High Material Costs Stall Housing Projects as Developers Struggle to Finance Delivery

Nigeria’s housing delivery is under fresh pressure as soaring building material prices force developers to slow, suspend or redesign projects to a cost effective budget.

LEADERSHIP gathered that prices of building reinforcements like cement, steel, aluminium, roofing sheets, tiles, electrical and plumbing fittings, labour and transport have surged and eroded budgets such that A 50kg bag of cement now sells for N13,500 to N15,000 in many locations, with higher prices elsewhere.

Developers also noted that feasibility studies have become obsolete within months, as costs rise faster than purchasing power as property developers risk unsold units, or stall construction project.

The sharp increase in the prices of cement, steel, aluminium, roofing materials, tiles, electrical fittings, plumbing components, labour and transportation have made it increasingly difficult for developers to maintain project budgets.

Real Estate Developers Association of Nigeria (REDAN) had earlier warned that material costs were threatening delivery while stating that Developers are now cutting unit sizes, adjusting specs, renegotiating projects or risk phasing projects.

The situation has become more difficult as developers contend with rising land prices, labour costs, financing expenses, infrastructure charges and regulatory costs.

With this recent development in the construction sector, developers are confronted with three options to absorb the additional costs, accept lower margins, increase selling prices and risk losing buyers, or slow or suspend construction until market conditions become clearer.

The Federation of Construction Industry (FOCI) in a statement said inadequate funding and delayed payment of certified jobs forced members to operate at low capacity or suspend work, leading to 41,800 job losses.

FOCI declared that lending rates to developers by the commercial banks now ranges from 20% to 46%.

The President and Chairman of the Federation of Construction Industry Council, High Chief Vincent Barrah, and Director-General, Fidelis E. Imoisili raised alarm over the slow pace of work by its members over the past year describing it as “very worrisome”, while attributing the situation largely to the gap between budgetary provisions and actual release of funds for infrastructure projects.

They equally affirmed that “The major challenge confronting the construction industry is inadequate and unpredictable funding.”

According to the federation of construction industry, many infrastructure projects were awarded without adequate multi-year funding arrangements, resulting in delayed payments, accumulation of certified debts, reduced construction activities and, in some cases, suspension of projects.

“Most of our members handling various projects are not working and those working are operating at a very low capacity due to non-payment of certified jobs,” it stated.

FOCI also raised concerns over the termination of existing contracts by the Ministry of Works, arguing that contractors should not be blamed for delays caused by inadequate funding.

“It is on record that our members suffered arbitrary termination of contracts by the Ministry of Works. Although the termination of those contracts were done by Mutual Consent, it was mainly due to inadequate funding that delayed the execution of those projects,” the federation said.

It added, “You don’t expect a contractor to continue working without the provision of the necessary fund by the employer.”

The construction industry body maintained that infrastructure projects were capital-intensive and required regular funding to ensure timely completion.

“So if projects are delayed, suspended or abandoned, it is not the fault of the contractors,” it stated.

FOCI said the crisis had also resulted in significant job losses across the country, with about 41,800 workers reportedly losing their jobs during the period under review.

It explained that 1,000 workers in the senior staff category and 40,800 junior staff workers were affected, warning that the consequences extended beyond the workers to their families, businesses and the wider economy.

“Imagine the consequences and the multiplier effect to their families, the market women and the economy at large,” the federation stated.

FOCI further criticised what it described as non-compliance with the Standard Conditions of Contract in some projects, saying changes to contractual frameworks should involve all relevant stakeholders.

It called for collaboration among the Bureau of Public Procurement, Council for the Regulation of Engineering in Nigeria, Nigerian Society of Engineers, FOCI, Federal Ministry of Works and Federal Ministry of Justice in developing or reviewing standard contractual conditions.

On contract pricing, the federation said existing mechanisms for price adjustment and variation did not adequately respond to inflation, foreign exchange fluctuations and rising construction input costs.

It noted that prices of cement, steel, bitumen, diesel, equipment, spare parts and other inputs had risen substantially following the depreciation of the naira.

“Contracts awarded several years ago may consequently become commercially difficult to execute at their original rates,” it said.

FOCI stressed that contract prices should reflect prevailing economic realities and the unique conditions of individual projects.

“Every project is unique, so either in augmentation or review of rates, the consideration should be based on uniqueness and must reflect the current realities for it to be effectively implemented,” it stated.

The federation also identified delayed certification and payment as major threats to contractors’ cash flow, noting that lengthy administrative procedures for project measurement, certification, approval and payment often forced contractors to finance substantial portions of government projects while awaiting reimbursement.

Speaking on construction crisis and stalling of projects, Property Analyst and Chairman of Association of Capital Market and Valuers (ACMV), Mr Chudi Ubosi said the gap between construction cost and what buyers can afford makes market viability unpredictable.

Ubosi echoed similar concerns stating that the growing cost of building materials, is stalling housing projects and making it increasingly difficult for property developers to read and determine the market.

‎He said the challenge confronting developers had gone beyond securing land or accessing finance, as rising construction costs were making it difficult to determine whether projects that appeared viable at the beginning would remain economically sustainable by completion.

‎He said sharp increases in the prices of cement, steel, aluminium, roofing materials, tiles, electrical fittings, plumbing components, labour and transportation were forcing developers to slow construction, suspend projects or reconsider their original plans.

‎According to him, developers were also struggling to understand the market because construction costs were rising faster than household incomes and purchasing power.

‎He said, “The biggest challenge for developers is no longer simply securing land or raising finance. It is determining whether a project that looks viable today will still make economic sense by the time it is completed.”

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‎He noted that the widening gap between the cost of constructing houses and what prospective buyers could afford had created significant uncertainty across the property market.

‎“While construction costs are rising rapidly, household incomes and purchasing power have not increased at the same pace. This has created a dangerous gap between what it costs to build a house and what prospective buyers or tenants are prepared or able to pay,” he said.

The analysts warned that delays reduce housing supply, push up rents and prices, and deepen Nigeria’s affordable housing deficit.

Meanwhile, HOD of Fort Construction Ltd, Engr. Habeeb Odusanya noted that high borrowing costs add to the eventual selling price of properties when projects are substantially debt-funded.

He said for developers, the combination of expensive finance and unpredictable material prices is making project planning increasingly difficult.

He noted that sourcing additional funds may become necessary, while slowing construction can create further costs. Land remains tied up, financing expenses continue to accumulate and contractors and professionals still have to be paid.

“The situation has created a difficult cycle for the property market. Higher material costs raise construction expenses, while higher construction costs push up property prices. Higher property prices then reduce the number of buyers able to afford newly developed homes. He added”.

Millions of Nigerians may require housing, but only a portion can afford the prices required to make new developments financially viable.

This distinction is increasingly shaping developers’ decisions.