PROPERTY ARTICLES

IN the wake of the global economic recession, which is hitting hard on the world economy, developers and independent builders in Nigeria are becoming unsettled with the development, and are therefore calling for the intervention of government.

Nigeria's building materials market, which had been stable for several months, has recently experienced adjustments in prices that have been blamed on such factors as the exchange rate, port charges, haulage costs and cost of diesel.

But opinions are not uniform on the impact of the developments, as some developers believe that these factors should not have any impact on the real estate market, as they are marginal. Others, however, say any of these factors could bring changes in construction costs except the builder introduces alternative methods to best the cost.

For instance, the Chairman, Sparklight Property Development Company Limited, Toyin Adeyinka, an engineer told The Guardian that property developers, who strongly rely on imported building materials will certainly face some problems due to the current exchange rates.

He disclosed that his company now adopts such locally sourced building materials as burnt bricks, wood and Kaolin - a mix of cement and sand. Adeyinka urges the government to pay greater attention to the development of locally sourced building materials for the construction of affordable houses.

The Managing Director, Shelter Initiatives Limited, Oluseyi Olufadeju, said that the current situation may not have any impact on the property industry. "Changes in prices at this time are due to people's attitude of taking undue advantage of situations. Changes in materials prices are still marginal," he said.

But Ayo Biobaku, chairman, QMB Builders' Mart Limited, said the skyrocketing exchange rate of the dollar to the naira was killing the building materials' sector in the country. Biobaku, admitting that prices of building materials would definitely go up in view of the fall of naira, stated: "I will soon review my prices."

Biobaku queried the argument that the fall of naira would not affect the polity. According to him, that theory cannot stand, as the reality is already showing danger signs over the development. The property market in Nigeria, according to him, is a perfect example of the classical definition of the higher the demand, the lower the supply, arguing that, with the high demand for houses, the supply was in inadequate.

Though he agreed that there is an increase in activities within the built environment sector, particularly with respect to construction activities, Biobaku described the condition of the nation's ports as "an apology," adding that imported building materials that should be cleared within five to seven days now take weeks or months.

"The clearing system has been terrible since former President Olusegun Obasanjo left office. There is no clarity on the clearing process. What we used to have had since changed," he said.

The biggest challenge to importation, he stated, was the ports, particularly the seaports. But, he tasked the newly constituted Shippers' Council and the Ministry of Commerce to step up action that would encourage local manufacturers of building materials' products.

Yet another operator, Yemi Osilaja, chairman of two building materials' firms - TadeoTech Nigeria Limited and Ace Cladding Systems Limited - said that with the manoeuvring, it had become very difficult for an average man to appreciate and understand the real situation.

"Foreign exchange is killing industries and businesses in general," he said, noting that: "Once the revenue for duties goes down, importers will seek other corrupt means to bring in their goods since they have to stay in business. My prayer is that government will not be driven into a policy of concessions here and there that will only benefit a few and the inflation circle goes on."

Like others, he urged government to reduce tariffs on imported building materials or find ways of helping small and medium enterprises to grow, stressing that there was need for all stakeholders to know what government was doing to stem and soften the situation.

His words: "The challenges are cumbersome. Mainly, these affect clearing and forwarding services within our seaports. I don't know anywhere in the world where you have so many agencies like we have in this country. The system is not working. Lip service on the part of government and stakeholders is on the increase. It is crazy, especially for those who want to get things done in a right way."

According to him, there are too many people at our ports and this cause more delay in clearing imported goods. For instance, he said that, those who borrow will not be able to pay as when due when their good are still on the seas and that means there will be many defaulters, which cumulatively tells much on the economy.

Similarly, Kunle Awobodu, managing director, Reo-Habilis Construction Limited, says experts and builders are already anticipating rise in construction cost as regards to building materials' prices. The fear, according to him is associated with the fall in naira value.

"The fall in naira value will definitely affect building materials, which are usually imported. The past two years witnessed a rise in building construction activities as new estates emerged in different parts of Lagos. But the booming real estate business might suffer a decline due to anticipated rise in the cost of building materials. However, the meltdown in the stock market may turn to be a blessing to the building construction sector as investors might divert resources to real estate business," he said.

Chairman and Chief Executive of Immac Group Limited, Kole Olatunji, notes that "Nigeria appears to be a bit insensitive to what is going on and as such we are not taking any necessary measures to curtail the fast moving trend."

His words: "Depreciation in naira value is working against us. It weakens the strength of the naira and the moment that happens, it earns you significant losses instead of profits as an importer of building materials goods. This situation, if not checked may lead to total collapse of the industry."

He also identified inconsistent government policies and port congestion as other factors affecting building materials costs and the real estate sector. "Import finance consultancy services involve assisting traders and manufacturers to bring in their finished goods or raw materials into the country. I did that for a very long time, precisely, between 1985 and 1990 and because of the inconsistent economic policy of our government, I realised it was not really good enough for me; it builds up blood pressure. You find time to raise naira and buy foreign currency. Again, you remit the money to the manufacturers and wait for several months for the goods to arrive.

"You again begin the process of getting the goods out of the port and warehousing them, but at the end of the day, you discover you have been short-changed due to government's inconsistent policies and the changing value of the naira." The situation, if not curtailed, he said, would continue to affect skilled labour, as many more jobs would be lost in the process.

Olatunji urged government to look inwards by playing down the over-dependence on importation. He is also tasking government to provide a good platform through provision of infrastructure and evolving stable policies with reduction of import duties of building materials.

Managing Director, Cornerstone Construction (Nigeria) Limited, Mr. Lanre Okupe, holds similar views on the place of the nation in the international market. "We have a disadvantage in this country, which is now becoming an advantage for us. Due to our unseriousness, we are truly not playing in the global market. It is affecting people who have invested in the global economies. Most of the institutions here are not players in the capital market. This as a disadvantage, but is now an advantage", adding the global financial crisis would not significantly affect the real sector.

However, he said the nation would not be totally left out on the impacts, as less cash would be available. "The only area I think it can affect us is that we will have less inflow of foreign finance. Because of the price of crude that is dropping, the revenue of the country will drop. This will affect the inflow of money into the country and ultimately, government's spending and budget would be reduced."

Okupe said Nigeria's economy was one of the most stringent economies in the world. "I don't think the prices of houses will come down in the manner it is happening in the UK (United Kingdom) and U.S. (United States) And if it is going to come down at all, it is going to be marginal and terminal", he held.

To him, the housing and building industry is crashing in the UK and the U.S. because of their mortgage system, living in a credit economy, which, he said we do not have here, we may not be affected so seriously as we might have been imagined.

He added that, Nigeria is not a credit economy. "Most things we do here is on a cash and carry basis. I do not think that the fall in prices that we see in those places will happen here because our structure does not give room for that. Where there is depression all over the world, there is inflation in Nigeria."

Apart from the fall of naira, Okupe said government's high-handedness in the matter of issuing approval for projects was killing the industry.

"Cornerstone and some of our partners came together with the intent to develop a seven acres estate along that axis. For over a year, we have been processing the approval, which is not yet ready. That is not good for business. Ideally, it should take two to three months to get approval. Not getting the approval is not good for business."

"In a situation where a facility is drawn from either local or foreign investors, the developers will run into serious trouble in the face of appreciating interest.

"The implication of that, according to him, is that, developers would have to pay about 30 per cent more than what was borrowed, in addition to the interest. But, while government had approved the project on time, investors would have paid almost as much as what was borrowed. Who is going to bear that loss? Definitely, the buyers," he said.

Meanwhile, observers are worried that while the big economies like the U.S., Britain, France, Japan and others are fashioning measures to curb its devastating effects, the same could not be said about third world countries.

At a seminar in Lagos organised by 'Castle Property Magazine,' Dr. Doyin Salami, an economist and senior lecturer at the Lagos Business School (LBS) highlighted the effects of the current development in the global economy and how it affects Nigeria's economy and the real estate sector.

According to Salami, the exchange rate in 2008 stood at an average of N116 to a dollar, and is expected to average between N42 and N45 to the dollar, this year. Also lending rates are expected to increase from last year's figures of 18.97 per cent, he said.

He also noted that the growth rate in Nigeria for 2009 is expected to be between four and 4.5 per cent, which is the lowest since 1999. "All the factors in combination with the global credit means that while Nigeria is not in recession, the Nigerian economy will experience a slower rate of growth in 2009," Salami predicted.

He added that the "high-end of the property market is expected to experience a slowdown while the lower-end will remain relatively constant with a slight tinge towards tenants' resistance."

He was of the view that it is wrong for government to intervene in the property market through a price regulation policy and that it would be better if the market is allowed to play itself out from existing economic indices.

But Mrs. Tawa Ayeni of First Bank Plc said the solution to housing delivery problems is the development of both primary and secondary mortgage facilities.

"The average Nigerian worker could not afford to build their own houses through personal savings. The best way out is to strengthen mortgage institutions."

Mr. Kayode Akinyele of Conserv Energy Limited, introduced several electricity conserving devices, which according to him, are capable of reducing energy costs by up to 50 per cent monthly in the home or in the office.