Growing investment in real estate as an alternative asset for Nigerians looking for where to hedge their funds against inflation is a major reason for the rising price of cement, BusinessDay findings have shown.
High input cost, product scarcity or limited supply arising from shocks in the economy and disruptions in production activities is another reason for the current hike in cement price.
Nigeria is experiencing what is clearly a galloping inflation. Its March inflation figure at 18.17 percent is an embarrassment to economic analysts. Apart from eroding the value of the local currency, this has also affected food prices and crimped household/consumer purchasing power significantly.
By its nature, real estate, unlike other investment asset classes, appreciates in value over time, virtually unaffected negatively by inflation. Rather than depreciate and lose value in inflationary periods, real estate, in the worst case scenario, remains static in value.
This explains why the rising price of cement is not deterring or stopping investment in the sector.
“The knowledge of real estate as a means of financial security has attracted more players and investors into it, thereby affecting the demand and supply of cement in the country; real estate is one sector that can flow with inflation per time, hence a lot of Nigerians are currently investing in it,” Osazee Edigin, an estate developer, confirms to BusinessDay in Benin City.
Construction activities have been upbeat in the sector since the beginning of the last quarter. Ayo Ibaru, COO, Northcourt Real Estate, also confirms to BusinessDay that increased investment in real estate contributes to the rising price of cement, citing mid-income residential buildings springing up in Lagos on both Island and Mainland.
He also cites institutional investors that are doing both residential and commercial developments such as Purple Capital, which is doing mixed use developments in Lekki and Maryland in Lagos. All these push up demand for cement and, by extension, the price of the product.
But there are other reasons for the significant increase in price that cement buyers have seen. “Yes, we have seen increased demand arising from increased construction activities in real estate sector, but that is not the real cause of the price hike.