•Construction
Like every other sector, the building and construction industry may be witnessing one of its worst moments, as exchange rate, building materials, and labour prices have triggered an increase in construction costs by 200 per cent in the last two years.
Nigeria’s inflation rate as of December 2023 climbed to 28.9 per cent, reports The Guardian.
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.
The exchange rate crisis has worsened the woes of the building sector. The direct effect of exchange rate is being felt more on imported materials like windows, doors, ceramics, tiles, plumbing appliances and sanitary wares, which represent 23 per cent of materials in the building market. The prices of the local materials, which account for 37 per cent of materials in the market, have also been affected by increase in the cost of production and transportation to the end-users.
The depreciation in the value of the naira directly affects the prices of building materials in the construction industry. Material components of a building account for about 60 per cent of the building cost. With the present economic situation, the downward trend of the value of the naira, cost of materials continues to escalate at a higher rate.
Prices of essential building materials such as cement, blocks, doors, reinforcement rods, sand, timber, paints, roofing sheets, glass and tiles have risen by over 75 per cent in the last 12 months and this has become a source of concern to the built environment professionals because of the direct impact on supply, affordability and accessibility to housing, especially for low and middle-income earners. According to architects, materials and labour prices have risen between 100- 200 per cent in the last two years.
For instance, our building materials survey last week shows that a 50-kilogramme bag of cement that was sold for N4, 700 in January last year now sells between N6, 200 and N6, 500. The cost of raw materials such as limestone, clay, and gypsum, is attributed to price increase from haulage and fluctuations in exchange rate, according to producers.
For cement-based blocks, a nine-inch block previously sold at N450 is now N550, while the six-inch block is now N500 from N370. There has also been an increase in the price per tonne of iron rods. The 8mm previously at N255,000 per tonne is now N518,000, 10mm that used to cost N442, 000 goes for N520, 000, while 12mm and 16mm rods that sold for N446 is now N515, 000, while 20mm and 25mm earlier sold for N442, 000 now command N530, 000 price, depending on location.
Accordingly, labour prices have gone up, with artisans that earlier charged between N3, 000 to 4,000 per day last year, charging between N6, 000 and N8, 000, depending on the location. A key factor to these charges is the cost of fare to the site. Some of the built environment professionals have also raised their scale of fees indirectly to reflect the inflationary trend.
Generally, price of paints in 20 litres containers also increased from N8,000 with price hovering between N10, 900 and N35, 000 depending on the brand, location, while retailers and distributors sell between N12, 500 and N45, 000. Price of sanitary fittings and other items have also hit the rooftop.
The development has made it difficult for property developers and contractors to deliver affordable housing for over 75 per cent of Nigerians, who lack access to desired accommodation. There has also been a spiral effect in prices of houses, especially newly constructed buildings, as well as delayed delivery of projects.
Rental prices are also increasing in low-income settlements with a room self-contained of N150, 000, being rented for N250,000; a two-bedroom flat has increased from N400,000 to N600, 000, while a three-bedroom apartment rose from N500, 000 to N800, 000 and could be higher depending on location. For the same type of units in highbrow areas, a two-bedroom is as high as N1.2 million, while three bedrooms go for N1.8 million and above.
Experts say cost of construction will continue to rise, except the federal government intervenes in the sector through deliberate policies to lower costs of construction. The President, Commonwealth Association of Surveyors and Land Economy (CASLE), Mr. Segun Ajanlekoko, said without economic re-engineering, the cost of construction will continue to rise, as the country is import-dependent for major components of construction materials.
Ajanlekoko, a past president, Nigerian Institute of Quantity Surveyors (NIQS), who said the rise in construction cost is between 35 per cent, traced it to the sharp decline in the value of the naira in the foreign exchange market and internal operating cost arising from increases in consumables like diesel for generators, transportation costs for labourers and other logistics.
While noting that infrastructure projects affected heavy engineering projects such as roads and bridges, he called for greater and effective cost management. According to him, the government must allow a special discretionary exchange rate for imported materials, grant tax relief for construction companies and encourage use of local materials.
The CASLE president further advocated establishment of a financial intermediation that will reduce the overall cost expenditures and reduce interest to a single digit, as well as invigorate economic activities and help upscale Gross domestic Product (GDP) growth and reduce unemployment.
The President, Nigerian Institute of Quantity Surveyors (NITP), Nathaniel Atebije, traced the problem to high inflation rate.
“The naira has nose-dived beyond any record in history. And most of the building materials are imported, which are usually imported with foreign currency. Secondly, the cost of transporting materials has skyrocketed because of the increase in the pump price of petroleum products under the claim of removal of petroleum subsidy. The prices of these products go up almost every week. These and other factors such as the cost of labour have generated high multiplier effects on the cost of construction,” he said.
Atebije estimates the percentage increase in the past one year to be in the region of 400 per cent. He cited an instance, “We are working on a building whose burglary proofing materials were estimated at N3 million by May 2023 but by December 2023, a revised quote took it above N11 million. It was unbelievable though real. I am sure the price must have gone higher by now.”
He urged the government to drastically reduce bureaucratic bottlenecks between project conception and construction, strengthen relevant institutions to research and encourage the use of locally produced building materials, as well as minimise engagement of foreign professionals and contractors in the construction industry and massively engage indigenous professionals and contractors of proven competence and integrity.
NITP president also wants tariffs on highly essential building materials reduced to allow for the importation of high-tech building materials, as well as access to land and tax waivers to encourage manufacturers of building materials to set up industries and produce in Nigeria.
Atebije, who noticed the rise in all aspects of construction, expressed concern on the increase in housing, which is the most basic need of man. “It is most noticeable in housing because the deficit continues to stare at us and the nation looks helpless in attending to the increasing homelessness, the need to replace the ageing residential properties, failure of which is responsible for the collapse of buildings, killing many Nigerians.
“The cost of building materials is the reason for the growing shanties and illegal developments in the form of slums and its attendant problems. Urgent attention needs to be given to the need to reduce cost of building materials to promote sane development and management of our human settlements,” he added.
The Nigerian Institute of Architects (NIA) President, Omobolaji Adeniyi, said the devaluation of currency has led to increase in production cost for most construction materials and high cost of transportation due to removal of fuel subsidy of the products (AGO and PMS prices). She also blamed it on the high interest rates, limited access to affordable funds, shortage of skilled manpower and heavy reliance on imported construction materials.
Adeniyi said the effect of the cost increase is noticed across all construction projects because the same materials are used, adding that it is very noticeable in housing, with developers raising house prices by 40 to 50 per cent in the last year due to high materials cost and related expenses.
“The average cost of building materials rose by 35.75 per cent in the first half of 2022 compared to the same period in 2021. It has been consistently rising since then and we can put a range of 100 – 200 per cent increase across board in the last two years. This varies from one material to the other, and from one place to the other, affected by local forces like nearness to the sources of the materials,” she said.
She urged the government to pursue deliberate policies to lower the costs of construction and focus on stabilising the naira by creating a more accommodating regulatory environment for investors. Other measures she recommended include lowering of duties for imported components, support for local production of some of these materials, funding of research and development in alternative materials and methodologies, and the formulation of more effective regulations.
Adeniyi stated that housing and infrastructure are the most important indices in the measurement of development and biggest drivers of employment in almost all economies. “The stimulation of the construction sector has a big impact in any economy. Making construction more affordable would be an important game-changer for our economy. The rising costs of building materials also impact on disposable incomes and purchasing power among Nigerians, exacerbating employment challenges and potentially slowing down crucial construction activities for economic growth,” he added.
