The Incessant and Escalating Monetary Policy Rate (MPR)/Exchange Rate, the Bane on Real Estate Development.

ESV Patrick Ogunjobi.

Unarguably, the Nigerian economy is at crossroads, with all macroeconomic indices on the reds, businesses across all sectors of the economy are suffering setbacks, closing shops, and becoming economic liabilities to all stakeholders.

According to Investopedia’ publication updated July, 2022 and reviewed by Thomas Brock and facts checked by Pete Rathburn, Monetary Policy is a set of tools used by a nation’s central bank to control the overall money supply, promote economic growth and employ strategies such as revising interest rate and changing bank reserve requirement; while Oxford Languages defines, Exchange Rate as the value of one currency for the purpose of conversion to another.

In view of the aforesaid, recent studies reveal that In Nigeria, the Monetary Policy (MPR) has risen five times within nine months, the worst ever from 11.5 percent in May, 2022 to 17.5 percent as at January, 2023. The Exchange Rate has also heightened from a minimum of 421.23NGN to 1USD In September, 2022 to a maximum of 462.62 to 1USD as at February 5, 2023.

Among many businesses in Nigeria today, the real estate sector of the Nigerian economy is one of the worst hit by the dwindling economy. The capital-intensive nature of this important sector of the economy, especially the development subsector of the real estate space has left the real estate developers in a state of dilemma.

Real estate development entails the art of creating economic value from land by building on it or improving on the existing structures. Real estate development, all over the World, is a capital-intensive venture and plays a very important role in the overall economic development of any economy. Real estate development comes in different classifications. Developers usually embark on real estate development for different reasons – residential, commercial, industrial, and mixed. Irrespective of the location, size, and investment needs, must fall in any of these classes.

For standard structures and non-standards alike, virtually all the building materials are imported, and the ones that are locally sourced are priced so high that it will definitely affect the investment plans of the developers. The only way to plan well and achieve a profitable real estate development plan is a guaranteed interest and exchange rate as developers depend heavily on imported materials to develop state-of-the-art modern buildings for commercial, industrial, residential and mixed purposes as the case may be.

Real estate developers in Nigeria today are not only being faced with cash crunch, but also escalating and fluctuating interest and exchange rates that left them at the mercy of the Nigerian ailing economy. This ugly trend has in turn increased the cost of delivering real estate developments, making its end products very expensive. In major Nigerian cities like Abuja, Lagos, Port-Harcourt and Kaduna, so many end products of real estate developers are without occupiers.
The escalating interest and exchange rate, high inflation rate, the very fragile economic and political climate in Nigeria have all compounded the challenges of real estate developers in Nigeria today.

On the way forward, in addressing the challenges of real estate developers and development in Nigeria, a lot of factors will come into play, and paramount among them is a congenial macroeconomic environment that has a multiplier effect of normalising the interest and exchange rate.

When there is a favourable economic environment that is investors’ friendly, it will go a long way in addressing the escalating exchange rate problem that is affecting investors including developers in the real estate sector of the Nigerian economy.

Another way of addressing the problem of interest and exchange rate for the real estate developers in Nigeria is for the government to create a special foreign exchange window that is tailored at addressing real estate financing in Nigeria.  Access to reasonable interest and foreign exchange should be made easy for the real estate sector through a special window that will cater for the sector. This will not only make quality housing available for Nigerians, it will equally make it affordable and investor’s friendly.

Tax holidays should also be granted to real estate developers especially when such project cum housing development is aimed at addressing the Nigerian housing deficit. This will add value to the developers’ bottom line, guarantee an economically viable investment, and provide quality and affordable housing to Nigerians.

Another angle to improving the lots of real estate developers in Nigeria is the provision of a safe environment to invest, build and inhabit. Without doubt, security is one of the major challenges facing real estate development in Nigeria today as many development sites are being threatened by the growing insecurity in Nigeria.

In a nutshell, creating a friendly interest and foreign exchange rate policy for the real estate sector, and addressing so many macroeconomic, social, and political challenges in Nigeria will go a long way in addressing the problems facing real estate development in Nigeria.

ESV Patrick Ogunjobi, a registered Estate Surveyor and Valuer, he is the Lead Partner at Patrick Ogunjobi & Co, a leading Firm of Estate Surveyors and Valuers with specialisation in property development. He sends in this piece from Lagos, Nigeria.