By Kingsley Adegboye 

The Executive Director of Housing Development Advocacy Network (HDAN), Festus Adebayo, has noted that the Central Bank of Nigeria (CBN), recent hike in interest rates to 27.75 percent is raising alarms within the real estate sector, with operators warning that this could significantly increase construction and maintenance costs nationwide. weighed in on the matter. 

He stated that “The mortgage sector is already severely impacted, and developers are finding it nearly impossible to access funding for housing projects. 

According to the housing expert, “This is not business as usual, and we are urging the Central Bank to create a special intervention window for the housing sector to prevent further tightening of an already struggling industry. 

“Without this, the housing deficit will worsen, and the sector may face even deeper challenges,” Adebayo stated. 

Industry experts indicate that banks may lend at nearly 40 percent, effectively shutting out developers from accessing credit. 

This scenario according to the experts, is poised to stifle housing supply and compel property owners to raise prices and rents.

“Real estate developers are investors. Any change in the price of building materials or cost of funds will push them to mark up their prices or rents to recoup their investments and achieve profits,” said Odunayo Ojo, CEO of UPDC Plc, in a discussion with BusinesDay.

With the new interest rate, Ojo anticipates that house prices will rise faster than rents, as tenants typically face annual rent adjustments. 

“Increases are implemented on the anniversary of rents,” he explained.

Property lawyer and Lagos-based developer Olubisi Shaola echoed these concerns, emphasizing that the current rates discourage developers from seeking bank loans due to unsustainable charges. “When developers can’t secure funds to build, housing deficits will increase as supply diminishes while demand rises,” he noted.

The implication of rising demand without a corresponding increase in supply is a forecast of higher prices, with rents for one-bedroom apartments in areas like Surulere expected to jump from N500,000 to between N850,000 and N1 million. This shift may force tenants to relocate to more affordable, distant areas, resulting in longer commutes and decreased productivity.

The rising costs are also likely to lead to increased rent defaults and project delays. Gbenga Olaniyan, chairman of Estate Links Limited, pointed out that while the CBN aims to stabilize the naira and combat inflation with the rate hike, the reality may worsen the situation.

As construction costs rise, projects are being renegotiated, with some costs doubling in just a short period. Olaniyan warned that defaults in rent payments will be more common in the mid-income market, while high-end markets may absorb rising costs without major issues.

 The mortgage sector is already severely impacted, and developers are finding it nearly impossible to access funding for housing projects. 

The CBN’s rate increase follows a two-day Monetary Policy Committee (MPC) meeting held on September 24, 2024, where CBN Governor Olayemi Cardoso announced the decision in hopes of battling inflation and attracting foreign investment. 

However, many Nigerians fear this will exacerbate existing economic challenges, pushing food and commodity prices to unsustainable levels.