Editor’s Note
We are pleased to present to you our half-year market article on the Nigerian real estate sector. This article provides an analysis of the prevailing trends and developments that has shaped the real estate industry in the first nine months of 2023.
One of the major touchpoints that have significantly impacted the Nigerian real estate market is the removal of fuel subsidies earlier in the year. The decision to lift fuel subsidies has had far-reaching consequences, directly affected the purchasing power of Nigerians and imposed increased construction and operational costs on the real estate sector.
With fuel prices soaring, transportation costs for construction materials and workers have risen, significantly impacting project budgets and delivery timelines. Additionally, the rise in fuel prices has led to higher energy costs for property management, affecting both residential and commercial real estate operations.
The government’s response to these challenges has also been crucial. While no much has been actualised in this regard, it is evident that the Nigerian real estate market will continue to face both challenges and opportunities. The removal of fuel subsidies will undoubtedly require a cautious and strategic approach from industry stakeholders, necessitating a deep understanding of consumer behaviour and market dynamics.
Despite these challenges, the Nigerian real estate market has shown remarkable resilience and adaptability. Developers have been exploring innovative construction methods and adopting energy-efficient technologies to offset rising operational expenses and create more sustainable developments. Furthermore, there has been a noticeable shift towards the development of mixed-use projects that integrate residential, commercial, and recreational spaces, aimed at optimizing resources and meeting the changing demands of consumers.
In conclusion, 9 months real estate market synopsis serves as an essential guide for all those interested in the Nigerian real estate market. It provides valuable insights into the impact of the removal of fuel subsidies on purchasing power and construction costs, as well as the industry’s resilience and adaptability in the face of adversity.
We hope that this note will serve as a catalyst for meaningful discussions and strategic decision-making within the real estate community, ultimately leading to sustainable growth and progress in the sector.
CEO’s Comment
As we reach the end of the 3rd quarter of this year, I am filled with a flush of bitter-sweet memories. We have faced numerous challenges, but we have also made significant strides towards achieving our goals. We started the BuyLetLive journey 2 years ago, the 1st of November 2021. As I take a moment to reflect on our journey, I want to discuss three key areas where we have encountered challenges: product adoption, building an internal engineering team, and achieving product-market fit.
Product Adoption:
One of the biggest hurdles we faced in the past nine months was driving product adoption. While our technology is innovative and has the potential to revolutionize the real estate industry, we struggled to convince customers of its value and to onboard them onto our platform. We realized that our marketing and sales efforts were not effectively communicating the unique benefits and advantages our product brings. To address this, we revamped our marketing strategy, focusing on clearly articulating the value proposition and addressing pain points of our target audience. Additionally, we introduced a more comprehensive onboarding process to ensure a smooth transition for new users. These efforts have shown some positive results, but we must continue to refine our approach and constantly adapt to the evolving needs of our customers.
Managing the Engineering Team:
As we scaled our operations and took on more ambitious projects, we encountered issues with project management, collaboration, and alignment. The rapid growth of the team resulted in communication gaps and a lack of clear ownership over tasks and deliverables. We tackled this challenge by implementing agile methodologies and enhancing our project management processes. We invested in tools and technologies that improved collaboration, such as project tracking software and communication platforms.
Furthermore, we fostered a culture of transparency and accountability, ensuring that every team member understands their roles and responsibilities. While these changes have had a positive impact on our team’s productivity and morale, we must remain vigilant and continue to provide support and guidance to ensure our engineering team functions at its highest potential.
Achieving Product-Market Fit:
Finding the right product-market fit has been an ongoing challenge for us. As we ventured into new markets and expanded our offerings, we discovered that certain features and functionalities did not resonate with our target customers. To overcome this challenge, we adopted a more customer-centric approach, actively seeking feedback and conducting user research. We engaged in conversations with our customers to understand their pain points and priorities, allowing us to align our product roadmap more effectively. This approach has allowed us to pivot quickly and make iterative improvements to our offerings. We continue to refine our product based on customer feedback, ensuring that we create solutions that truly address their needs.
In conclusion, the past nine months have been a period of growth, learning, and adaptation for our real estate technology company. However, I am proud of the progress we have made in addressing these hurdles head-on. By refining our marketing strategy, enhancing our project management processes, and adopting a customer-centric approach, we are positioning ourselves for success. I have great confidence in our team’s abilities, and I am excited about the opportunities that lie ahead for us. Let’s continue to collaborate, innovate, and strive for excellence as we work towards achieving our vision.
Macroeconomic Update H1 2023
2023 Population: 210m
YoY GDP Growth Q2:23: 3.98%
Real Estate GDP Growth May 23: 2.26%
Construction GDP Growth May 23: -3.09%
MoM Inflation June 23: 21.09%
2023 Total GDP: $440.78 billion
Total Estimated Residential Housing Units: 17.8 million units
| Construction Item | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| Dangote Cement (50kg) | 2,650 | 2,650 | 2,630 | 3,850 | 4,300 | 4,300 |
| Sandcrete block (9 Inches) | 220 | 240 | 230 | 300 | 350 | 350 |
| Aluminium Roofing Sheet (0.55mm) | 1 ,650 | 3,000 | 2,800 | 4,350 | 4, 700 | 4, 701 |
| Cables (6mm/coil) | 30,000 | 32,000 | 27,000 | 39,000 | 53,000 | 53,000 |
| Coloured Emulsion Paint | 16,000 | 14,000 | 17,800 | 28,000 | 29,800 | 29,800 |
| Glass Sheet (5mm) | 22,000 | 23,000 | 21,000 | 26,000 | 30,000 | 30,000 |
| Reinforcement (10mm) | 220,000 | 210,000 | 275,000 | 415,000 | 420,000 | 420,000 |
| Paving stone 60mm (Local) | 1,950 | 2,000 | 4,500 | 4,550 | 6,100 | 6,100 |
| Harvey roof tiles | 4,500 | 3,500 | 6,300 | 8,500 | 11,500 | 11,500 |
| White Emulsion (Dulux) | 32,000 | 31,000 | 35,000 | 35,000 | 61,000 | 61,000 |
| Twyford Complete set WC | 24,000 | 27,000 | 25,000 | 40,000 | 60,000 | 60,000 |
| Ariston water heater (Small) | 25,000 | 24,000 | 27,000 | 38,000 | 53,000 | 53,000 |
| 13A Socket | 1 ,200 | 800 | 700 | 1,500 | 1,650 | 1,650 |
| ABB Distribution board | 38,000 | 48,000 | 44,500 | 49,750 | 67,550 | 67,550 |
| Wall split unit AC (1.0 HP) Panasonic | 125,000 | 126,600 | 175,600 | 230,000 | 275,000 | 275,000 |
Property Price Changes in H1 2023
Throughout the half year, the rental and sales price of apartments, houses and landed properties in Lagos, Abuja and Rivers saw about 7%, 6% and 8% increases respectively. This was underpinned by rising inflation and cost of borrowing as property owners and developers continued to adjust the price of their products to reflect current economic realities.
In the nine months, Nigeria’s inflation rate has risen by more than 100 basis points. This has resulted in further increase in the costs of construction materials, labor, and other inputs involved in property development. On the other hand, the Central Bank of Nigeria, in an attempt to stabilize the economy had increased lending rate up from 16.5% as at December 2022 to more than 18.75% in July 2023.
The has made it more costly for developers and investors to obtain financing for property projects leading to a slowdown in new and ongoing developments, reducing the overall supply of new properties. With limited supply and consistent demand, the price of properties across the country have continued to rise.
Topical Issues
Inflation continues to press further on Nigerians and the real estate market
Surging inflation has continued to erode the value of the Naira, resulting in lower purchasing power for individuals and businesses. As a result, potential home buyers and renters, are finding it more challenging to afford real estate properties.
resulting in higher development expenses for real estate projects. A number of affected developers have repeatedly adjusted their pricing strategies or chosen to delay projects, potentially limiting the supply of new properties. In an attempt to curb the impact of inflation, the Central Bank have repeatedly increased interest rates, making mortgages more expensive. This has further exacerbated the affordability challenges that is currently being faced by home buyers and renters across the country.
While some investors may view real estate as a hedge against inflation due to its potential to retain value and provide income through rent, the increasing rate of inflation in Nigeria seems to wane investor confidence in the country at large impacting the overall demand for real estate and leading to a slowdown in the sales market or increased demand for more affordable housing options both for rent and purchase.
Cash crunch and implications on Nigeria’s real estate market
On the 23rd of November 2022, President Muhammadu Buhari launched the new Naira banknotes which since the 15th of December 2022 has been a legal tender. The initiative was aimed to enable the CBN to take control of the Naira in circulation, manage inflation, and combat counterfeiting, and ransom payment among many other challenges facing the country. Following the launch was an ultimatum from the federal government to phase out the use of the old naira notes. With a shortage in the supply of the new note, the decision to phase out the senior notes led in a lack of physical currency in circulation, which reduced the purchasing power of individuals and businesses.
Although the real estate market operates mainly cashless, the lack of cash in circulation and the uncertainties within the economy at the time, had a direct strain impact on the real estate market, leading to a decline in transactions. The reduced purchasing power also affected the rental market as tenants face difficulties in paying rent, potentially leading to higher short-term vacancy rates. The ultimatum was suspended March 2023 and has since indirectly eased activity in the sector.
Abuja to see increased property demand
The 2023 general election is arguably the most contested in the history of Nigeria’s politics. As Nigeria experiences new government, we expect to see to see increased demand for real estate in Abuja. Over the next few years, we also expect to see potential policy changes and shifts in government. In the short term, this could create an unpredictable environment and fuel cautiousness among investors, resulting in a short-term slowdown in real estate transactions and investment decisions.
Over the next calendar year, however, we expect to see improvements in infrastructure and development plans which will have a direct impact on local real estate markets, especially within Abuja and environs. Additionally, we expect to see improvements in terms of investment in the real estate sector, as investors begin to reevaluate the stability and attractiveness of Nigeria’s real estate market based on subsequent policy direction by the new administration. This increased confidence will lead to a surge in real estate demand as people seek to establish themselves in a politically significant and stable location.
Multiple devaluations, volatilities in local exchange rates and monetary policy shifts have continued to affect the real estate market.
Increasing Naira exchange rates and negative shifts in monetary policy have had several effects on Nigeria’s real estate market with increases in the price of properties, reduced foreign direct investment and significant capital flight. Additionally, a negative shift in monetary policy, such as higher interest rates that we have seen over the past few months have made mortgages more expensive, further contributing to higher property prices.
and decline in foreign direct investment in the real estate sector. Additionally, the uncertainties in the economy is informing the decision of some investors to exit the market in search of more stable investment options in offshore markets. This has led to decreases in market activity over the past few years.
Slowdown in VC funding following the Silicon Valley Bank crash
On Friday, March 10, 2023, Silicon Valley Bank failed after a bank run, marking the third-largest bank failure in United States history and the largest since the 2007–2008 financial crisis. While the reasons for the collapse of the $212bn tech-lender has no single answer, the impact that it has had on the lending landscape in Nigeria, cannot be underestimated.
One of the most immediate impacts of the announcement was the climate of caution among investors and the impact it is having on their confidence in the overall investment landscape potentially causing a slowdown in VC funding globally, including investments in Africa. VC investors often consider a variety of factors when making investment decisions, such as market conditions, economic stability, regulatory environment, and the potential for returns. The collapse of the SVB is raising concerns about the stability of the broader financial system, resulting in a more risk-averse investment climate, which is slowing down investments in emerging markets like Africa.
Market Outlook
Nigeria’s economy and the real estate market has seen one of the most difficult times in the past 4 years, especially since the 2019 pandemic struck the world’s economy. Factors such as rising national debt profile, dwindling national revenue, insurgency and natural unrests, surging inflation, interest rate and other monetary policy related drawbacks have hindered national growth significantly.
While these factors have generally strained the Nigerian economy and the real estate sector, the investment rationale for owning real estate assets remains attractive. Over the next year, we expect to see a slow but steady recovery in market activities as the new administration continues to make efforts to stabilise the economy.