HOW FOREX AND THE WITHDRAWAL OF SUBSIDIES REDUCE REAL ESTATE INVESTMENT

The withdrawal of subsidies and changes in the foreign exchange market were two major issues that the real estate sector had to deal with in 2023. These factors had a detrimental influence on the business.

Operators in the built sector in Nigeria report that 2023 has been a year of uncertainty and stagnation in an ongoing tale of challenges for the country's real estate sector. This has been primarily attributed to the combined effects of the withdrawal of subsidies and the unpredictable swings in the foreign exchange market.

These factors' effects were felt throughout the sector, affecting investment trends, property values, and the stability of the market as a whole.

In 2023, the real estate market was characterized by a lack of activity and cautious investors. Real estate transactions slowed as a result of the atmosphere of caution brought on by the impending elections. Major policy changes brought about by the new government's election, particularly in the foreign exchange market and the elimination of oil subsidies, had a profound effect on decision-making throughout the investment landscape.

The real estate industry was forced to deal with increased uncertainty and changes in legislation following the elections. Amidst the election-related caution that already beset investors, the government's implementation of reforms affecting foreign exchange dynamics and subsidy arrangements presented further obstacles. These changes in policy affected important investment choices directly, which added to the 2023 stagnation.

UNCERTAINTY AROUND ELECTIONS

The Nigerian presidential election took place on February 25, 2023, but investors were uneasy about how it would affect real estate.

Festus Adebayo, the Executive Director of the Housing Development Advocacy Network, stated in an earlier interview at the beginning of the year that the housing sector in 2022 performed well exclusively for those at the top, especially in the areas of luxury homes and commercial real estate, but that it has failed in the area of providing affordable housing.

“In the real estate sector in 2023, a lot of things will be determined by election,” he stated. Apathy predominates during election season because investors are apprehensive about whether or not they will receive a fair return on their, depending on the outcome of the election, particularly in the presidential race, the industry would see progress.

Most crucially, I see a real estate sector under a new government in 2023 that will support the sector's development rather than one that is in decline. As previously said, the election winner's interest will decide the extent to which the market recovers in 2023.

The Association of Housing Corporation of Nigeria's Executive Secretary, Toye Eniola, stated in a speech at the end of 2023 that the real estate market was essentially dormant in 2023 and had produced very little.

“This was a result of the market uncertainty caused by the election which slowed down activities,” he continued. When the new government took office, investors were wary, and there was a significant changes in policy occurred, particularly in the foreign exchange market and with the elimination of oil subsidies, which had an impact on important investment choices.

ELIMINATION OF SUBSIDIES

According to the nation's construction companies, the built environment has been severely damaged by the elimination of fuel subsidies and the subsequent depreciation of the currency due to the naira's floating.

Industry participants reported that many businesses were compelled to give up on projects, and others were forced to implement survival strategies to withstand the severe economic fallout from the elimination of gasoline subsidies and the depreciation of the naira.

They said that the nation's construction companies had been severely impacted by the most recent economic reforms. The reforms have resulted in higher operating expenses for them in a number of areas, including labor, building materials, and logistics.

Speaking at the Nigerian Institute of Quantity Surveyors' 15th annual lecture series held by the Lagos State section, the Chief Gabriel Ogbechie, the executive officer of Rainoil Limited, stated that the elimination of the subsidy had a significant impact on the construction industry and raised the operational costs of firms.

He claims that the construction companies' profits will be impacted by the ensuing increase in construction expenses.

“But there are drawbacks to the removal of fuel subsidies for the construction sector,” he stated. The first is the increase in housing developments and construction prices. Building materials are becoming more expensive, and transportation costs for supplies and machinery are also going up, which presents challenges for construction enterprises.

For instance, the average cost of a 50 kg bag of cement increased from N3,900 to N4,200, and it is currently expected to reach N5,300. As a result, project budgets would be under increasing strain, which would have an impact on the viability and profitability of building projects.

According to Kunle Awobodu, the CEO of Reo Habilis Construction Limited, the cost of building materials has been rising at a breakneck speed ever since the gasoline subsidy was eliminated.

The former president of the Nigerian Institute of Builders went on to say that labor costs have escalated dramatically as a result of the current issue in the cost of living.

He claims that construction companies could have to request a review of previous subscriptions in order to be able to deliver projects paid for prior to the termination of fuel subsidies.

“All facets of construction have been impacted by the removal of subsidies,” he stated. “Construction workers are requesting pay increases due to rising living and transportation expenses.”

The removal has consequently automatically raised labor costs and decreased labor activity, which has resulted in projects being abandoned due to conflicting demands. When conflicting demands arise, major projects may need to be slowed down, which may also result in the use of inferior materials.

FOREX

Olusegun Ladega, the managing director of Interstate Architects Limited, identified the depreciation of the naira as an additional issue that led to higher construction firms' expenses in an exclusive interview.