The real estate market in Nigeria is a dynamic and ever-evolving landscape, influenced by a plethora of economic factors, including inflation and exchange rates. Whether you’re a seasoned investor or just curious about the dynamics at play, understanding how these factors interconnect is vital.
Nigeria is the largest economy in Africa, with a rich blend of natural resources, vast reserves of oil and natural gas, and an ever-growing population which is a huge contributory factor to the country’s economy.
Nigeria as every other country is affected by different situations that directly affect the economy, and when this happens, every business sector is affected.
Economic factors encompass a broad spectrum of variables that impact the real estate market, some of which include; Gross Domestic Product, Interest Rates, Unemployment Rates, Inflation, and Exchange Rates.
- Gross Domestic Product (GDP): Nigeria’s economic growth, as measured by GDP, significantly influences real estate demand. A thriving economy tends to stimulate investments in both commercial and residential properties. Think of Nigeria’s economy as a rollercoaster. When it’s climbing (GDP growth), everyone’s excited to hop on the real estate ride. But when it’s descending (economic downturn), folks get cautious about real estate investments.
- Interest Rates: The Central Bank of Nigeria’s monetary policy and interest rate decisions have a direct bearing on the cost of borrowing for real estate projects. Higher interest rates can discourage investment, while lower rates encourage it.
- Unemployment Rates: High levels of unemployment can lead to reduced demand for housing, particularly in urban areas, as people are less likely to purchase or rent properties when their income is uncertain.
In Nigeria, prices keep going up due to inflation, causing rapid increase in the prices of products and properties.
- Inflation: This is the rate at which the general price level of goods and services rises, resulting in the purchasing power of a currency falling. Inflation is like a sneaky thief that makes everything more expensive. It also creeps into real estate, raising property prices and rent. So, if you’re planning to buy or rent, you may need to tighten your belt. In the context of real estate, inflation affects:
- Property Valuations: Rising inflation can lead to increased construction and operational costs, which can translate into higher property prices and rents.
- Investment Returns: Inflation erodes the real value of returns on real estate investments. This is a crucial consideration for long-term investors.
- Mortgage Rates: Inflation can also lead to higher mortgage interest rates, impacting the affordability of real estate for potential buyers.
- Exchange Rates: Exchange rates dictate the value of the Nigerian Naira concerning foreign currencies. Exchange rates can play tricks on the cost of building homes. When the Naira’s dance partner (e.g., the dollar or euro) gets strong, building materials become costly, which can affect the cost of real estate projects.
Additionally, the instability of the naira in the forex market has caused an adverse effect in the property industry. Fluctuations in exchange rates impact real estate in several ways:
- Foreign Investment: A weaker Naira can attract foreign investors seeking opportunities in Nigerian real estate, making it more affordable for them.
- Construction Costs: Exchange rate fluctuations can affect the cost of importing construction materials, which can, in turn, influence project costs.
For real estate developers like Veritasi Homes, we’ve been able to mitigate this challenge, by shortening our time of delivery, as you can see in the construction of Camberwall Advantage 5 (https://veritasihomes.com/premium-homes/camberwall-advantage/). We’ve also broken down our construction timeline into different milestones, increasing the price of our project when we hit a new milestone.
As an investor, looking to own real estate, it is always the best choice to buy now, as prices are set to appreciate in no time.
We know the times are tough, but it is our choice to act smart, act fast, and do business with the “brand you can always trust” – Veritasi Home!
The Nigerian real estate market is undoubtedly influenced by economic factors, inflation, and exchange rates. For investors and potential buyers, staying informed about these factors is essential to make wise decisions. Economic ups and downs, price hikes, and the currency dance are all part of the real estate game in Nigeria. As long as you keep an eye on these factors, you can navigate the market with greater confidence and success.
