Time to build as input materials prices drop in H1 2018

The significant drop in the prices of major building materials in the first half of 2018 is good reason for builders who had abandoned their projects at the peak of economic recession to return to site, a new report on the real estate market performance has said.

Major fallouts of the 15-month economic recession in Nigeria were the hyper-inflation which peaked at 18.9 percent, described as the worst in 25 years, and the weakened naira which, at a time, exchanged N420 to the US dollar.

The twin evils of high inflation and exchange rates escalated commodity prices, including those of building materials, over 60 percent of which is imported, leading to meteoric and unsustainable rise in construction cost and stalling of many building projects.

But since the exit from in Q2 2017, inflation rate has eased, month-on-month, to 11.13 percent in May this year while exchange rate has stabilized at N350 to a dollar at the official window.

These have impacted positively on the price of building materials such that, depending on the brand, the price of cement, a major building component,  has dropped to between N2,550 and N2,600 in H1,2018,  down  from between N2,700 and N2,900 in corresponding period in 2017, representing about 8 percent drop in price.

Michael Jideofor, a building technologist, explains that, because of this development, where a builder would have spent close to N300,000 to buy 100 bags of cement in H1,2017,  he would now spend about N260,000, gaining close to N40,000 which is enough for him to buy a tipper load of gravel.

But while the price of sandcrete (9inch) block has dropped to 210 in H1 2018 and to N170 at the moment, down from N220 in H1 2017, the price of aluminium roofing sheets (0.55mm) has gone up 7 percent to N2,700 in H1 2018, up from N2,500 in H1,2017.

The price of cables (6mm/coil) has also come down to N35,000 in H1 2018, down from N38,000 in H1 2017, representing -9 percent drop. Similarly, the price of paving stone  60mm (local),  which is very much in vogue for builders,  has dropped from N2,100 in H1 2017 to N1,800, representing -17 percent drop in price.

Jideofor advises that,  given the fluctuation in exchange rate and likely instability in the money market that may be triggered by election spending, this is the time to revisit all abandoned projects and even to start  new ones.

In the last 6 months, the Nigerian economy as a whole has experienced significant improvements. Though this can hardly be said of the real estate sector, which has recorded negative growth since Q4 2016, there has been a market shift as seen in increased enquiries for houses.

In the light of this, the new report which was compiled by Northcourt Real Estate notes that the various sub-sectors (residential, retail, office, hospitality and industrial) experienced stabilisation of rents, revival of some suspended projects and the commencement of new ones, in stark contrast to H1 2017.

“Prices of building materials have also dipped or remained constant when compared year-on-year.This is expected and understandable, seeing that foreign exchange rates have stayed fairly stable for about 12 months now and is also readily available”, Ayo Ibaru, Director, Real Estate at the company, noted.

Consistent with this, the Nigerian real estate sector scored high in H1 2018, climbing 16 places on Jones Long LaSale’s  (JLL’s) Global Transparency Index from the last release in 2016, reflecting continued progress in market data availability, improved transaction processing and a stronger alignment between local and international of valuation standards  which is setting the stage for sector growth.