Lagos developers lament rising costs, warn buyers and tenants will pay more

Real estate developers, investment analysts and a quantity surveyor have said that rising land prices, construction materials, labour and infrastructure costs are putting significant pressure on the cost of developing residential properties in Lagos, with developers increasingly passing the higher costs on to buyers and tenants.

The professionals told Nairametrics that while high interest rates and exchange rate pressures are affecting the sector, financing costs are not the only, or necessarily the biggest, drivers of rising development costs. Land and construction materials emerged repeatedly as major pressures. Real estate investment analyst Olabisi Odunsanya said land values have more than doubled in several parts of Lagos in recent years, while material costs have moved in line with inflation since 2020.

Bright Okereke, co-founder and president of Flinx Holding Co., pointed to materials, particularly cement, alongside finishing works and land, saying the increases have directly affected the prices at which his company sells properties. Land can account for about 20 percent of total expected revenue on some of his company's projects. Magbo Henry Ikechukwu, a registered quantity surveyor and member of the Nigerian Institute of Quantity Surveyors and the Royal Institution of Chartered Surveyors, estimated current construction costs at about N350,000 to N400,000 per square metre, with some projects reaching N450,000 depending on specifications. He noted that some banks charge interest rates of 23 percent and above.

Exchange rate fluctuations, alongside inflation, have contributed to increases in imported construction components including reinforcement steel, aluminium, electrical and plumbing materials, according to Engr. Habeeb Odunsanya, head of department at Fort Construction Ltd. Delays in documentation and approvals can have a bigger effect on project costs than the fees themselves, he said, while greater government investment in infrastructure would reduce the burden on developers and could ultimately lower the cost passed on to buyers.

Rising development costs are changing how developers approach residential projects, with some adjusting unit sizes, specifications, locations and the pace of development. Odunsanya said developers are responding to limits on what buyers and tenants can afford by reducing unit sizes and looking at locations where land is cheaper.