Fuel subsidy removal has been a subject of debate for many years in Nigeria and lately, its impact on the real estate sector. While there are varying views, the highpoint is the call not to remove it. As experts say, the removal will not only skyrocket the cost of living, but will add up quickly to inflate the prices across different sectors of the economy.
The debate would come to its “head” on May 29, 2023 when the fuel subsidy was officially removed. As experts predicted, the antecedent implications became evident, following the spike in the costs of petroleum products, such as Premium Motor Spirit (PMS), gasoline and kerosene.
Other sectors of the nation’s economy, including real estate have also had a “fair share” of the post-fuel subsidy removal effects. In this article, we discuss some of the ways this removal would impact real estate transactions in the country.
1. Investment Diversions
Investors, such as homebuyers and real estate companies looking to acquire more properties may now choose to divert the funds. With the uncertainty that the subsidy removal introduced; these investors don’t want to make the mistake of committing finances to a market that is unstable at the moment.
Some of these investors may choose to divert the funds to some other sectors, such as buying stocks and bonds.
2. A Likely Restructuring of the Nigerian Real Estate Market
Before the removal of the fuel subsidy, investors committed funds to acquiring properties in different locations – both urban and rural areas. With the removal, the attention will likely be shifted to specific areas, especially the urban areas where people tend to migrate to.
Except investors are looking to buy and hold the properties for a long time, it makes sense to follow the changing demand patterns in the sector.
3. Construction Costs will be on a Steady Rise
The increase in the costs of constructing houses is likely, because the effects of fuel subsidy removal cut across different sectors of the economy.
For example, the transportation costs of the building/construction materials will double or triple, because the cost of fuel per liter has significantly increased. Likewise, the overall costs of the materials will add up quickly, as sellers will like to make profits after factoring-in the new realities.
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4. A Rise in Home Prices is Imminent
An increase in the costs of acquiring homes or renting one will be the in-thing for a long time to come. As the costs of building materials go up, prospective homebuyers may want to wait for some time to monitor the market.
In addition to increased costs of living, one cannot help but decide to put off buying a house or even renting one for the time being.
5. Fuel Subsidy Removal Impacts Rental Homes
Buildings put up for rental will also “benefit” from the withdrawal of fuel subsidy. As the respective property owners get to spend more due to increased costs of living – they may want to pass along some of these financial pressures to the tenants.
The outcome? Tenants will have to pay more to keep using the homes.
6. The Demand on Commercial Real Estate will be Lesser
The commercial real estate sector in Nigeria refers to the properties that are not occupied all the time – just like homes are. These ones are the offices, shops and office/coworking spaces.
Following the withdrawal of subsidy payments, this sector will have less demand unlike before. Here are instances:
- Freelancers or remote workers may have to think twice about using a coworking hub. When they factor-in the costs of daily transportations to and from the place; they may want to work from the comfort of their respective homes.
- Business centers, offices and shops that continue to use the spaces will experience a higher operational cost, especially if there is limited electricity power supply.
7. Workforce Downsizing
If not handled properly, the following months after the removal of fuel subsidy in Nigeria will be a period of mass reduction in the workforce – especially in the private sector.
As business owners continue to spend more, they may be forced to let some of the staff go. In a few months, the country will have another problem on its hands – more unemployed persons loitering the streets.
8. Relocation Moves in the Offing
Some locations are better off than some others, even in a time of fuel subsidy removal. The comparison of these two options will fuel relocation decisions in the coming months.
From migrating to the rural areas to relocating to locations with basic amenities and decent standard of living; more Nigerians will be “on the move.”
9. The Prospects of Renewal Energy
On a brighter side, the withdrawal of fuel subsidy will usher-in the demand for renewal or alternative energy solutions. From solar power to inverters, there will be a demand for these energy-efficient power supply technologies.
If the government can partner with the manufacturers of these energy solutions, it will go a long way to deliver excellent power supply to the citizenry. That would reduce the need to migrate to areas with better power supply and help cushion the effects of removing the subsidy.
Also Read:
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10. Provision of Affordable Housing to Nigerians
At the moment, an average Nigerian is facing a lot of challenges associated with housing in a post-fuel subsidy removal period. With an increase in rental charges and higher costs of acquiring new properties – it has become evident that getting housing accommodation is no longer a simplified process for the “ordinary Nigerian.”
The impact is that more Nigerians (both individuals and households) will soon be on their way out of basic housing and seeking refuge with friends and family members.
On the other hand, the government can help alleviate these by building low-cost housing units across the Federation. This will go a long to make housing solutions accessible – and reigniting the interests in the country’s real estate sector.
Final Thoughts
The fuel subsidy removal is already affecting the country’s real estate market, as we can see from the decreased investor interests, higher housing costs and diversion of funds to other uses.
With the coalition of the government and private stakeholders, it will be possible to make the sector attractive once again.
Would you like to buy land or house in Epe, Ajah, Lekki, Ibeju-Lekki or anywhere in Nigeria? Reach out to us on +234 806 400 3456 or send an email to support@godslandempire.com. We are ever ready to assist you on your property ownership journey in Nigeria.