While reading Bismarck Rewane’s comments in Nairametrics about the Central Bank of Nigeria’s decision, some days ago, to reduce the Monetary Policy Rate from 26.5 percent to 23 percent, one description in particular caught my attention. He called the 350-basis-point reduction a ‘jumbo cut.’
Rewane warned that lower interest rates could reduce returns on naira savings, drive investors toward alternative assets, and put pressure on the currency. His comments prompted me to look beyond the financial markets and consider what the decision could mean for real estate.
What happens to the developer trying to finance a project, the retailer considering another outlet in Lagos, the landlord protecting an investment, and the tenant already struggling with service charge costs? Will cheaper money really produce cheaper buildings?
The immediate assumption is that borrowing should become cheaper, development easier, and more projects financially viable. But in real estate, one change alone is rarely enough to shift the market.
Property is among the first places Nigerians turn when they lose confidence in the naira’s value. As returns on deposits and fixed-income investments decline, land and buildings become more appealing stores of value.
In my experience, well-located, income-generating properties with reliable tenants and strong cash flows usually attract more investor interest.
Nigeria already has too many properties developed mainly as places to store money. Their owners did not begin by assessing demand, location, affordability, or the businesses expected to occupy them. This is one reason we have vacant office buildings, underperforming retail developments, and residential properties priced well above effective demand in their locations.
Lower interest rates must not become another excuse to build without doing the research.
Cheaper money cannot remedy a bad location. It cannot generate footfall, create disposable income, or attract the right tenant mix. Nor can it transform an unsuitable design into a commercially successful property.
According to my friends in the financial sector, banks do not price loans solely based on the Monetary Policy Rate. They also consider the borrower’s risk profile, collateral, cash flow, operating costs, and the likelihood of repayment.
A developer may hear that the MPR has dropped to 23 per cent and still receive a loan offer at a rate that makes the proposed development financially unviable. The relevant test is not the figure announced by the CBN, but the actual cost of credit available to productive businesses.
In practice, I have seen proposed developments fail on paper before construction starts because the projected rent cannot cover the financing costs.
It is worth noting that, just days before the CBN’s decision, the United States Federal Reserve raised its benchmark interest rate. Higher American rates can make dollar assets more attractive to international investors, while Nigeria has reduced its headline rate. The combined effect could add pressure to the naira, although exchange rates depend on many other factors.
This does not mean that the CBN reduced its rate because of the American decision. The CBN explained that the former MPR had become disconnected from the rates prevailing in the Nigerian financial system. It described the adjustment as an operational reset intended to make the MPR a more effective policy signal.
That explanation matters. But capital responds to returns and risks, not terminology.
For the property industry, a weaker naira could quickly offset any benefit from lower interest rates.
Many components required for property development are either imported or exposed to foreign-exchange movements. Elevators, air-conditioning systems, electrical equipment, security systems and specialised machinery all carry some degree of foreign-exchange exposure.
A developer may save money from a slightly lower interest rate but lose far more because of higher construction costs. The issue is not whether one cost has fallen, but whether the total cost of delivering the property has decreased.
Commercial properties require electricity, security, cleaning, technology, maintenance, and periodic equipment replacement. If the naira weakens, a building’s operating costs may rise. Those costs will eventually show up as higher service charges and rents.
A retailer may pay more for stock, energy, and transportation while also facing higher costs to occupy its premises. The landlord may need higher rent to protect the investment’s value, but the tenant can pay that rent only if the business generates sufficient revenue.
That is why the health of the property market is inseparable from the health of the businesses operating in our properties.
If commercial lending rates eventually decline, businesses may find it easier to expand. Retailers could open more outlets, manufacturers might increase production, logistics companies may need additional warehouses, and professional firms could take on more office space.
Lower debt-servicing costs could benefit the government, but only if the savings are put to productive use.
If the savings are directed towards roads, electricity, transportation and other productive infrastructure, the property market will benefit substantially. Better infrastructure improves accessibility, reduces business costs, expands catchment areas and increases the commercial viability of locations.
If cheaper borrowing simply encourages government to borrow and spend more, little will have been achieved.
In my view, Rewane’s most compelling point is that monetary policy cannot substitute for fiscal policy.
The CBN may adjust interest rates, but it cannot repair roads, provide electricity, streamline construction approvals, or prevent wasteful public expenditure. Nor can it ensure that developers conduct proper feasibility studies or that a retail development has enough consumers within its catchment area.
If government spending remains inefficient and domestic production does not increase, additional liquidity may simply compete for the same limited supply of goods and services. Inflation could rise again, the naira could face greater pressure, and the anticipated benefit of cheaper money would vanish.
Airports, toll roads, transport terminals, power projects and other concessioned assets often generate revenue in naira while paying for technology, equipment and specialist maintenance services in foreign currency.
A reduction in local interest rates may help their financing costs. However, a weaker naira can widen the gap between local income and foreign-currency obligations.
That is why every infrastructure project needs a sound business plan that accounts for interest rates, inflation, exchange-rate movements, operating expenses, and users’ ability to pay.
In 1992, James Carville placed a simple reminder inside Bill Clinton’s campaign headquarters: ‘The economy, stupid.’ It was intended to keep the campaign focused on the issue that mattered most to voters, and it became one of the defining messages behind Clinton’s victory over an incumbent president. I have returned to that expression in previous articles because its lesson extends beyond elections. We are often distracted by individual announcements when the real issue is the broader economy surrounding them.
In this case, for Nigerian property, it is not simply the interest rate, stupid. It is the economy around that interest rate: the exchange rate, construction costs, infrastructure, effective demand, and the strength of the businesses expected to occupy our properties.
The opportunity is not simply to build more properties as returns elsewhere decline. It is to direct capital towards property and infrastructure underpinned by measurable demand: logistics facilities, neighborhood retail, data centers, healthcare facilities, student accommodation, and transport-linked commercial developments.
The CBN has made money cheaper. Whether that lowers the cost of producing and occupying property is an entirely different question.