Assessing impact of rising input costs on property development in Nigeria

Nigeria's property development landscape is facing significant challenges due to the escalating costs of essential building materials, particularly cement. Ahmed Dangiwa, Minister of Housing and Urban Development, has expressed concerns over the potential crisis in delivering houses if the cost continues to rise. Obinna Onunkwo, Deputy CEO and Co-founder of Purple, shed light on the impacts of these rising input costs on the industry during an interview with CNBC Africa. The surge in prices of building materials, including granite, sand, wire, formwork, and cement, has been staggering. Over the past three years, prices have increased by approximately 40%, with cement alone spiking by 60% between last year and this year. Cement, which constitutes about 20% of construction costs, is a significant expense for property developers. This surge has led to developers either abandoning projects or struggling to meet project timelines. While the government has intervened to address the issue by meeting with manufacturers to lower prices, doubts remain about the sustainability of such measures. Obinna emphasized that the government's role is to influence policy, not to control market factors entirely. Therefore, long-term solutions require strategic policy changes and industry collaboration. In response to the challenges posed by rising costs, developers are exploring various strategies to mitigate expenses without passing additional burdens to consumers. One approach involves direct involvement in the procurement process to eliminate middlemen and reduce costs. By actively engaging customers and keeping them informed about market dynamics, developers aim to build trust and ensure timely project delivery. Additionally, collaborating with government entities to expedite approval processes is crucial for streamlining operations and driving industry growth. Obinna highlighted the significance of engaging with the government in the real estate sector, given its substantial contribution to the national economy. Real estate accounts for about 9% of Nigeria's GDP and is the second largest employer after agriculture. Effective government-industry collaboration is essential to prevent a potential crisis similar to those witnessed in other countries like China and the US. Despite the challenges posed by rising input costs, the real estate sector in Nigeria has shown resilience. While smaller players may face difficulties in navigating the current market conditions, larger firms with strong balance sheets are better positioned to weather the storm. Diaspora investments, a significant source of funding for the sector, are also adapting to the evolving economic landscape, with investors recalibrating their expectations and seeking reliable partners for project collaboration. Looking ahead, Obinna advised smaller players to explore strategic partnerships as a means to mitigate risks and sustain business operations amidst the prevailing challenges. By sharing risks and resources through active collaborations, developers can enhance their resilience and overcome the obstacles posed by rising input costs. Ultimately, fostering a culture of partnership and innovation within the industry is crucial for driving sustainable growth and ensuring long-term success. As Nigeria's property development sector navigates the complexities of rising input costs, industry stakeholders are urged to adopt proactive measures and collaborative approaches to address the current challenges and pave the way for a resilient and prosperous future.