The challenges confronting the real estate industry have increased as credit allocation by banks maintains a downward trend in the last year.
Data obtained from the National Bureau of Statistics showed that the industry got about N622bn out of the N15.13tn credit to the private sector in the last quarter of 2018.
The amount, which accounted for 4.12 per cent of the total credit to the private sector, was about 12.39 per cent lower than the N710bn recorded in the third quarter of 2018.
In the first and second quarters of 2018, N784bn and N744bn, respectively, were given out by banks to the industry.
The first quarter of 2018 saw growth in credit allocation to the industry when the amount rose to N784bn, up from the N753bn recorded in the last quarter of 2017.
However, the comparison between the first and last quarters of 2018 showed a drop of about N162bn.
Stakeholders in the industry said it had become increasingly difficult to access commercial banks’ loans for investment in real estate.
Investigations revealed that in the last two years, it had been difficult for many developers to break even due to the glut in the property market, which had led to the high rate of default on loans.
It was gathered that commercial banks were no longer interested in financing real estate projects, and had not been putting their money in the industry for a while.
The Deputy President, Real Estate Developers Association of Nigeria, Mr Akintoye Adeoye, said, “If you go to any bank today and tell them you want to finance real estate development, they will not talk to you because they have had their fingers burnt.”
Adeoye stated that from the glut in the property market due to low purchasing power, interest rate, which he said was around 25 to 35 per cent, had also been a major clog in the wheel of real estate funding.
“Housing is long-term, so it is a mismatch to use a short-term fund to finance a long-term project. Now, banks are not places to go to except on some special projects where the off-takers are members of a cooperative society and they already know how to wrap up the transaction but it will also be expensive for the buyers because the cost of funds will be transferred to them,” he said.
The Chairman, Nigerian Institution of Estate Surveyors and Valuers, Lagos Branch, Mr Rogba Orimalade, stated that from the period the economy went into recession till now, commercial banks had been saddled with the burden of disposing of huge real estate assets acquired through bad loans.
Orimalade said this had made many of the banks wary of investing their money in real estate projects.
He added, “From the period of the recession and even before, we came from an era where the banks had lots of assets, at a particular time the Asset Management Corporation of Nigeria was said to be the biggest custodian of real estate assets in the country and it was mainly because of the bad loans that emanated from the banks they took over. Most of the assets were taken away from the people who gave them out as collateral.
“So, naturally, only very few of them are out giving loans. It is only common sense for a lot of those banks and other financial institutions to look at the amount that they give out. To a lot of them, the industry is not attractive anymore.
He, however, stated that the question should not be about the reduced credit allocation to the industry but rather it should be about what should be done to grow the country’s economy through housing .
“Government says all the time that it wants to grow the economy but the economy cannot really grow without a thriving housing sector; that is the reality. Just as the government is giving priority to agriculture and the Central Bank of Nigeria and other banks are being compelled to give certain loans to agric and SMEs, it is important that the government recognises that housing is key to growing the economy,” he said.
According to him, once housing is taken care of, about 70 per cent of the issues in the economy will be addressed with the potential of the industry to have a multiplier effect on other industries.
Orimalade said, “Until the government recognises and puts a premium on houses, the economy may not really grow as much as it should. There are all kinds of commercial institutions with initiatives for agric. As far as I am concerned, the same should be done to real estate with housing as a critical part of the economy; in other climes, the economy is determined by how buoyant the real estate industry is.
“I agree that people have got their hands burnt and now prefer to go into other ventures rather than real estate but are the banks giving these credits in a way to help the real estate industry give the economy the bounce that is required? They are not doing that and if not, the question should be put to the government what it intends to do for the industry.”
He said the government should encourage banks to invest more in real estate.
The Central Bank of Nigeria’s Head, Project Administration Team of the National Housing Finance Programme, Mr Adedeji Adesemoye, noted that for the housing issues in the country to be addressed, access to mortgage must be put into consideration.
According to him, one way for the government, especially at the state level to address the challenge, is to sign the Mortgage Model and Foreclosure Act into law.
“The law would help to correct some of the shortcomings of the Land Use Act, which limits access to land and housing,” he said.
He stated that for people to be able to have better access to funding for investment in housing, mortgage culture must be encouraged to grow in the country.