To Square a Circle
The Short, Medium and Long-Term impacts of
recent policies on the Nigeria Real Estate Market
Fuel subsidy removal | Floating of the Naira | Lifting of FX restrictions | The 2023 Electricity Act
July 2023
Table of Content
Introduction
Short-Term Impacts
Mid-Term Impacts
Long-Term Impacts
Conclusion
04
09
12
14
16
Introduction
Kübler-Ross Grief Cycle
Acceptance
Denial
Bargaining
Anger
Depression
I
n 1969, Swiss-American psychiatrist
Elisabeth Kübler-Ross introduced the five
stages of grief model, describing the
emotional and mental steps that people may
go through when they are facing the loss of a
loved one – whether it is about to happen or
has already happened. It was made to show
how people deal with personal loss but can be
used in other situations where people have to
deal with big changes or losses.
When the announcement of the fuel subsidy
removal was made – quickly followed by
floating the currency, lifting long-standing FX
restrictions and the signing of the 2023
Electricity Bill into law, some in the real estate
market experienced a sense of denial,
believing that while the market would be
affected, there would be differences in extent
and degree. This phase passed rather quickly.
Market watchers generally agree that these
policy changes will contribute to the growth
of Nigeria's real estate market. There is
however some disagreement on the timing
and pacing of the policy changes, and the
delay in the introduction of cushioning
elements.
Some in the real estate
market experienced a sense
of denial, believing that while
the market would be affected,
there would be differences in
extent and degree. This phase
passed rather quickly”
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
4
2005 - 2022: Subsidy spend (N'Bn)
4,930
5,000
4,000
3,000
2,000
1,000
-
2005
2006
2007
2008
2009
2010
2011 2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Lagos Bureau of Statistics
As the effects of the policies
start to be felt, anger – the
second stage of grief may
emerge within the real estate
market”
to mitigate the impact of the subsidy removal.
Industry associations, developers, and
investors may push for tax incentives or other
interventions targeted at the real estate
sector. Project planning committees will
propose solutions to reduce operational
costs, such as promoting energy-efficient
buildings or advocating for infrastructure
improvements to enhance transportation
alternatives.
As the effects of the policies start to be felt,
anger – the second stage of grief may emerge
within the real estate market. Property
owners and investors may increasingly
become frustrated with rising operating
costs. Occupiers will likely experience
frustration due to higher transportation costs.
Renters will likely struggle to put up timely
service charge payments – asides from the
already onerous annual rents. They are also
unlikely to relocate. In the bargaining stage,
various stakeholders in the real estate market
may attempt to negotiate or seek alternatives
If efforts to address the consequences of the
subsidy removal are unsuccessful, players in
the real estate market may experience stage
three of grief – depression. Property values
could remain flat as potential buyers and
investors become more cautious, anticipating
reduced affordability due to increased overall
costs. Luxury markets will remain untouched.
Construction activities may slow as
developers rework their financial models.
Delivery dates will be extended. Homeowners
may experience a sense of financial burden
and uncertainty, affecting their overall
confidence in the market.
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
5
The Central Bank of Nigeria
(CBN) implemented
operational modifications
within the FX market”
Capital Importation in Nigeria (2014 - 2022)
16.37
14.92
11.80
7.33
5.13
6.01
6.69
3.56
3.92
2.42
3.82
2.42
1.19
0.98
2014
2015
2016
2017
FDI
2018
FPI
2019
2020
2021
0.47
2022
Other investments
Source: CBN, NBS
As the real estate market adjusts to the new
reality of fuel subsidy removal, the floating of
the currency and the lifting of FX restrictions,
stakeholders may reach a stage of
acceptance. Developers will likely focus on
introducing green features to minimise
operational costs. Institutional investors will
likely support this.
The lack of access to affordable housing is
already a challenge. The price increase
resulting from the policy change may move
low to mid-income apartments further into
the realms of unaffordability.
Throughout the years, the Nigerian
Government has implemented diverse
strategies to regulate the Naira by
establishing a number of exchange rates,
with two standing out: the CBN rate and the
parallel market rate. The growing disparity
between these rates disrupted the real estate
market, making the repatriation of funds a
recurring nightmare. As such, the incoming
government authorised the floating of the
Naira currency, harking back to a 2017
circular by the Apex Bank, allowing the
market forces to determine the currency's
value.
Furthermore, the Central Bank of Nigeria
(CBN) implemented operational
modifications within the FX market to foster
transparency, enhance liquidity, and facilitate
price discovery. Simultaneously, they seek to
discourage speculation, bolster customer
confidence and ensure overall stability.
In the bargaining stage,
various stakeholders in the
real estate market may
attempt to negotiate or seek
alternatives to mitigate the
impact of the subsidy
removal”
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
7
Still, Institutional portfolio managers will test
market controls and hedge against policy
reversals. The stock market has however
responded positively to these policy changes.
The 2005 Electricity and Power Sector Reform
Act was replaced by the 2023 Electricity Act.
This aims to modernise, streamline, and
encourage competition in the power sector.
Its main goals include attracting private sector
investments, promoting renewable energy,
increasing electricity availability and building
transparent frameworks that protect
consumer rights.
The government still maintains a role,
prioritising bringing electricity to remote
locations. The Act also promotes renewable
energy and sustainability in the power sector
and guarantees that consumers get accurate
invoicing and reliable service.
If efforts to address the
consequences of the subsidy
removal are unsuccessful,
players in the real estate
market may experience stage
three of grief – depression”
tariff determination and execution prevents
arbitrary billing and promotes accountability.
Some argue that the Act has not reduced
government participation, but has merely
moved part of the control and will lead to
price increments expected to start in July. The
following are the impacts:
The Act regulates tariff structures and
encourages transparency. Transparency in
Is the removal of fuel subsidy by the Nigerian government a good idea?
No
20%
Yes
36%
I’m not sure
44%
Survey of 18,413 Nigerian respondents conducted in June 2023
Source: Northcourt
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
8
Short Term Impacts
(Present – 1 year)
Spike in construction costs
The removal of fuel subsidies will result in
changes in the cost structure of the built
environment.
Increased pump prices will directly lead to the
overall cost of construction as some site
equipment/machines are fuel-powered.
Labour costs will also be hit as higher pump
prices mean increased logistics costs and daily
wages. A large proportion of construction
projects rely primarily on road infrastructure
to transport building materials to the site or
dispose away debris. Previously made
housing development budgets will likely be
obsolete at this time as the heightened costs
of construction materials will render many
projects infeasible.
Property management
fees may be renegotiated
while occupiers will likely
struggle to pay increased
service charge
administrative fees”
Increase property
maintenance costs
Service charges for gated communities in core
cities will increase. Residential and
commercial occupants who use generators
will be faced with the decision of using more
efficient versions. The adoption of solar and
wind power into the energy mix will expand.
Property management, brokerage and facility
management firms are already making
adjustments to their operational cost models
– impacting both real estate asset owners and
occupiers. The efficiency of artisans,
technicians and machine operators involved
in construction projects will be affected as
decisions to visit facilities for repair works may
be moderated by the overall input costs. The
increased costs may lead to reduced on-site
involvement, delayed arrivals, and overall
lower productivity during specific periods.
Shift to more intense
land uses
To optimise investment outcomes,
developers will attempt to intensify their
residential and commercial developments by
increasing floor levels and/or incorporating
land use mixes. The ongoing run of mixed-use
developments will more likely extend as a
result, especially in urban areas where
demand for residential use is high. Developers
who had secured dollar-denominated credit
facilities and reported revenues using the CBN
pegged rate of N460 to foreign investors may
need to return to the drawing board to adjust
revenue targets. This is in part because
developers were buying materials at blackmarket rates and also selling projects
reflective of this. The effects will be more
pronounced with Proptech startups as
valuations are revisited.
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
9
A shift in diaspora
investment
Diaspora investors have long benefitted from
the multiple exchange rate regime as low
dollar amounts could afford more naira but
with the new exchange rate policy, the
reverse is more likely the case and may
disincentivise diaspora investors. In the last
five years, residential property developers
have reported a spike in diaspora purchasing
oftentimes as an investment option through
Buy to Let arrangements as well as
maintaining ties with their home country. As
asset repricing begins to factor in naira
devaluation in the short term, diaspora
investment in the Nigeria real estate market
will slow. There will be price reviews for offplan sale agreements as an off-shoot of the
increased prices.
As asset repricing begins to
factor in naira devaluation in
the short term, diaspora
investment in the Nigeria
real estate market will slow”
The increased cost of capital
The recent policies by the new administration
will have impacts on both inflation and
interest rates in the short run. The removal of
fuel subsidy and the deregulation of the
downstream oil market followed an increase
to the price of PMS from N488/litre in Lagos
to N555/litre in 2nd tier cities, just as floating
the nation's currency and lifting of the FX
restrictions on domiciliary accounts portend
accelerated inflation. Analysts forecast
23.6% to 24.7% for June and July 2023, up
from 22.41% in May. The exchange rate to
the Dollar moved from N460 to N755 – a 64%
increase. The CBN continues to remain
hawkish on MPR as a result of persistent
inflation and will maintain its stance as
inflation rises. Mortgage rates are likely to
rise. Players in the real estate market have had
to navigate through the high cost of raising
capital over the last six months. This will likely
continue in the short term.
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
10
Slower development activity
and demand for real estate
Adoption of flexible
work models
The adoption of flexible work arrangements
may deepen, following the removal of the
fuel subsidy. In the short term, increased
pump prices will force firms to either increase
transportation components in pay or adopt
more work-from-home and hybrid work
models. Some firms that had previously
returned fully to working from the office may
need to revisit work-from-office schedules to
ease the immediate impacts of elevated
transportation costs. Others occupying leased
spaces will adjust their space use to factor in
essential on-site requirements and occupancy
rates will inch up slightly especially in the
grade B office market. Some businesses may
reduce space requirements and even delay
rent payments
Increased rent defaults
The residential sub-market will see a surge in
rent defaults as households prioritise
spending on groceries and energy. Tenants
will struggle to meet rental obligations in the
short term as they are forced to navigate
increased pump prices. Barring any efficiently
executed interventionist policies by the
government in the short term, the removal of
petrol subsidies will inevitably lead to a
reduction in individuals' purchasing power.
This will continue into the mid-term.
Reduced spending budget on
leisure and entertainment
The hospitality submarket will feel shocks as
consumer expenditure hones in essential
amenities. Life style adjustments will gradually
adjust. Neighbourhood malls that feature
entertainment uses will be less affected in the
short term compared to big brand large sized
grade A malls already struggling to improve
footfall and occupancy rates
Projects that rely on subscribers making
instalment payments may encounter delays in
project delivery due to some subscribers
being unprepared for the change in project
cost. This may lead to scenarios where the
construction period is extended as new plans
and financing arrangements are devised. The
implementation of a floating exchange rate is
expected to have a moderating effect on the
pace of activities within the construction
industry. The demand for residential real
estate will slow and relocations will be few
and far between.
Projects that rely on
subscribers making
instalment payments may
encounter delays in project
delivery due to some
subscribers being
unprepared for the change
in project cost”
Improved transaction
transparency
The FX policy is designed to enhance
transparency, liquidity, and price discovery
within the currency market. The transparency
fostered by this policy aims to mitigate the
manipulation of currency values and the
concealment of illegitimate funds through
real estate transactions. Globally, real estate
markets have historically served as an avenue
for money laundering as parties involved
convert unlawfully obtained proceeds to
acquire properties to hide the true
beneficiaries of the funds.
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
11
Mid-Term Impacts
(1 – 3 years)
Construction activity resumes
In the mid-term, buyers will have to come to
terms with the new policy as property prices
are adjusted to reflect new realities. The
construction sector will resume with
adjustments in offerings. The developer and
investor class alike will adjust design concepts
for projects and this will feature more
predominantly in the mid to low-income
residential submarket in Tier one cities where
competition for land is high. Housing on
smaller lots and more intense land uses will
see increased demand as a result of the high
cost of capital, weak aggregate demand and
tight revenue margins.
national grid, 23,000 solar-powered
boreholes with storage tanks, 70,000
classroom blocks, 38,700 irrigation units,
3,870 health centres, and fund 260 academic
research programmes. The removal of fuel
subsidies presents an opportunity for the
government to redirect its financial resources
and prioritise investment in infrastructure.
Increase in abandoned
projects
The removal of fuel subsidies, coupled with
escalating construction material costs, labour
expenses, and transportation charges will
likely contribute to the abandonment of
construction projects. These factors combine
to almost guarantee that the refinancing
required will be unattainable. Ongoing
housing estates may face the risk of
abandonment as plans are put on hold with
investors reassessing their involvement.
Increased urban congestion
Exits of low-risk developers
and investors
The short-term costs will place pressure on
market players with a low-risk appetite,
forcing their exit to other investment options
such as government securities as they post
mouth-watering returns. However, growth
will continue with mixed sentiments opening
up the market to newer investors looking to
invest long-term when the dividends of FX
harmonisation and fuel subsidy removal
policies begin to yield.
Increased infrastructure
development
According to NEITI – The Nigeria Extractive
Industries Transparency Initiative, the
government spent more than N13Trn on fuel
subsidies between 2005 and 2021. This was
equal to the total budget for healthcare,
education, agriculture, and defence over the
same period, adding that the funds could
have been used to build electrical facilities
that would have added 10,000MW to the
The elimination of fuel subsidies and the
subsequent increase in living costs have
resulted in higher transportation expenses. As
a result, occupiers are on track to spend more
time near their homes, seek accommodation
with friends or opt for shared apartments.
This surge in population density will drive the
demand for co-living spaces as people seek
affordable and accessible housing options
within these congested urban centres.
Adjustment to the finishing
regime (we have started
seeing that already)
In the construction sector, ongoing projects will
likely experience a delay in delivery due to the fx
policy change. While some developers, may
stop construction temporarily due to the
difficulty in accessing funds, others might have
to change the construction and finishing
materials to a more affordable standard to curb
the rising prices. The removal of the fuel subsidy
will disrupt the supply chain for inputs, resulting
in a delay in the delivery of properties.
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
12
Barring any efficiently
executed interventionist
policies by the government
in the short term, the
removal of petrol subsidies
will inevitably lead to a
reduction in individuals'
purchasing power”
Long Term Impacts
(Above 3 years)
N
A more globalised
participation in the
Nigeria real estate market
With some policy consistency, fund managers
are more likely to consider bets in Nigeria's
real estate market. FX transparency is central
to attracting foreign investment and as the
2017 circular-based policy is consistently
implemented, foreign brands will likely
partner with local actors likewise institutional
investors looking to set up formal retail.
Homegrown retailers with plans to expand
footprints to the African region with Nigeria
as its base will also rework their models to
consolidate their position.
Shoprite and more recently, Games Store
have exited Nigeria due to the challenging
operating environment. While retail real
estate demand on a broader scale will be
affected in the short term, the recent FX
policy is expected to boost the supply of
foreign exchange further reducing the
difficulties of accessing finance for imports,
while making repatriation easier. Over time,
the real estate market will adjust to the
subsidy removal as developers, investors, and
occupiers adapt to the new economic
realities. Investors adjust to the increase in the
prices of construction materials, labour costs
and construction costs. This will lead to asset
price rebalancing.
With some policy consistency,
fund managers are more likely
to consider bets in Nigeria's
real estate market”
Growth in industrial
real estate
Local representatives of international brands,
especially in aviation have struggled to
repatriate funds due to restricted access and
the high cost of sourcing FX. Due to the
removal of the related barriers, this will likely
ease, rejuvenating the industrial market in the
process. With the right partnerships,
manufacturing in Nigeria will gradually
become attractive. States such as Lagos,
Ogun, Cross River, Delta, Rivers and Benin
with ports development activity at various
stages will see pent-up demand for
manufacturing plants and warehousing.
Increased Investment in
industrial & infrastructure
real estate
A recent survey of construction contractors
suggests that over 90% of construction
materials used in Nigeria are imported. A
large portion of these materials come in
through the Apapa, Tincan, Calabar port,
Warri and Onne ports. Suppliers in states
without ports have to rely on road
infrastructure through trucking to transport
goods to warehouses and storage facilities.
There will be a realignment between the real
estate and manufacturing industries to spur
investment in local manufacturing, especially
in locales where natural resources can be
harnessed. Analysts suggest that 19,686km
of roads could have been constructed across
Nigeria at N500m/km using subsidy
payments made over 12 years. The removal of
the fuel subsidy frees up government
spending for infrastructure projects.
Government borrowings that would
ordinarily have been channelled to the
payment of subsidy will be invested in
infrastructure development.
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
14
Increased adoption of green
energy sources
Adoption of green energy sources will be
accelerated in the office submarket first,
followed by residential, retail, healthcare and
industrial to varying degrees. Local motor
vehicle manufacturer - Innoson Motors
recently launched CNG-powered trucks,
minibuses, ambulances, long buses and
SUVs, a strong indicator of the growing
demand for alternative energy. The Lagos
state government is also following suit. The
rise of properties developed with
sustainability features will continue as the use
case becomes stronger because of lower
energy consumption and enhanced credibility
with the investor market.
Landlords and property
owners are likely to pass
increased management
costs to tenants”
Sustained increase in
property prices
Reforms in fuel subsidies, having raised prices
in the short term, will continue to support
their increase – albeit at a slower rate.
Landlords and property owners are likely to
pass increased management costs to tenants.
Consequently, individuals and businesses
seeking affordable rent may have to wait a
while longer for government palliative
interventions to take root. With the removal
of FX restrictions, foreign investors will likely
be attracted to the real estate market. This
increase in foreign investment stimulates
demand across the lower-mid, mid and uppermid-income classes. The rate of this growth
will however be contingent on infrastructure
investment in transport and security.
Increased potential for
social unrest and vandalism
When palliatives are ineffective in softening
the blows from the increase in the cost of
living, there is a chance of social unrest. As of
the time of writing this report, protests
against the increased PMS prices have been
restricted to media commentary.
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
15
Conclusion
Elisabeth Kübler-Ross's five stages of grief
model, initially developed to describe the
process of coping with personal loss, can also
be applied to the Nigerian real estate market,
the recent policy measures implemented by
the government, including fuel subsidy
removal, currency floating, lifting of FX
restrictions and the passing of the 2023
Electricity Bill. Parties in the Nigeria real estate
market have exhibited a list of traits ranging
from denial to acceptance. Experts believe
that these policy measures will ultimately
contribute to boosting Nigeria's real estate
sector, albeit with disputes regarding the
timing, pace, and implementation of certain
cushioning elements.
Rising prices may make purchasers and
investors more cautious, leading to
stagnation in property values. Moreover, the
policy changes are expected to have an
impact on affordable housing, as the
increased prices may drive up demand for
low- to mid-income accommodation.
In parallel, the 2023 Electricity Act replaces
the previous 2005 Electricity and Power
Sector Reform Act, with a focus on
modernizing and streamlining the power
sector. The new legislation aims to attract
private sector investments, promote
renewable energy, increase electricity
availability, and establish fair and transparent
regulatory frameworks that protect
consumer rights. It encourages competition
in the electricity supply business, supports
renewable energy, ensures fair treatment for
consumers, and enhances regulatory
oversight to prevent unjustified billing and
foster accountability.
Overall, these policy measures introduce
significant changes in Nigeria's real estate and
the power sector. While they may initially
cause disruptions and generate mixed
reactions, they also present opportunities for
growth, innovation, and sustainability.
Adapting to these changes, addressing
challenges, and ensuring effective
implementation will be key to realizing the
potential benefits and navigating the
transitional stages toward a more prosperous
future.
To Square a Circle - Short, Medium and Long-Term Impact of recent policies on the Nigeria Real Estate Market
16
R E S E A R C H
|
V A L U A T I O N
|
B R O K E R A G E
|
M A N A G E M E N T
Real Estate Research & Advisory
Real Estate Facility & Property Management
Real Estate Brokerage & Valuation
Ayo Ibaru
ayo.ibaru@northcourtrealestate.com
+234 818 518 6975
Oyindamola Bamisile
oyin.bamisile@northcourtrealestate.com
+234 806 588 6527
Tayo Odunsi
tayo.odunsi@northcourtrealestate.com
+234 802 325 0289