamber of Commerce and Industry (LCCI), a vital private sector economic association in Nigeria, Mr. Gbenga Ismail, argued that the power crisis is impacting negatively on the building industry, especially those who specialise on local production of materials.

Ismail said: “When you look at the component of building materials, the highest cost is on cement and Iron rods. One may ask why the costs remain high while they are produced locally?”

He added: “The company, CKD, that produces tiles is the only one doing that at the moment to the highest standard. We need to have more of such companies to reduce dependency on importation. Prices of cement and Iron rods also need to come down.”

He explained that government should create an enabling environment, whereby 70 per cent of building components being imported are systemically reduced to 20 per cent. With the current crisis, he stated that housing prices might rise by over 50 per cent.

According to him, there are alternative methods of construction such as the use of panels and reinforced panels but observed that Nigerians seem to prefer block work in housing development process. He called for continuous research to move away from brick and mortar.

Professor of Estate Management, University of Lagos, Timothy Nubi, said 60 per cent of building materials used for low-income housing and 80 per cent of materials for posh areas like Ikoyi and Victoria Island remain import dependent. “The price will be galloping depending on the exchange rate and inflation in the country,” Nubi revealed.

Nubi, who lamented the disappearance of wood manufacturing firms, said: “Until we begin to produce materials locally, the cost of construction would remain high as much as 500 per cent. It should not be shocking to anyone.”

He said the implication is that there would not be any affordable housing, as cost of construction is expected to be high. “As far as we have high cost of construction, mortgage system will not work. Many people will not be able to afford mortgages.

“Builders will begin to use less expensive, inferior materials imported from certain parts of the world, which will lead to building collapse,” he feared.

According to the founder and Director, UNILAG Centre for Housing and Sustainable Development (CHSD), there is less the government can do to arrest the situation as response to demand for housing takes time.

He queried why Nigerians should be importing iron rods after billions of naira was invested in Ajaokuta Steel Mill, Osogbo Steel Rolling Mill and Aladja Steel Company?

“The failure of these projects is what we’re facing now. Our past leaders handled them poorly,” Nubi said.

The former chairman Nigerian Society of Engineers (NSE), Apapa branch, Lagos, Dr. Ombugadu Garba, said: “It is so sad we are experiencing high cost of building materials/ material crisis. There is a side of argument that it is a global issue but any economy that does not have production, you cannot expect less. The hike in material cost is so alarming in terms of inflation, building materials and energy prices are skyrocketing and so we don’t know where we are.

“Bag of cement at a point got to N5, 000 and you can name others affected too. This is the time we thought Nigeria would benefit from the global oil price increase but we are nowhere because we cannot produce. If the country is producing adequately, it would have taken care of diesel and all other needs but today we are producing nothing. Virtually everything we are importing, this is a challenge.”

Garba said the real estate industry is also suffering because of price increase in the building materials components.

“We could say three or four companies are manufacturing cement but are they adequate? What are the companies’ competitive rates? If you look at it, it is not 100 per cent production because some of their materials are imported for them to be able to produce.

“In an economy, where production is not at the peak, you can’t succeed and things will not come down, price-wise. A 12- iron rod is about N5, 000 per one, cement is N5, 000 and combine all these if you are able to build a house, it will be at a very high rate,” he said.

Regrettably, he said the government is not doing enough.
He said: “Sometimes, we can’t understand why government makes a lot of policies but the people are not seeing the benefits. They need to redouble their efforts if they want to reduce the housing gap. Government must makes policy on areas that have direct effects on its population so that the people can live a decent life.

“In the petroleum industry, we did not take absolute advantage that we have. None of our refineries are working to overcome the energy crisis. We are over relying on import. Dangote refinery can help but other Nigerians that are capable should also invest in the country because Nigeria has the market; why should we go elsewhere to invest? Everybody should look inward to develop the nation. With that no Nigerian will want to get visa to travel to another country. We have what it takes to be a great nation.”

Specifically, he urged the government to look at the importance of building materials and provide special window access to Forex for importers on the condition that the materials cannot be sourced locally.

“Real estate sector operators should find a way of relying on local building materials that are of standard. Our dependence on foreign products has put pressure on FOREX. Government should find a way of encouraging local production of items through tax holidays, reduction of charges, provision of land for investors and maybe in the long run they can pay back after they have stabilised.”

Solving construction materials crisis
ACCORDING to the National Construction Policy, the industry is a potent motivator of the economy, providing the driving force necessary for either sustaining a buoyant economy or reviving a depressed one.

Many developed countries have successfully revived their national economies by maintaining high levels of activity in the construction industry. In Nigeria, to achieve a situation where locally sourced materials are used in all construction works, the document recommended how to reduce construction cost; conserve foreign exchange by reducing importation of materials and components; develop local capability in the production of construction materials from local sources and facilitate self-reliance towards the attainment of national objectives.

Among the strategies suggested in the policy framework are: that government should immediately move towards total disengagement from the use of imported materials wherever possible, in favour of locally available materials.

In view of the fact that the construction industry takes about 70 per cent of the Gross Domestic product (GDP), the Raw Materials Research and Development Council should set up a task force for the construction sector to make available local materials, develop them and monitor their use.

Emphasis should be placed on the use of small/medium scale industries for the production of construction materials especially burnt clay bricks, roofing sheets, timber products and sanitary wares locally.

Low and attractive interest rate be granted to small/medium scale industries producing construction materials. Governments should demonstrate support for local materials by using them on their own projects.

The policy further stipulates massive financial support for research and development of local construction materials in line with international practice, with a domestic purchase clause built into all construction contracts.

Wherever possible, loans and grants to other countries should be discharged through the supply of Nigerian-made materials, it added.

Izam said there has to be engagement across board to improve production of local materials with some of them significantly insulated from inflation that is related to importation.

“Government must lead by example, if we are using our local materials for housing, for instance, private sector will copy and everybody; and it will serve as a better shock absolver to some of the expenditures. But we will need a long term research into that.

“We realise that pieces of researches are scattered all over research schools and building institutions across the country. We have put in place machinery for our research department to begin to do a collation of key researches in Pozzolanic materials application to cement production.

“The essence is to hold a cement and concrete conference next year where there would be engagement of the nation and a national statement from builders on the cement and concrete issue,” he said.

He warned that if measures are not put in place to tame the rising cost of building materials in the country, the real estate sector might respond negatively.

For Wammako, the Federal Government through the Ministry of Trade and Industry should introduce price control board to regulate prices of building materials. He also called on government to dialogue with cement producers and building materials importers.

However, Shonubi said, price control board won’t work in Nigeria, but will create unofficial market for the products.

He urged government to subsidise energy cost as a means of tackling rising costs, reduce haulage cost as well as provide cheaper foreign exchange for importers of building materials.