Nigerians are witnessing a surge in green buildings entering the property market as real estate suppliers adapt to the challenging impact of President Bola Tinubu's administration's economic policies and reforms.
The Tinubu administration swiftly implemented policies, including fuel subsidy removal, floating the local currency, and lifting foreign exchange restrictions. These measures have resulted in economic hardship for citizens and increased operational costs for businesses across various sectors. In response, real estate developers are expected to focus on incorporating green features into their buildings to reduce operational expenses, primarily in energy costs.
Green buildings are characterized by their environmentally responsible and resource-efficient construction processes. They play a vital role in sustainable urban development, aiming to combat climate change by minimizing energy and water consumption.
Market analysts predict that these policies will have short, medium, and long-term impacts on the real estate sector. In the short term, the removal of fuel subsidies, for example, will lead to changes in the cost structure of construction projects. Increased pump prices will directly affect construction costs, as some site equipment and machinery rely on fuel-powered systems. Additionally, higher fuel prices will impact labor costs due to increased logistics expenses and daily wages, affecting construction projects that heavily rely on road infrastructure for material transportation and debris disposal.
In the short term, property maintenance costs are also expected to rise, leading to higher service charges for gated communities in major cities. Residential and commercial occupants who use generators may consider shifting to more efficient alternative energy sources.
Property management, brokerage, and facility management firms are already adapting their operational cost models, influencing both real estate asset owners and occupiers. The efficiency of artisans, technicians, and machine operators involved in construction projects may be affected as overall input costs moderate decisions regarding facility repair works.
To optimize investment outcomes, developers are likely to intensify their residential and commercial developments by increasing floor levels and incorporating a mix of land uses. Mixed-use developments will see a rise, especially in urban areas with high demand for residential properties.
Investment experts expect developers who had secured dollar-denominated credit facilities and reported revenues using the Central Bank of Nigeria's pegged rate of N460 to foreign investors to reassess their revenue targets. The impact of buying materials at black-market rates and selling projects reflective of this is likely to be more pronounced with Proptech startups as valuations are revisited.
Furthermore, the removal of petrol subsidies is expected to reduce individuals' purchasing power, leading to increased rent defaults in the residential sub-market as households prioritize spending on essential items like groceries and energy.
In the mid-term, without efficient government interventionist policies, the reduction in petrol subsidies will continue to affect individuals' purchasing power, leading to potential delays in project deliveries for those reliant on subscribers making installment payments.
Additionally, the market foresees a shift in Diaspora investments as investors in this class who previously benefitted from the multiple exchange rate regime may now reconsider due to the change in exchange rates, potentially disincentivizing diaspora investors from the real estate market.
As Nigeria's real estate sector adjusts to the new economic landscape, the increased focus on green buildings represents a significant step towards a more sustainable and environmentally conscious future for the country's property market.