Fuel Subsidy Removal: Effect on Real Estate Business in Nigeria

The president of Nigeria, Bola Ahmed Tinubu announced the removal of subsidy on fuel in his inauguration as President on May 29th. This recent development has had an effect on the real estate sector just like every other sector in the country. This article intends to analyze the impacts of the subsidy removal on the real estate business.

• Increment of construction cost

The removal of fuel subsidy has greatly affected the cost of building materials, transportation of these materials to building sites and the cost of machinery to be used. The demand for fuel increased with subsidized fuel prices, leading to fuel shortages and subsequent price increases. Also, the cost of transporting construction materials is currently on the rise and consequently resulted in a higher construction cost. This increment of construction cost has negatively impacted real estate investors who in turn out the additional costs to buyers or experience loss in their building businesses.

• Increment in property prices

The prices of properties would definitely skyrocket due to the fuel subsidy removal. The consequences of the subsidy removal are the increment in the cost of building materials, increment in wages of building workers. All these expenses are summed up to give rise to property prices. To avoid running at a loss, developers would rather sell properties at higher rate than usual.

• Impact on rental costs

Landlords and house owners just like developers pass on the increment on property prices to tenants through higher rental charges. This definitely affects those who are in search of affordable rental options and thereby affecting the demand for rental properties.

• Infrastructural development

Although there are negative impacts of this removal of fuel subsidy, there are some supposed positives. This positive impact can influence the real estate market directly and indirectly. The government has the opportunities to funds that would have been spent on fuel subsidy to develop the country infrastructure wise. Projects like good road construction and a good transport system can make certain areas desirable and accessible for real estate investment. Real estate investments in highly developed areas would definitely yield good returns for investors. So it is a win-win situation in this case.

• Government policies

The role of government policy and the regulatory environment on real estate business cannot be overemphasized. The Nigerian government policies can also determine the  investment climate and the appeal of the real estate sector. The government should work to create a favorable regulatory structure that encourages real estate investments and development, and guarantee stability. Investors would be happy to invest in the real estate market when they are certain that the legal and regulatory framework can be trusted.

• Revenue Generation and Economic Growth

Revenue generation is another positive of the fuel subsidy removal. The subsidy funds can be diverted to real estate investment and development. This would lead to generating more funds and economic growth of the nation. This could also lead to numerous job creations and possible expansion of the real estate sector in Nigeria.

However, this fuel subsidy removal has shown that inasmuch there were grunts from the people as a result of the removal, it has some positive sides to it. Real estate developers,  investors, and the government are expected to work on the positive sides and continue to navigate through the real estate businesses and also find ways to develop affordable homes for the citizens.