Effects of the continuous fall in oil price on real estate

As the Naira continues to fall, industry experts in Real Estate in Nigeria have predicted an average of 27-percent increase in the cost of housing projects. The effect of the depreciation is already being felt by developers as the cost of construction has risen since most of the materials for construction are being imported from foreign countries such as China, Indonesia, etc. Due to high building materials, development costs have risen, notwithstanding the drop in demand resulting in a glut in supply of developments already in progress.

  • The continuous devaluation of the Naira has affected the availability of funds and interest rate as well as hindered the growth of mortgages in the country.
  • The devaluation could easily be blamed on falling oil prices. Since Nigeria depends mainly on oil as its main source of revenue, drop in oil prices have huge impact on the Nigerian economy.
  • Another effect of the continuous fall in price of crude-oil on Real Estate is what close industry watchers have described as ‘crisis of currency’. Numerous stakeholders, especially property vendors, see this as an unwelcome development for a market that is still advancing, exhorting that dealers and purchasers must locate a meeting point or an exit plan so as to keep the showcasing going.

So where does all this leave us as close followers of the industry? It stands to reason that in any economic downturn, there is an opportunity. The opportunity here lies in the ability to innovate and diversify. It is important for all parties to demonstrate the true value of Nigerian Real Estate. For too long; infrastructure, design and construction do not match the premium prices that contemporary Real Estate demands especially in the highbrow areas. The barrier to entry in the marketplace has been too low and creative problem-solving has been lacking.

However, the players in the industry who recognize that 2016 cannot be “business as usual” are primed to thrive in the short-term and dominate in the medium term. Since Real Estate is a means to continuous storage of wealth, there is certainty that investment in Real Estate will always and undoubtedly thrive because shelter is a basic necessity. There is always the need for housing, institutions, schools, etc. Investors should diversify interests into Real Estate from the all-eyeing crude-oil market, which presently seems too liquid. Real Estate investment is more of a surest bet to wealth accumulation as its value is ever-increasing and appreciating. It is all the more important that developers find new and quality local (and international) products and solutions; government find avenues of supporting mortgage growth and improve lands regulations; real estate agencies deliver holistic consulting services and quality customer service; and that buyers are more exposed and educated about their options in the market as well as find creative bargaining solutions. These will pose advantages to Real Estate investment even while the economy seems to be at downturn.

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