Operators in the Nigerian real estate market warned that the Central Bank of Nigeria’s (CBN) recent increase in interest rates to 27.75 percent may result in higher building and maintenance costs nationwide.
They pointed out that banks might be excluding developers from the credit market by lending at rates as high as over 40%.
Due to the circumstances, there will be less housing available, which will compel landlords to raise rent and rates.
“Real estate developers are investors. Any change in the price of building materials or the cost of finances will drive businesses to raise their rates or rentals in order to recuperate their investment and earn profits’, Odunayo Ojo, CEO of UPDC Plc, stated in a chat.
Ojo predicted that rents and home prices would rise in response to the new interest rate. Given that most renters pay their rent annually, he pointed out that property values would increase more quickly than rentals.
“Rent increases are implemented on the anniversary of the lease,” he stated.
Olubisi Shaola, a property lawyer and Lagos-based real estate developer, predicts rising house prices and rents, stating that at the current rate, few developers would seek bank credit because banks charge rates close to 40%, which is unsustainable.
“If you take out a loan, the interest rate could go up at some point. Frankly speaking, nobody is visiting the bank. It is implied that current rent payments will increase. Are you aware of the reason? The housing gap worsens when developers are denied funding to construct new homes because supply is decreased and demand rises,” he stated.
He pointed out that as prices rise in response to increased demand, the number of homeless people in the most populated country in Africa climbs.
In addition to housing costs and rent hikes, rent defaults and postponed or suspended projects are projected to increase.
Due to the tenant’s inability to pay their rent due to the rising cost of living, rent default is already causing a rift between landlords and tenants.
The main irony in the CBN’s rate hike, according to Gbenga Olaniyan, chairman of Estate Links Limited, is that while it is claimed that the new rate is intended to stabilise the naira and control inflation, in practice, it is making matters worse.
Olaniyan added that rent and service charge defaults will increase. However, he made the point that, in contrast to the high end, where most issues occurred roughly three years ago, this will be more common in the mid-income market.
Olayemi Cardoso, governor of the CBN, announced that the apex bank has raised the monetary policy rate (MPR), also known as the benchmark interest rate, to 26.75 percent to combat inflation and foster a favourable environment for foreign investment. This follows a two-day Monetary Policy Committee (MPC) meeting in Abuja that concluded on Tuesday, September 24, 2024.
Some Nigerians believe this will exacerbate the already dire macroeconomic situation, in which inflation has driven the cost of commodities, particularly food, to dizzying heights, leaving many households starving and hungry.
