THE IMPACT OF RISING COST OF BUILDING MATERIALS ON COMMERCIAL PROPERTY DEVELOPMENT IN NASARAWA

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THE IMPACT OF RISING COST OF BUILDING MATERIALS ON COMMERCIAL PROPERTY DEVELOPMENT IN NASARAWA

ABSTRACT

The goal of most countries is the desire to maintain a stable price level of goods and services. This however, appears to be an uphill task given the incidence of inflation presently ravaging developing economies of the world. Inflationary increase in the price of construction materials has been one of the major banes to development and a contributing factor to frequent cost overruns and subsequently project abandonment. The research is aimed at examining the impact of rising cost of building material on commercial property development in Nasarawa and Nigeria at large. The study tries to establishing a relationship between rising cost of building material and commercial property development. A comprehensive review of literature was structured to cover the concept of property, commercial property development and rising cost of building material. A structured questionnaire was used to gather data for the research. The study recommends that practitioners and stakeholders should extend their use to all the locally abundant building materials to provide affordable houses rather than over dependent on imported material.

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The construction industry is generally responsible for the physical development or the transformation of the environment which makes the built environment very vital to social-economic development of a nation. It comprises of building, civil and heavy engineering works.

Rising cost of building constitute the major reason for the delay in the construction of many commercial projects undertaken by both public and private real estate developers in Nigeria leading to construction cost overruns. The construction industry plays a very significant role in the socio-economic development of the nation.

The interrelationship between the construction industry and the broader economy emanates largely from three of the industry’s characteristics namely: the public sector client as its major client, its large market size with the ability to produce investment or capital goods which contribute significantly to the national GDP, and as a major source of employment both directly and indirectly by its multiplier effect.

A common finding of studies is that cost is affected by a large number of factors essentially demand and supply. However, Ogunsemi (2002) submits that in Nigerian

Construction Industry in the recent past, many projects have been subjected to cost and time overruns. Considering the relationship between construction industry and the national economy, it becomes necessary that the cost of construction be within the reach of the average citizen. However, some economic indicators are very significant to the overall cost of construction. Some of these indicators include; exchange rate of local currency to other currencies in the world, inflation rate and interest rate charge on loan among others.

About 50 percent of the building materials and components incorporated into construction or parts of the materials ingredients required for the manufacture of the materials are sourced from overseas (Udeh, 1991) and this brings to closer attention the issue of foreign exchange and its inherent problems in construction industry and the need for local sourcing of building materials. In the building construction sector, material as an indispensable resource constitute about 60 percent of the total cost of building (Omange and Udegbe, 2000). This means that any change in the cost of building material will significantly affect the overall cost of commercial property development, in recent time the reality is that there have been tremendous increase / rise in the cost of building material in Nigeria, therefore this research becomes necessary to investigate the effect of rising cost of building material on commercial property development in Nasarawa.

1.2 STATEMENT OF RESEARCH PROBLEM

Despite the construction industry contributing at least 3% to the annual gross domestic product (AGDP) and an average of at least one third of the total fixed capital investment (Isa et al., 2013) in Nigeria as a whole, the construction industry still faces the challenges of low levels of working capital, high rates of inflation and increasing costs of development/construction [Ofori (2001) and Okowo-Okere (1985) cited in Isa et al. (2013)]. Most of these situations are currently not properly attended to; subsequently, it leads to some development projects being abandoned, uncompleted and vandalized (Ihuah and Benebo, 2014; Ihuah et al., 2014). This is majorly as a result of the exceptionally high increases in costs of building materials which impacts negatively on the efforts to progress the number of commercial properties development to an extent that will meet the current demand. This research examines the impact of rising cost of building material on commercial property development in Nasarawa so as proffer possible recommendation and solution.

1.3 AIM AND OBJECTIVE OF THE STUDY

The aim of this work is to examine the effect of rising cost of building materials on commercial property development in Nasarawa.

To achieve this aim, the following objectives shall be looked into:

1. To review literature on cost, property development and building materials.
2. To examine the trends of the prices of building materials. (Between 2011- 2016).
3. To examine how rising cost of building materials has affected commercial property rental value in the study area.
4. To proffer solution on solving the effect of rising cost of building materials by introducing the use of alternative building materials.

 1.4       RESEARCH QUESTION

This research work tends to address some fundamental questions, which are as follows:

1. What is the trend of prices of building materials in Nasarawa Between 2011-2016?
2. What is the effect of rising cost of building materials on commercial property value in the study area?
3. What are the solutions to the effect of the rising cost of building materials on commercial property development?

1.5       SIGNIFICANCE OF THE STUDY

An assessment of the study would enable clients, contractors and developers give an economic approach to construction work such that they would be able to identify the dominating factors leading to the rising cost of building materials and its impact on commercial property development in Nigeria.

The research will also be of great importance to the government, law makers and other stakeholders as it will enable the make policy and laws that will help in the regulation and reduction of the cost of building material so as to reduce the overall construction cost in Nasarawa and the country at large.

The research will also serve as reference materials to students and other researchers who are interested in researching into the impact of rising cost of building materials on commercial property development.

1.6       SCOPE AND LIMITATION

The scope of this research is limited to commercial property development in Nasarawa town, Nasarawa State among other types of property development.

Some obstacles encountered in the course of carrying out this research were as follow:

• Time factor was the major constrain couple with multiplicity of other classroom work and lecture requirement were a set back to the research.
• Un-cooperating attitude of some respondents as they were busy to attend to the researcher.
• In accessibility of adequate information from research respondent due to illiteracy among them, some find it difficult to understand some question they were asked.
• Finance was also a limiting factor in the course of the research.

1.7       DEFINITION OF OPERATIONAL TERMS

Commercial Properties: Immovable properties, land together with all the properties on it that cannot be move with any attached rights paten business operation (Microsoft Encarta 2009 Microsoft Corporation).

Cost: Oxford Advance Learner’s Dictionary (6th edition) define it as the amount of money that you need in order to buy, make or do something.

Building: a structure with a roof and walls such as a house, school, store, or factory.

Materials: a matter from which a thing is or can be made.

Building Materials: this is any material which is used for construction purposes.

Property: a thing or things belonging to someone; possessions collectively.

Development: this is a process of developing or being developed.

Property Development (The Collins English Dictionary, 2014): the business of buying land and buildings and then making improvements to them so that their selling price exceeds the price paid for them.

1.8       HISTORICAL BACKGROUND OF THE STUDY

Nasarawa state was created on the 1^st October, 1996. By the Abacha government, Nasarawa State is bounded in the North by Kaduna State in the west by Abuja the Federal Capital territory in the South by Kogi State and Benue State and in the East by Taraba State and Plateau State.

A network of road exists within the state linking all rural areas and major town.

There are thirteen local government areas in the State which are Akwanga, Awe, Doma, Karu, Keana, Keffi, Kokona, Lafia, Nasarawa Eggon, Obi, Toto and Wamba.

CHAPTER TWO

2.0       LITERATURE REVIEW

2.1       CONCEPT OF PROPERTY

The word ‘property’ has different meanings to different individuals or group of individuals. To the layman, property means some physical things that he thinks of as his own possession and are owned by him such as car, television furniture etc. On the other hand, the lawyer thinks of property not only as a thing mentioned above but also the legal interest in such a thing. Property has to do with the rights that can be exercised in land. In the case of MCKEON Vs BISBEE 9 Calif 137 (1858) defined property as “the exclusive right of possessing, enjoying and disposing of a thing”. Ely (1914) described property as “bundles of right”. In his view, property comprises many rights but most property literatures identified three most significant property rights which can be held in land by private individuals as:

1. Right of use and enjoyment in land.
2. Right to income arising from land.
3. The right to alienate or transfer land.

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