Naira Devaluation and the plights of estate developers

The value of the Nigerian naira has decreased significantly over the past few years, especially when compared to using several like the dollar and the pound. This has caused a number of economic problems that have made the already weak Nigerian economy much worse.

The rapid depreciation of the naira has had an impact on nearly every sector of the economy across the major economic sectors, compelling industry players to take survival measures to deal with the challenging business environment that has been the scourge of many commercial entities.

In a period of nine months, the value of the Naira in the parallel market decreased by 22.4%, from N580/$ at the end of December 2021 to N707/$ at the start of October 2022.
These numbers highlight the difficulty that many businesses are experiencing due to the ongoing depreciation of the local currency.

The real estate industry has not been immune from this economic problem, like many other economic sectors. Property professionals have faced with a currency crisis as a result of their dependence on the US dollar for a variety of reasons, which has ultimately caused a substantial increase in the price of real estate.
The Nigerian Building and Road Research Institute said last week that the country imported nearly 90% of the materials used to build its buildings and roads.
The head of the institute's building materials section, Okuo Leonard, stated during a news conference held by the Abuja Chamber of Commerce and Industry in advance of this month's Real Estate and Construction Expo 2022 that efforts must be made to lower the high imports of construction materials.


He said, “We import over 90 per cent of what we use for road construction and for buildings. Must we go out to get all these things we need?”
“Look at the doors we are using, we import them, while we have timber which people export illegally. They will develop the timber there, produce those doors and bring them to Nigeria and sell to us as value added products.
“So, it is time to look at making use of what we have, locating the deposits, conducting research and developing or producing most of the things we need when it comes to building and road construction.”

The difficulty with foreign exchange that comes with importing the great majority of building supplies is also on the other side of the fence. This currency dilemma has become much more serious for real estate developers, especially in the last seven years.

This came after the Central Bank of Nigeria's instruction in 2015 to limit the use of foreign exchange for the importation of 41 goods for the official market.
The Central Bank of Nigeria's circular from July 2015 listed 41 goods that it deemed to be invalid for foreign exchange.
19 (or 46%) of the goods on the CBN prohibited list have a direct connection to the real estate sector. These materials include wooden doors, tiles, cement, iron rods, reinforcing bars, and roofing sheets, among many more. Other non-real estate-related commodities that have been deemed invalid include toothpicks, rice, poultry, textiles, and private jets.

Real estate developers around the nation have thus been confronted with the enormous challenge of needing to turn to the (expensive) parallel market to get foreign exchange for purchasing their materials.

References

[1] Punchng, 'How naira devaluation affects Nigeria’s real estate sector' (online, 2022) <https://punchng.com/how-naira-devaluation-affects-nigerias-real-estate-sector/>.