Inflation, soaring prices of materials leave developers in battle for survival

As property developers grapple with the effects of inflation, they find themselves locked in a fierce struggle against the soaring cost of building material which have surged by 700 per cent over the past five years, JOSEPHINE OGUNDEJI writes

In recent years, developers have found themselves in a fierce battle against inflation as the prices of building materials have skyrocketed by 700 per cent over five years.

The sharp rise in material expenses has also caused widespread disruption in the construction industry, posing significant challenges for both large-scale developers and homeowners.

This surge, Sunday According learnt, can be attributed to a combination of factors, including disruptions in the supply chain, increased demand, escalating labour costs, and wholesalers raising prices compared to ex-factory rates.

Consequently, projects that were once financially viable now grapple with considerable budget constraints, prompting developers to seek alternative strategies to mitigate the impact of inflation.

As a result of this inflationary pressure, there has been a slowdown in construction activity as developers struggle with the financial implications of soaring material costs. Many projects have been delayed or put on hold indefinitely as developers reassess their budgets and financing options in light of the unprecedented circumstances.

The affordability of housing, already a pressing issue in many regions, has been further exacerbated by the rising costs of construction materials, making it increasingly challenging for individuals and families to access adequate housing options.

To ascertain the cumulative surge of 700 per cent across three key building materials which engineers confirm are granite, iron rods, and cement over five years, Sunday According analysed the percentage increase for each material separately.

The price of granite rose remarkably from N2,700 to N11,000 per tonne, marking a 307 per cent increase.

Iron rods, ranging from 10mm to 16mm and averaging at N180,000 per ton in 2019, have skyrocketed to N1,450,000 per tonne, indicating a 706 per cent increase.

Cement prices surged from N2,400 to N13,000 per bag over the same period, representing a 442 per cent increase.

In 2019, the total sales price for the products was N185,100. In 2024, the total sales price was N1,474,000. The total increase in sales price over the five years was about N1,288,900.

To find the average increase over the five years as a percentage, the total increase (1,288,900) was divided by the total sales price in 2019 (185,100) and then multiplied by 100. This gives an average increase of approximately 696.29 per cent for the combined sales prices of the products from 2019 to 2024.

The cumulative average increase for all three products from 2019 to 2024 is approximately 696.29 per cent, which can be rounded to 700 per cent. This means that over the five years, the total price of the three products combined increased by about 700 per cent compared to the sales in 2019.

In simpler terms, the price nearly multiplied by eightfold from their initial level in 2019 to their level in 2024.

This significant increase reflects substantial growth and success in the sales of the products over the specified timeframe.

A retailer, Olaniyan Bashiru-Kola, while lamenting the situation, told our correspondent that the continuous price increase jolted him.

Bashiru-Kola appealed to the government to cushion the effect of the inflation as retailers were already bearing the brunt.

“Just February 21, I purchased iron rods (12mm per tonne) in the morning when I wanted to book again by evening, the wholesalers said they were no longer selling, hence I bought it the next morning for N1,450,000.

“Most of us retailers are borrowing money to eat, we know once God brings a purchaser our way, we will reimburse those we owe. I wish I could see and talk to the government myself, let them help us reduce this increase in iron rods to N300,000 at most; this would encourage customers.

“Presently, my customers are reaching out mainly to inquire about pricing rather than making immediate purchases. They’re also in a state of anticipation, waiting for materials to decrease in cost before proceeding with their building projects,” he added.

Also lamenting the increase, the Chief Executive Officer of Magnificent Choice Services Project and Engineering Limited, Jeremiah Akinsele, said his firm had to stop all the projects it was working on presently, renegotiating terms with the clients involved.

“It has been difficult as we had to stop all works for renegotiation purposes, and all building materials went up, we bought cement at N7,300 on Wednesday, February 7, 2024, in Sagamu, Ogun State. The confusing part is that most of the components of cement are sourced locally, I do not know why the impact of the dollar is so huge on the increase.

“As the prices of construction materials soar, exemplified by the surge in iron prices from N500,000 to N1,450,000, there is a looming risk of projects being abandoned. This is especially troubling as we continue striving to bridge the housing deficit gap,” the developer said.

Inflation

In 2019, Nigeria underwent fluctuations in its inflationary trajectory, deviating from prior trends. During the period, the inflation rate experienced a slight decrease to 11.40 per cent, reflecting a 0.7 per cent drop compared to 2018.

Nevertheless, the economy remained exposed to price volatility due to underlying structural and policy challenges. Subsequent years witnessed a reversal of this pattern, with inflationary pressures escalating, signalling potential strains on consumers’ purchasing power and overall economic stability.

In 2020, Nigeria experienced a noticeable increase in inflation, reaching 13.25 per cent, up by 1.85 per cent from the previous year. This escalation highlighted growing cost pressures across various sectors, posing challenges for households and businesses.

The trend continued into 2021, with inflation surging to 16.95 per cent, marking a substantial 3.71 per cent leap from 2020. This significant rise emphasised the need for effective economic management and policy interventions to mitigate adverse impacts on living standards and promote sustainable development.

According to the Nigerian Bureau of Statistics, in November 2023, the headline inflation rate increased to 28.20 per cent from 27.33 per cent in October 2023, indicating a rise of 0.87 per cent.

“On a year-on-year basis, the inflation rate was 6.73 per cent higher compared to November 2022. Furthermore, on a month-on-month basis, the inflation rate in November 2023 was 2.09 per cent, higher than the rate recorded in October 2023.

Like every other sector, the building and construction industry may be witnessing one of its worst moments.

Nigeria’s inflation rate as of December 2023 climbed to 28.9 per cent. The recent upsurge in inflation is primarily linked to the effects of petrol subsidy removal and the devaluation of the official exchange rate, both exerting substantial impacts on consumer prices.

In January 2024, the headline inflation rate increased to 29.90 per cent from 28.92 per cent in December 2023, showing an increase of 0.98 per cent. On a year-on-year basis, the inflation rate was 8.08 per cent higher compared to January 2023.

Additionally, on a month-on-month basis, the inflation rate in January 2024 was 2.64 per cent, higher than the rate recorded in December 2023.

The exchange rate crisis has worsened the woes of the building sector., and the direct effect is being felt more on imported materials like cement, reinforcements, granite windows, doors, ceramics, tiles, plumbing appliances, and sanitary wares, among others.

The prices of the local materials have also been affected by an increase in the cost of production and transportation to the end-users.

Overall, both the year-on-year and month-on-month inflation rates increased in November 2023 and January 2024 compared to their respective preceding periods, indicating a continued upward trend in inflationary pressures. Therefore, inflation has increased rather than declined in these periods.

The National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Dele Oye, blamed the lingering forex crisis for the jump in the price of cement.

 “While local production capacity is a critical factor, we cannot overlook the significant impact of the depreciating value of the naira. The current exchange rate exerts inflationary pressure on input costs, thereby affecting overall food prices.

 “To counter this, a robust economic policy aimed at defending the naira to reach an acceptable exchange rate of N750 to one US dollar is essential. Hence, the government has to fix the naira to fix everything,” he told Sunday According.

The comments by the organised private sector came amid a dramatic increase in the price of cement in 2024.

 Findings by our correspondent indicated that the price hike was attributed to wholesalers reselling to retailers at higher prices.

Last five years

Findings also revealed that in 2019, the price range for a bag of cement was between N2,400 and N2,500, granite was priced at N2,700 per tonne (three-quarter measure), and iron rods (ranging from 10mm to 16mm) were priced at N180,000 per tonne.

The next year, the price of a 50kg bag of cement surged by one-third, reaching N3,200 within a month, granite increased from N2,700 to N3,200 per tonne, and iron rods were priced at N190,000 per tonne.

Dangote Cement’s Group Executive Director in charge of Strategy, Portfolio Development, and Capital Projects, Devakumar Edwin, had in 2021 attributed the high cost of cement in Nigeria to the global rise in demand for cement as a result of the COVID-19 crisis.

“Nigeria is no exception as a combination of monetary policy changes and low returns from the capital market has resulted in a significant increase in construction activity. To ensure that we meet local demands, we had to suspend exports from our recently inaugurated export terminals, thereby foregoing dollar earnings,” he said.

Moving to 2021, cement prices ranged between N2,450 and N2,510, while granite reached N4,200 per tonne in July, and iron rods soared to over N200,000 per tonne.

In 2022, cement prices further increased to between N3,400 and N3,800, granite reached N9,000 per tonne (three-quarter measure), and iron rods were priced at N220,000 per tonne.

The Block and Concrete Producers Association, Enugu State chapter, had decried the continuous increase in the prices of cement and other materials used for block production.

The President of Block and Concrete Producers Association, Enugu State, Igwe Ukaegbu, had lamented that the continuous rise in cement price was negatively affecting the production output of and income of members of the association, urging the Federal Government to intervene in the situation by granting more licences to industrialists to produce cement.

 “The challenge we have is the cost of cement and even sand. Everything is now costly. We are not making sales as we used to; so, we are suffering. We are praying for the government to help us by bringing down the price of cement and other materials.

“Before, one could sell 3,000 to 5,000 pieces of block in a month; but now, before you sell 1,000 pieces of block, it is very difficult. The cost of cement in Enugu now is N4,550 per bag. Some people are selling for N5,000.”

By 2023, cement prices had surged to N5,500, granite to N11,000, and iron rods to N520,000 per tonne. Worried by this, the Cement Producers Association of Nigeria warned that government plans for concrete roads could raise cement prices to N9,000 per bag.

It also called on the current administration, in a statement, to permanently address the perennial cement price hike problem by facilitating larger participation in the cement industry, noting that Nigerians had no business buying cement for more than N5,600 per bag.

In 2024, cement prices skyrocketed to N13,000, with granite remaining at N11,000 and iron rods soaring to N1,450,000 per tonne. This significant increase over the past five years has led to disruptions in the construction industry, prompting some developers to halt projects and individuals to seek contract variations. Operators within the CMAN have been reported to increase brand prices, resulting in retail prices escalating from N5,000 to over N13,000.

Meanwhile, the Manufacturers Association of Nigeria warned the Federal Government against a clampdown on manufacturers following a surge in the price of the product in recent weeks.

However, the Director-General of the association, Segun Ajayi-Kadir said manufacturers were battling unprecedented spikes in operating costs, warning that government plans to reduce prices, rather than reducing the cost of doing business would be an exercise in futility.

 “The escalating cost is not only visible in cement,  or other building materials 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 to build, which is not good for our national development unless the government takes immediate action,” Ajayi-Kadir said during an interview with The According.

 “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,” he added.

 According to the MAN DG, 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.

Housing deficit gap

The nation’s housing deficit was estimated at 28 million units as of 2023, while the population stands at 229.1 million this year, according to the Nigeria – Historical Population Data.

The amount required to fund the housing sector in Nigeria and bridge the estimated 28 million housing deficit across the country is N21tn, the Federal Government stated through the Bank of Industry.

In a 2022 report on Nigeria’s housing sector put together by the BoI, the bank explained that “with a growing urban population, increasing construction costs, and declining household income, access to affordable housing is becoming more difficult for millions of citizens.”

The report, titled, “Institutional turnaround for the next level,” obtained by The According from the Federal Mortgage Bank of Nigeria, stated that while N470bn was budgeted by the Federal Government for housing in 2022, the sector would require trillions of naira to close Nigeria’s housing gap.

It stated that of the estimated 206 million persons in Nigeria, about 95.1 million live below the poverty line, and as such it was difficult for them to have access to their own homes.

Under the section on Nigerian Housing Market in the report, the bank said, “N21trn (is the) amount required to fund the housing sector,” adding that “28 million units (is the estimated) housing deficit.”

Experts in Nigeria’s built industry have predicted an over 60 per cent rise in the housing deficit by 2050, on the back of rising population and urbanisation worsened by economic conditions.

Local production

In an exclusive interview with The According, the Executive Secretary of the Association of Housing Corporation in Nigeria, Toye Eniola, proffered the use of local building materials as a viable solution.

He noted, “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.

“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 researched the use of bamboo as an alternative to the iron rod.”

In a similar vein, the co-founder of Dukiya Investment, Lukman Sobowale, pointed out that the challenge was the country’s failure to achieve self-sufficiency in the local production of construction materials.

He said the weak value of the naira as against the dollar had therefore led to a disproportionate increase in the cost of construction and invariably, the unit value of houses in Nigeria.

“There is no doubt these realities do not bode well for the building and construction industry, especially for investors in the construction sector.

“I have interacted with some investors over the last week, and there is a consensus that the uncertainty and speculation will continue to slow down activities and generally hamper investment in the sector. Most of the investors have instead decided to halt their projects, to a later date in the future in a wait-and-see approach.

“This reality, I am afraid does not help our current situation, when you consider the fact that more than 28 million Nigerians lack access to decent and affordable housing and an average population growth of 2.6 per cent, making Nigeria one of the fastest growing populations globally, and also expected to double over the next 25 years to about 400 million. To close the housing gap, therefore, every day must count,“ he said.

In addressing the situation, Shobowale also noted that it must be considered from a short- and long-term perspective.

He advised, “In the short term, they should provide foreign exchange support for investors and lower import barriers to enable investors to bring in more construction materials at lower prices. This would no doubt lower the cost of construction.

“ In the long term, the government must bring down the high level of inflation, and address the liquidity challenge in the foreign exchange market, so that the naira can stabilise and find its true value.

“There is also a lot of work to do on the fiscal side to ensure that Nigeria can achieve self-sufficiency in local production of building materials, discourage imports, and also gradually drive down the cost of construction materials.”

Regulation of prices

The Managing Director, Shelter Initiatives Limited, Morenike Babalola, warned that by implication, the housing deficit would continue to climb and the low-income groups’ access to affordable quality housing would drastically nose dive.

She said, “Access to owner-occupier homes will empower the low-income (groups) and improve their standard of living. High costs of building materials imply that the poverty level will increase and many households will resort to living in slums, urban peripheries, and squatter settlements with degraded environmental conditions.

“To ameliorate this situation, there is a need for government intervention through control and enforcement mechanisms to prevent arbitrary price increases and involvement in housing construction particularly at the local government level which has remained active in the housing sector.”

Meanwhile, the Managing Director, Fame Oyster & Co. Nigeria, Femi Oyedele, said enforcement of building regulations involved enforcement of rules like setbacks to ensure airspace was allowed, health and safety measures were observed, and houses have adequate space for rooms and toilets, and baths.

He said, “Enforcement of building regulations does not include price control. Price control by any authority will only lead to scarcity of materials, loss of jobs by those working in the company manufacturing or distributing the materials, and the black market. The best way for the government to control prices of building materials is to issue import licenses to importers so that the supply of the materials can bring down the price to an affordable level.”

Government intervention

The Federal Government, through the Minister of Works, David Umahi, in February 2024, summoned cement manufacturers in the country to a meeting, following the increase in the price of the commodity.

Thereafter, the manufacturers agreed to sell a 50kg bag of cement at a retail price between N7,000 and N8,000, depending on location nationwide. They, however, asked the government to address the challenges of gas shortage, import duty, smuggling, and road network.

Reading the communiqué after the three-hour meeting directed by President Bola Tinubu, the minister said certain issues, including smuggling, bad roads, high energy costs, and the foreign exchange crisis caused the high prices.

Umahi said, “Going forward, the government advised manufacturers to set up a price monitoring mechanism to ensure compliance with the prices that are set today (February 19, 2024) and manufacturers have willingly accepted to do that and sanction any of their distributors or retailers found wanting.”

However, developers in the building industry rejected the agreement reached between the Federal Government and cement manufacturers.

In an interview with The According, the Executive Secretary of the Association of Housing Corporation in Nigeria, Toye Eniola, condemned the negotiation which he said would widen the deficit gap.

He said, “What is fair in N7,000 to N8,000 when BUA promised us a slash from over N5,500 to N3,500 and now they are negotiating N8,000? Where are we heading to?

“That negotiation is for the rich. What they are saying is with that price, housing is going not to be for the poor. With that price, there is no poor man that would be able to afford it and it would keep widening the deficit gap.”