Stakeholders weigh implications of BUA’s cement price slash

THE reduction in the price of bags of cement to N3,500 by BUA Cement Plc on Sunday, October 1, will have immediate and far-reaching implications, say stakeholders in the real estate industry.

BUA Group’s Chairman, Abdul-Samad Rabiu, disclosed the company’s intention to slash the product’s price when he visited President Bola Tinubu at the state house on September 15.

He had told the President that his company was increasing its production capacity by inaugurating two new cement plants by the end of the year or early 2024 to enable it to flood the nation’s markets with the product.

He says BUA produced cement with about 80 per cent locally sourced materials.

In its October 1 statement, BUA Cement’s management said the price slash took effect from October 2 (today), promising to review the price upon completion of the new plants, expected to increase its production volumes to 17 million metric tons per annum.

“As a result, BUA Cement would now be sold at an ex-factory price of 3,500 naira per bag so that Nigerians can begin to enjoy the benefits of the price reduction before the completion of our plants,” the company stated.

A real estate expert and facility manager, Stephen Jagun, told The ICIR that since the government has long failed to address the surging price of cement, BUA felt that crashing the price was a social obligation to Nigerians.

According to Jagun, principal partner at Jagun Associates, it is not enough for cement companies to declare billions of profits and “become heartless,” taking undue advantage of buyers.

He said, “Since the raw materials used in cement production are primarily sourced locally, there should not be a reason why companies should be thinking more of their profit and less of price reduction.

“The fact is the government is supposed to be courageous enough to dialogue with them (cement companies) to bring the price down,” he stressed.

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As an operator in the industry, Rabiu has informed knowledge of the production cost of a bag of cement and the profit the company is making, he pointed out.

“By bringing down the price, he is trying to be patriotic to help the economy.

“If they can make life bearable for the customers and the growing industry, it is a plus and a win-win for everybody,” Jagun said.

He believes other significant players in the building industry would take a cue from BUA and drop their prices.

While it appeared that Nigerians are already apprehensive that the price of cement might shoot up further, following current disclosure by the Minister of Works, David Umahi, that the new administration would prioritise more concrete to asphalt in road construction – a measure expected to put pressure on the demand and supply of cement – “a supplier says I want to drop the price. It is not the market forces helping the market. The price reduction is a positive development that will encourage many people. 

“One significant thing that goes on everywhere, particularly in Nigeria, is that we want a roof over our heads. If you ask the majority of workers in Nigeria today, particularly in Lagos state, more than 50 per cent will have one plot of land somewhere,” Jagun noted.

He also pointed out that the courage to commence construction, considering cost implications and cement being a significant material, hindered peoples’ ambition to build.

“If cement price can be reduced, it will be a positive development, and if the price reduction stays, rents will drop,” Jagun said.

He, however, noted that the amount for renting properties would take a while to adjust downward as real estate is a market that would respond slowly to a slash in cement prices.

“It is a market that takes time to respond. Over time, when it starts responding, the stakeholders will no longer have any choice but to play with the market.

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“If you are living in a rented apartment now, and in the next 12 or 18 months, you build yours and move there, your landlord cannot think about increasing rent but will be looking for somebody to quickly take the apartment because his source of income is going,” he explained.

He further explained that if one had not built, and somebody with a higher offer came to compete with the person over a rented apartment, the landlord might be enticed to increase the rent so that the person who could pay has the flat.

He gave an example: during the financial crisis, rents dropped in the highbrow areas of Ikoyi, ParkView Estate, Lekki and Victoria Island in Lagos.

“Those who were paying N20 million before, when demand could not sustain it, and there were so many vacant houses and somebody building a new home enticed people to pay lower rental of about N15 million, the other landlords changed their minds and started asking people to pay N15 million.

“And those who felt, if they go to Surulere, they could get a whole house for N2 million went and displaced those who used to pay maybe N700,000 or N800,000, by offering higher pay, say N1.5 million, he said.

That is why you see the rentals of the low and middle-income earners keep rising because people, the high-income earners, who have the financial muscles, keep coming down to compete with them.”

Jagun added that those in Ikoyi and Victoria Island paying N25 million for accommodation might move to Dolphin Estate, still around Ikoyi, where rent is about N7 million or N8 million.

He added that Those who need help buying a flat in Ikoyi at N250 or N300 million may move to Dolphin Estate, where it is priced at about N180 million.

Also speaking with The ICIR, the executive assistant of the Association of Issuing Houses of Nigeria (AIHN), Wakeel Olawale, said the slash could have two different implications.

According to him, it will drive down prices across the entire industry, checkmate and affect other competitors’ pricing, bearing in mind the rising inflation in the economy. 

It will also increase investment in the sector by encouraging organisations and individuals to start building on acquired lands.

“Ordinarily, one would have expected that prices of cement and other building materials would continue to increase with rising inflation.




     

     

    “Since it is a price and quantity thing, competitors may want to observe the market to decide. If the quantity for them did not decline, they might not reduce the price,” Olawale said.

    He noted, however, that Nigerians are very sensitive to price adjustment, even though the qualities of the competitors could be better.

    At a press briefing in preparation for the 32nd Builders Conference, the Nigerian Institute of Building (NIOB), Lagos Chapter, urged the Federal government to intervene and reduce the country’s cement cost.

    The intervention is needed to stop the skyrocketing prices of cement, the NIOB vice chairman in Lagos, Adeoye Thomas, said.

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