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Naira depreciation affecting real estate

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By Abraham Adekunle

KFAO CEO discusses its negative impact on the sector, among other issues.

Kehinde Ayodeji-Finnih, the Chief Executive Officer (CEO) of KFAO Corporates Limited, has revealed in a chat with the press that the depreciation of the naira is having a negative impact on the real estate sector. She said that for stakeholders in the industry who were hit hard by the 2016 recession (which caused a 6.86 percent decline in 2016 compared with the 2.11 percent growth in 2015), the post-recession fragile convalescing period was dealt a further blow by the COVID-19 pandemic.

Again, the sector is confronting another monster post-Covid – the free fall of the naira and the accompanying inflation. The rapid depreciation in the value of our naira has continued to have a telling impact in all sectors of Nigeria’s economy from aviation to manufacturing and everything in-between. The real estate sector is also not spared. The area that this situation has affected stakeholders is in sourcing the materials used. The bulk of input materials used in the sector are imported.

The cost of building materials has skyrocketed in response.

In the last 12 months, the naira has gone from less than N400 to the dollar to N700 to the dollar at the parallel market. Between late October and early November 2022, the naira even fell to N800 against the dollar. The rate of the fall in naira resulted into a spike in prices. Naturally, it means that the end product is increasingly being priced out of reach of many potential buyers. In simpler words, because the naira is falling significantly against the dollar, stakeholders in the industry will have to pay more naira to buy the same goods pegged at the same dollar price.

Also, the present forex scarcity has affected the cost of building materials as a spike has been recorded over the past few months due to the Nigerian construction industry being heavily dependent on importation of raw materials and equipment for construction. In other words, in addition to the free fall of the naira, buyers also have difficulties in sourcing forex for the payment of these raw materials and equipment. More demand by this industry has also contributed to the increase in price. Unfortunately, as the cost of purchasing these goods spiked, property prices have correspondingly increased, while the average income of people have not increased with the rising unemployment.

Naira redesign has negative impacts on economic activity.

While periodic currency redesigns are normal and the naira does appear to be due for it, since the naira notes have not been redesigned for two decades, the timing of and short transition period for this demonetization may have negative impacts on economic activity, in particular for the poorest households. At present, households and firms already face elevated financial pressures from prolonged high inflation recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing naira notes over a short time period may add to their challenges.

The CEO also spoke about the effect of the global energy-related carbon emissions of residential and commercial buildings, which amount to 40 percent of emissions. She said that the implication of this is evident in the climate. She said that the climate is an important factor of influence in the success of the industry. “However, we are paying attention to the fact that one of human’s basic needs, which is shelter (commercial and residential), contributes a whopping 40 percent to the emission of carbon which is detrimental to our environment,” she said.

Green buildings can solve the housing deficit challenge in Nigeria.

According to her, green building technology uses advanced technologies to develop buildings with minimal impact on the environment in all the lifecycle stages: from design, construction, operation, maintenance, and renovation, to demolition. It has economic benefits, such as significant economic savings by improving employee productivity, increasing benefits from improvements in health and safety, and providing savings from energy, maintenance, and operational costs. It also has social and environmental benefits. Nonetheless, the common challenges were and still are a lack of understanding and awareness about the economic benefits and opportunities of green buildings. Insufficient government support, inaccessible legislation, and the perception that green buildings are expensive are also still great challenges.

Related Link

US EPA: Website

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