There are concerns that rents across Lagos and other commercial cities will rise further in the second half of 2021.
This was disclosed by experts who spoke with Nairametrics in separate Interviews.
Contrary to the initial expectations of some analysts that rents would remain unchanged in 2021 due to the present economic hardship exacerbated by the covid-19 pandemic, there are reasons to believe that the opposite may actually be the case in the second half of the year particularly in major commercial cities across the country.
What experts are saying about rent increase
According to Paul Bamigbola, Chairman, Nigerian Institute of Estate Surveyors and Valuers (NIESV), Lagos Chapter, two major issues that will push up property rents are the inability of the market to create a balance between asking and actual prices of properties and the rising cost of building materials.
In most cases, in Lagos and other commercial cities, the marketing activities of agents and developers increase property rental costs. This is because there is an associated cost to bringing these players on board to serve as a link between clients and property owners. Moreover, these property value chain players have also been known to list properties at significantly higher “asking” prices than what may, in reality, be the rental price set by the property owner. The obvious objective is to get a good bargain or possibly let the property out to the highest bidder.
These artificially hiked property prices are not only misleading but also prevalent in the sector.
Recently also, potential tenants have begun to be wooed with rent now, pay later offers from other players in the property value chain who are offering staggered rental payment options to tenants. As good as this initiative sounds, in the long term, it adds to the rental cost as tenants would have to pay some interest to compensate for the flexible rent payment option.
Bamigbola also noted that the skyrocketing cost of building materials is another reason property prices will shoot up in the second half of the year. To corroborate this, Nairametrics analyzed four brand new projects in Banana Island, Ilasan, Yaba, and Surulere. Sales prices ranged between 21m to 24m for the 2-bedroom apartment in Yaba and 620m for a 6-bed house in Ikoyi; and all developers maintained profits ranging between 15% and 36% and rental yields of 2% to 7%.
Analysis shows that land acquisition and construction costs contributed 22% and 64% to the total cost of development respectively, for the Ikoyi project.
Kayode Oluwo, an estate surveyor and developer, told Nairametrics that the benchmark price of Iron ore in the International market is expected to go beyond $200/ton by the end of the first half of the year. This alone will further push the price in the local market up and culminate in increased rental costs for tenants.
Oluwo lamented the underdeveloped mining of iron ore in Nigeria which has led the nation to import the commodity rather than produce it locally.
“The price here, which is about N330,000/ton (8mm), is bound to go northward and may increase by N100,000 or more in H2 2021. The increasing demand has been boosting steel prices from Asia to North America,” he stated.
What you should know
Nairametrics had earlier reported the hike in steel prices as well as prices of other building materials, including cement which has recently gone from around N2,000 to over N3,000 per bag.
There are also indications that prices will continue to increase across board for these building materials in the second half of 2021.