Price Panic: Real Estate Hit as Rates, Inflation Skyrocket

Experts warn of a possible disaster as developers struggle to repay debts. Inflation and exchange rate difficulties are harming industries, increasing the cost of imported supplies and machinery.

Running a real estate firm has grown more costly and difficult. Buyers’ funds for new developments are falling as people’s incomes fall and their trust in private developers erodes. Financial institutions, particularly banks and development agencies, are becoming the final resort for finance.

Nigeria’s inflation rate rose to a 27-year high in December, putting pressure on the Central Bank to boost interest rates. Inflation and an uncertain currency rate are raising the cost of borrowing, with interest rates reaching 28-30%. Real estate, while a dependable investment, demands significant cash, increasing dependency on bank loans.

Over the last four years (2019-2023), bank credit to real estate and construction has fluctuated but largely increased. These sectors obtained loans totaling N21.89 trillion, contributing N93.14 trillion to the GDP during this time. In 2020, they borrowed N18.26 trillion, which was increased to N20.86 trillion by 2021. Real estate companies borrowed N38 billion between January and October 2022.

The Central Bank’s figures show that real estate and construction obtained large loans despite the bank boosting benchmark interest rates. The real estate sector acquired N8.22 trillion in loans, while the construction business received N13.77 trillion, despite the fact that interest rates were raised from 11.5% to 18.5% in May last year as part of measures to curb inflation.