Construction cost is the cost of the entire construction of a project and includes the cost of land, regulatory approvals, supervision, materials, supplies, labor, tools, equipment, transportation and/or other facilities used or consumed, including the cost of consulting professionals such as architects, engineers, surveyors, etc.
The Rising Trajectory of Construction Cost in Lagos in the Last 12, 24 and 36 Months
The cost of construction in Lagos is one of the highest in Nigeria. Starting with the cost of acquiring the land, which varies, depending on the location of the project, to the cost of actually developing the project as defined above, the cost keeps going up and up and up.
Why not just buy all the materials you will need for construction in one fell swoop to save cost? Possible! But could be impractical because of factors such as availability, logistics, finance and even technical reasons such as storage cost and depreciation in quality of materials exposed to the elements during storage. It is almost impossible to totally escape the effect of price variation in construction cost during the life span of a construction project. The average price variation between the material cost of construction in year 2019 and the material cost of construction in the year 2020 was barely about 35% increase. While some materials varied widely in price between both years, some materials remained around the same price. Also the variation between 2018 and 2019, and that of 2017 and 2018 was around this range with spikes that eventually evened out at about 36%. Then came 2020 and Covid-19 and the sharp drop in productivity and the shutdown of all of the economies responsible for the production of construction materials and even in construction activities too. Covid-19 was a black swan event.
The effect was dramatic upon the resumption of construction activities and the gradual opening up of productive economies. Between 2020 and 2021, all building materials went north and nuts simultaneously (pun unintended), with the variation going as high as 60% and above. The problem was further compounded in Nigeria by the foreign exchange rate. Our Naira has had a dramatic loss in value and has been severely trounced by other major currencies. The effect is felt in the consequential rise in imported materials used in construction.
In addition to the drastic rise in material cost of construction, labour cost has also gone up dramatically. Another major cost incurred by the developer of a new-build project is regulatory approval cost. Approval and other ancillary cost of facilitating the approval in Lagos State have gone up significantly. As though these are not already enough, the prices and valuation of land upon which projects are built have also experienced a remarkable rise. All of these factors compound and are reflected in the unit price of properties.
How Rising Cost of Construction Affect Delivery Prices of New-Build
The effect of the continuous rise in construction cost will be reflected in two major phases of a new-build project depending on the stage of the construction.
For new-build that are already completed or at an advance stage of construction, and whose developers have had the opportunity to buy materials at a comparatively lower prices, the change in sales price of the new-build may not be dramatic and the fact that the purchase price is paid outrightly and at once by the buyer and not in instalments is another factor that could make the developer sell at a price not reflective of the current construction cost with the hope that subsequent developments will be sold at market rate indicative of their cost of construction.
However, for new-build that are about to start or that have just started, the effect of high construction cost may or may not be immediately reflective. However as the developer gets ready to move to site and begins construction and as construction progresses through its various stages, the price of the new-build will inevitably keep rising to meet construction cost and the objective of the financiers and investors funding the construction which will often include buyers who bought the project off-plan, at its conception.
How to Prevent Rising Construction Cost from Affecting Your Plan to Buy a New-Build: Olagbaju’s Court as a Case Study
The actual market price showing the construction cost of a new-build project is not immediately shown from the beginning of the project. The real price indicative of cost and market price is like sunrise before noon on a bright clear day. It is gradual. It starts slowly but increases in brightness and intensity until it achieves its brightest by noon. When a new-build project commences, the prices are at its lowest, but rise it must, as the construction commences and progresses to conclusion. The price is highest at full completion and would be fully reflective of the cost actually incurred by the developer and the returns on investment of financiers, investors, and early birds who purchased the new-build at off-plan stage.
When is the off-plan stage of a new-build project? This is earliest stage of the project. It starts from when the new-build is still on the architectural drawing board and can only be seen in 3D formats. All new-build begin their life as 3D architectural designs and progress slowly through several stages to become the fully built project that everyone can see and would love to own units in. At its earliest stage, usually referred to as the “Off-Plan” stage, the developers of the project are selling at a highly discounted rate to attract prospective buyers. Developers would usually have a specific number of units that are to be sold at off-plan prices. These off-plan prices are not stagnant and would increase slowly and sometimes rapidly as the developer exhausts the allocated units to be sold with high discounts. Buyers who buy at off-plan prices get the best deal. Off-plan buyers usually do not buy at the exact same price. The earliest buyer buys at the lowest price. As the price increases other subsequent but also early buyers will still get a great deal but not as good as the earliest buyers. This would keep happening as the price keeps increasing until all the units allocated for off-plan sales have been fully exhausted or sold out. Off-plan sales may keep going on even after the project has commenced and is progressing through the several stages of construction. As soon as the units allocated for off-plan sales are exhausted or the project is completed, whichever happens first, the prices of the new-build will go to market price or the price reflective of the construction cost incurred in building the new-build.
It goes without saying that the best time to buy a new-build project is at the earliest time possible. This may be as soon as the off-plan sale commences or as long as there are units available for off-plan sales. At whatever price, the off-plan price of a project is always lower than the market price. Once a new-build project is now at market price, the best a buyer can do is to try to negotiate a discounted price with the developer. The developer may or may not sell to the buyer at the discounted price. This would depend on the competing offers made to the developer by buyers willing and able to buy the new-build after the off-plan units have sold out. For more on why buying a new-build at off-plan is the best approach to getting a fantastic deal on new-build, read this very informative article here.
In addition to the fact that a property not otherwise affordable, when sold at off-plan price falls within one’s budget, the best time for an investor to buy a property is at off-plan stage. This way, the investor can sell the property at completion and pocket the difference between the off-plan price and the sales price at completion as the return on investment. Another major advantage of buying off-plan is the fantastic opportunity of a long duration of payment. The long duration to make payment on an off-plan purchase without interest, and the fact that payment is often tied to construction milestones, is the next best thing after mortgage, especially given the fact that in this clime, our mortgage system is highly underdeveloped and not widely accessible to many members of the public with its very unfriendly and extremely high interest rate. In the absence of suitable mortgage option, paying the full purchase price at once or outrightly when a new-build has been completed can be daunting. Off-Plan purchase takes this stress away and gives a buyer the breathing space to hustle for the next instalment before it is due, which may be months away.
Olagbaju’s Court as a Case Study
Olagbaju’s Court is a brand new premium, urbane and luxuriously finished blocks of 3 bedroom flats with penthouses. It is located within the serene, peaceful, gated and well secured AFRA Estate on Adeniyi Jones Avenue, Ikeja, Lagos.
Each luxurious and VERY SPACIOUS unit is fully finished with the following well thought out details:
Palatial living room and a wide terrace for a view of the surrounding peaceful neighborhood
Guest Toilet with top quality sanitary wares.
Generous bedrooms with premium quality multipurpose closets and wardrobes
Extensive Master’s bedroom and a private terrace with a premium view
All rooms ensuite with cubicle shower, water heater, and top quality sanitary wares
Extra Large Fitted Kitchen with spacious and well delineated cabinets, heat extractor, gas cooker, microwave oven, and water heater.
Self-Contained Maids Quarter/BQ for each flat!
Intercom telecommunication from the flats to the Maid’s Quarter
Elevator to all flats
2 Car parking spaces per flat
Facility Management Office
Intercom telecommunication from all flats to the security post
Fully serviced (24/7 Power; Water; Security; Waste Disposal)
Automated Entrance and Exit Gate!
Location: 3, Akin Lakanu Close, AFRA Estate, Adeniyi Jones Avenue, Ikeja, Lagos.
How to get a Unit in Olagbaju’s Court with a Limited Budget
Obviously Olagbaju’s Court is conceived as units of high end luxurious 3 bedroom flats with a current market value of about N80m. However, the off-plan sale was kick started at N45m for the very earliest buyer. We have gradually incremented the price of each luxurious units and we are currently selling off-plan for N64.999m. We are on the verge of commencing construction and the price will inevitably go higher as construction progresses until we reach the market price of N80m or more by the time construction is completed.
Do you need to part with the total sum of N64.999m to get a unit? NO! You only need to DEPOSIT N15M to SUBSCRIBE TO A UNIT. You can spread the balance and pay in CONVENIENT INSTALMENTS over a period of up to 12 MONTHS according to construction milestones. The balance is INTEREST FREE for the entirety of the 12 months.
At completion, each unit in Olagbaju’s Court will sell for a minimum starting price of N74.999m or higher, especially given the fast rising cost of construction.
Also when you lock a unit down right now, you save a minimum of N10m! Getting a unit in Olagbaju’s Court right now is very easy. You can get a unit in five simple steps, namely:
- Schedule to view the site of the development.
- Get an offer and contract from us.
- Pay the initial N15m deposit and get instant off-plan allocation.
- Pay the balance in convenient interest free instalments according to project milestones.
- Pay the last instalment and move into your luxurious flat.
Olagbaju’s Court is ideal whether as an investment or as a premium residence. For more information on how you can get a unit in Olagbaju’s Court, chat with me here
In conclusion, it is inevitable that given the fast rising cost of construction, the prices of properties will keep going up until there is some sort of stability in the cost of construction, which said stability is currently unpredictable.
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