How demolition, inflation endangered real estate sector in 2024

In 2024, the growth of Nigeria’s real estate sector faced significant challenges due to widespread demolition exercises and escalating inflation, with the latter not only eroding purchasing power but also leading to a spike in the prices of building materials. JOSEPHINE OGUNDEJI writes

Demolitions, often carried out to enforce urban planning laws or reclaim government land, displaced businesses and residents, disrupting local economies and reducing investor confidence in the sector in 2024. Simultaneously, inflation not only depleted purchasing power but also led to a steep rise in building material prices, such as cement, steel, and other critical inputs.

These rising costs significantly inflated construction budgets, forcing developers to delay or scale back projects while also driving property prices beyond the reach of many potential buyers.

This dual pressure, among others, not only hindered the delivery of new developments but also deepened the housing deficit, highlighting the urgent need for sustainable policies that balance enforcement with economic stability.

The real estate and construction sectors, despite their contribution of N11trn to Nigeria’s Gross Domestic Product, grappled with significant challenges that put their resilience and adaptability to the test.

Inflation

Nigeria’s inflation rate surged to 33.88 per cent in October 2024, up from 32.70 per cent in September, according to the Consumer Product Index report released by the National Bureau of Statistics on Friday, January 3, 2024.

The movement indicated a 1.18 per cent point increase month-on-month.

On a year-on-year basis, the headline inflation rate was 6.55 per cent points higher than the rate recorded in October 2023, which was 27.33 per cent.

“On a month-on-month basis, the headline inflation rate in October 2024 was 2.64 per cent, which was 0.12 per cent higher than the rate recorded in September 2024 (2.52 per cent).

“This means that in October 2024, the rate of increase in the average price level was higher than the rate of increase in the average price level in September 2024,” the executive summary of the report partly read.

Nigeria’s inflation experienced significant fluctuations throughout 2024.

“The real estate sector’s GDP growth rates in 2024 were relatively subdued, recording 0.84 per cent in Q1, 0.75 per cent in Q2, and 0.68 per cent in Q3. These figures lagged behind the national GDP growth rate for each quarter, underscoring the sector’s challenges,” a report by BuyLetLive read.

According to the report, despite this slow growth, the real estate service GDP contribution growth rate remained robust at 5.20 per cent in Q1, 5.17 per cent in Q2, and 5.43 per cent in Q3.

It stated, “This consistency highlights the sector’s indispensable role in supporting broader economic activity. Real estate remains a significant contributor to urbanisation, employment generation, and wealth creation, even amid its slower growth.”

On factors hampering the growth of real estate, the report noted that several issues contributed to the real estate sector’s relatively slower growth.

It further read, “One of the most significant issues is the economy’s slow recovery from inflationary pressures, which has affected purchasing power and reduced demand for residential and commercial properties. High-interest rates have compounded this problem by making borrowing for real estate projects more expensive. Regulatory hurdles, such as delays in land titling and high transaction costs, also remain significant challenges for the sector. Additionally, the absence of a unified housing policy has created inefficiencies, further stifling growth.

“Another critical issue is the persistent demand-supply mismatch. Rapid urbanisation continues to drive demand for affordable housing, but supply has not kept pace due to high construction costs, limited access to land, and insufficient financing options. The lack of affordable mortgage systems has further constrained residential real estate growth, leaving a gap that needs urgent attention from policymakers and industry stakeholders.”

In March, inflation hit 33.2 per cent, following a February rate of 31.7 per cent. June marked a peak at 34.19 per cent, the highest in nearly 30 years, before easing slightly in subsequent months due to seasonal harvests.

However, inflation began climbing again in September.

Building material prices

In February, developers and housing firms rejected the decision by cement manufacturers and the federal government to peg cement prices at N7,000 or N8,000 per bag, saying such prices were not sustainable for the growth of the sector.

Cement manufacturers and the federal government had met in Abuja after the price of the product soared to between N13,000 and N15,000.

The increase was linked to smuggling, high import duty, foreign exchange crisis, among others.

However, in an exclusive interview with The PUNCH, the President of the Real Estate Developers Association of Nigeria, Dr. Aliyu Wamakko, said the newly proposed price was not good for the economy.

He said, “I do not think that is good for the economy of this country because cement constitutes the primary product for any building construction to be done.”

The Chief Executive Officer of BUA Cement, Abdul Samad Rabiu, promised Nigerians that by January 1, 2024, the cement price would be slashed to N3,500, so what is the problem? According to him, most of the components of cement are sourced locally.

Expressing concern, Wamakko said, “Why should the price be reduced to N8,000? Anything above N5,000 is not beneficial for the economy, and it would not bring any positive impact towards the reduction in the 28 million housing deficit.

He noted that the price should be brought down to N5,000 for any meaningful development to be achieved in the sector.

He added, “At N8000, most of the building projects in the country would not be completed. There must be a review of abandoned buildings all over the country, most especially the ones in 2023.

“90 per cent of cement is sourced locally, so I do not understand why it should go up to that price.”

In a similar vein, the executive secretary of the Association of Housing Corporations in Nigeria, Toye Eniola, condemned the new price.

He said, “What is fair in N7000 to N8000, when BUA promised us a slash from over N5,500 to N3,500 per bag of cement, and now they are negotiating 8,000? Where are we headed?

“That negotiation is for the rich; what they are saying is that with that, the price of housing is going to be for the rich; with that price, there is no poor man that would be able to afford it, and it would keep widening the deficit gap.”

He added, “The way forward is to go back to the basics; this is the time to embrace local building materials. For instance, we have interlocking blocks, and we require about five per cent of cement for this, which would save us a lot of money. The Nigerian Building and Road Research Institute has done a lot of research on alternative building materials that can be used in Nigeria; for instance, they have done research on the use of bamboo as an alternative to iron rod.”

Eniola asserted that it was high time the country began to embrace local building materials as opposed to imported ones.

Also, the Chief Executive Officer, Cromwell Professional Services International Ltd, Sola Enitan, said the new price was bad.

He said, “The reduction is still not it; the manufacturers may think they are saving people money, but it is all bullshit as far as I am concerned.

“In one month, cement moved from N5,000 to N8,000. I believe that the government would begin to feel the pinch further because the cycle goes round.”

According to him, if people are not able to build new houses, and there are rent hikes, the later part of 2024 and 2025 will be very harsh.

Meanwhile, the Chief Executive Officer of Octo5 Holdings, Jide Odusolu, queried the slash in cement price earlier promised by BUA Cement.

He said, “BUA made audio promises. I would like to see who or where they supplied cement at N3,500 per bag—we never got it, and we tried!”

The Director-General of the association, Segun Ajayi-Kadir, gave the warning during an exclusive interview with The PUNCH.

While speaking on the cause of the significant jump in cement prices, the MAN DG noted that manufacturers were battling unprecedented spikes in operating costs.

He recommended that the whole cement value chain be looked into to be able to address the increase.

He said, “The escalating cost is not only visible in cement, so we are speaking with the government, informing them that the cost of doing business in Nigeria is too high; except the government brings down these things, we would always have an escalating cost.

“We have been constantly engaging the government in this regard, and they are promising to address the issue. However, the increase in cement implies that it would badly affect the construction industry; it would also negatively impact the capacity of people to do business, which is not good for our national development unless the government takes immediate action.

“I must warn that the approach is not to clamp down on wholesalers and shops, asking them to reduce their prices. Everybody is going to the same market; the government needs to reduce the ease and the cost of doing business and stop the crazy imposition on wanting to bring down prices. It will not work, but only lead to scarcity.”

According to Ajayi-Kadir, the way forward is to reduce the input cost of production and engage with the stakeholders to understand their cost structure and the reason for the hike.

Demolition

One of the most significant setbacks was the demolition of residential and corporate properties in Victoria Island, Lagos State, by the federal government. This was done to pave the way for constructing the 700-kilometre Lagos-Calabar Coastal Highway. It is compounded by the expected demolition of over 2,000 houses in the Okun-Ajah community in the Eti Osa Local Government Area of the state for the same purpose. Other properties will fall to bulldozers as the project continues. The government should transparently compensate individuals who legally acquired their properties.

Lagos has also embarked on massive demolition of properties. This occurred in Ojota and Ojodu, where the government claimed the buildings were erected on drainage facilities. Other places like Lekki, Ikota, Alaba, Abule-Ado, Ajao Estate, and Ladipo have been visited by bulldozers.

Residents of Anambra, Enugu, Kogi, Oyo, Kano, and the FCT also witnessed the demolition of houses, shops, and makeshift houses. In Bauchi State, where the government is about to construct two interchanges, the governor has been labelled ‘Mr. Demolition.’

Bulldozers have descended on shops and shanties in Abeokuta, the Ogun State capital, and under bridges and illegal shanties on the Lagos-Ibadan Expressway. Early in May, Benue pulled down 40 houses for “defacing Makurdi,” the state capital. Eight hundred houses have been marked for demolition in the state for blocking the floodplains. While some were executed to restore sanity, others were rash.

Yet, the government is mainly to blame for allowing the illegal structures to stand in the first place. It feigns ignorance when areas earmarked for industrial layouts, farming, and other activities are sabotaged by corrupt government officials, infringed upon by slum dwellers, and sold by greedy landowners.

In 2021, a lawmaker representing Bauchi Federal Constituency at the House of Representatives accused the state government of demolishing his house at the GRA for “political reasons.” Governor Abba Yusuf of Kano State has also been accused of demolishing structures for political reasons.

Building Collapse

The PUNCH reported that from October 1, 1974, to September 17, 2024, a total of 1,574 deaths occurred in 627 reported incidents of building collapse in Nigeria, as disclosed by the Building Collapse Prevention Guild.

These figures reveal a worrying pattern of fatalities resulting from compromised building integrity, poor regulatory enforcement, and inadequate safety measures in construction practices.

In recent incidents, the toll of this crisis has continued to grow. On October 31, 2024, a tragic building collapse in Ibadan, the Oyo State capital, claimed the lives of 10 persons and injured seven others.

Meanwhile, the guild stated in a report that Nigeria witnessed a total of 635 building collapses between 1974 and November 5, 2024.

The report indicated that Lagos State had recorded a high collapse with over 351 buildings caving in the last 50 years.

It showed that 351 collapsed buildings in Lagos represented 55.28 per cent of a total of 635 recorded cases in the country during this period.

Way forward

The Chief Executive Officer of Octo5 Holdings, Jide Odusolu, said the government should incentivise local developers in the real estate/construction sector.

He said, “Those with active ongoing development should be able to access single digits or low-interest loans to drive the projects.

“This should be tied to such people using local input and employing local labour. Rather than trying to build itself, the government can create over one million new jobs by partnering with active developers in the industry.

“In addition, fiscal concessions should be availed to developers, especially those working in affordable housing. Working with the built industry and national microfinance banks, both CBN and the federal government can use the housing sector as a broad stimulus and driver to address these challenges.”

Speaking on budget allocation, the Managing Director of Fame Oyster & Co. Nigeria, Femi Oyedele, said the allocation to the housing sector was a scratch on the body.

He said, “The real estate and construction sector needs to be focused on as it can be used as a strategy for job creation, infrastructure development, and wealth generation.

“The federal government should intensify its efforts by allocating a reasonable percentage of the budget to the real estate and construction sector because of the huge housing deficit, now estimated to be 28 million. The allocation of N250bn to housing is a scratch on the body.”

Speaking on lenient policies, the Chief Executive Officer of Jofame Integrated Limited, Gideon Mfonabasi, said the way forward was to alleviate the hardship by bringing succour to the people through lenient policies.

He said, “Housing policies should be able to capture both formal and informal sectors; at least one million Nigerians get mortgage loans for a term of 20 years, and also easy access to getting land titles to access these mortgages.

“Let us have frameworks that bring relief to the people; whatever it is, let us identify with the masses by feeling their pains and coming from the perspective of the pain they are facing to relieve the pain.”

Meanwhile, the treasurer of the Nigerian Society of Engineers, Victoria Island Branch, Babatunji Adegoke, said to ensure a better 2025 for Nigerians, the Tinubu government must prioritise promoting local content by actively supporting and patronising Nigerian engineers, thereby facilitating knowledge transfer and empowering the local engineering sector.

He said, “Simultaneously, the government must address the critical issue of the housing deficit through the implementation of deliberate strategies. Furthermore, prioritising safety and sustainability in all infrastructure development projects is paramount.

“To maximise economic impact, the government must expedite the completion of all ongoing projects and swiftly bring them into productive economic use. Finally, fostering robust public-private partnerships is essential to attracting private sector investment and driving sustainable infrastructure development.”