How developers are hedging against Nigeria’s higher rates

With Nigeria's key lending rate at 24.75 per cent, developers in Nigeria's real estate sector are facing significant challenges that are impacting the growth of the industry. Ayoolanrewaju Kuyebi, the Managing Director and Chief Executive Officer of GMH Luxury, shed light on the strategies developers are employing to adapt to market shifts and seize new opportunities in the face of these obstacles. The dynamics in the country have shifted due to inflation and currency devaluation, leading to a surge in building costs. For instance, cement prices have skyrocketed from 3,800 to as high as 15,000, while the cost of reinforcement has more than doubled. These cost implications have made it challenging for developers to adjust property prices to reflect the market changes given the erosion of purchasing power. To mitigate risks, developers like GMH Luxury are leveraging off-plan sales to reduce exposure to financial institutions. However, with mortgage costs rising and phased payments becoming less feasible, the outlook for the real estate market remains uncertain. The environment of high interest rates makes it difficult for developers to project beyond three months, leading to a need for substantial capital injection. As a result, the industry is witnessing a decline in off-plan sales and a slowdown in project completions, with developers grappling with the dilemma of how to proceed amidst volatile market conditions. Amidst these challenges, Kuyebi recommends equitable financing as an ideal strategy in the current climate, given the exorbitant interest rates charged by banks. Despite the financial constraints, Kuyebi emphasizes the importance of prioritizing professionalism and quality in construction practices to avert incidents of building collapses, which have plagued the sector in recent times. While the real estate sector in Nigeria faces formidable hurdles, developers like GMH Luxury are charting a path forward by embracing innovative financing models and upholding best practices in construction to navigate the turbulent market landscape.