How Russia-Ukraine Conflict May Affect Real Estate Sector

Besides the destruction of buildings including homes, offices, markets and other facilities which the massive and mindless invasion of Ukraine by Russia has caused already, there are indications that this conflict could affect global real estate market, experts have said.

The world peace has not remained the same after Russia launched an all-out invasion of Ukraine by land, air and sea, making the United States and Europe promise to retaliate against Moscow with the toughest sanctions possible.

Experts argue that if the conflict continues and these world powers make good their threats of imposing sanctions on Russia, it might affect significantly global economy including the real estate sector.

Oil price has already gone above $100 mark due to disruptions in the global supply chain arising from the Ukraine crisis. Experts explain that the oil price rise could impact the sector in the form of an increase in cost of building materials production.

“For the Nigerian real estate sector, this is a grim reality given that the sector imports over 70 percent of its building materials, especially finishing materials, from outside,” Benson Udenta, a realtor told this reporter at the weekend.

Udenta shares the view that in the event of a full-blown conflict, the cost of transportation will likely go up, and its effect would cascade through the supply chain and may push up prices of raw materials further, increasing the cost of construction.

Already, Nigeria developers are groaning under the weight of rising construction cost due to high import duties, and the devaluation of the naira leading to high exchange rate of the naira to the dollar. “The Ukraine crisis can only worsen their lot,” Udenta noted.

Another country whose real estate sector is on the throes of the Ukraine crisis is India. A recent report quotes Harshvardhan Patodia, president of the Confederation of Real Estate Developers’ Associations of India (CREDAI), as saying that Indian cement makers, who had already been reeling under the pressures of rising costs of raw material and energy, are bound to feel the impact of the crisis.

“Eventually, the impact will trickle down into the real estate industry as well. While the industry has been resilient, the rise in prices of raw materials by 20-30 percent has forced developers to marginally increase the prices of projects,” he said.

Patodia emphasized that, with oil prices crossing the $100 a barrel mark, there may be an impact on the overall economy in terms of cost of manufacturing and supply chain. The price of factor inputs for real estate is likely to go up as a result and real estate developers, who are already operating on thin margins, may not have any option but to push up prices (supply side).

On the demand side, he noted that due to inflationary pressure on the Indian economy, the Reserve Bank of India (RBI) may have to change its stance, which may in future lead to an increase in the policy rate as well. If this happens, there is a likelihood of mortgage rates inching up,” he explained.