MAUREEN IHUA-MADUENYI writes on the challenges faced by developers and aspiring homeowners as the property market takes a plunge.
Financing real estate development is seen as one of the most difficult things to do in Nigeria. Over the last few years, it has been made worse due to the downturn in the economy.
According to stakeholders, the real estate industry has not really recovered from the impacts of the recession.
Findings show that developers have had to take the heat as empty houses dot the landscape of major cities in the country, tying down funds while many Nigerians are homeless.
It is estimated that Nigeria has about 17 million housing deficit, a figure that has been in dispute because some stakeholders think it may be up to about 20 million considering the growing population.
But while many look up to developers to help in the provision of houses, with the support of the government, they (developers) have been constrained by low purchasing power from those who should take up the houses built, and lack of funds from banks.
Data obtained from the National Bureau of Statistics show that as of the third quarter of 2018, the real estate industry’s debt to banks was over N710bn.
The figure accounts for 4.46 per cent of the total credit of N15.59tn to the private sector, making the industry the fifth highest debtor to the banks.
Although it was lower than the N798bn recorded in the same period in 2017, the situation has made it difficult for developers to access commercial banks’ loans.
The Deputy President, Real Estate Developers Association of Nigeria, Mr Akintoye Adeoye, says banks are no longer interested in extending loans to developers.
He adds, “There is a high rate of default on bank loans, 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. The interest rate is also not helping; it currently hovers around 25 to 35 per cent and 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 where they know how they will wrap up the transaction but it will also be expensive for the buyers because the cost of funds will be transferred to them.”
The Chairman and Managing Director, Megamound Investment Limited, Otunba Olumide Osunsina, also says commercial banks are no longer interested in financing real estate projects.
“They have not been putting their money in the industry for a while,” he adds.
The Chairman, Sparklight Property Development Company Limited, Chief Toyin Adeyinka, tells our correspondent that the low purchasing power of many Nigerians has reduced real estate transactions, limiting access to funds for developers.
He says the only viable window of funding, and which also offers single digit interest rate to developers is the Federal Mortgage Bank of Nigeria.
But even the FMBN has been weighed down by debts which it gives majorly through its Estate Development Loan window.
The mortgage bank in 2012 suspended the EDL due to default on loans, a few years after publishing names of bad debtors in 2009.
In 2016, the FMBN had solicited the help of the Economic and Financial Crimes Commission to assist in recovering about N100bn debt from developers as well as primary mortgage banks.
According to a former Managing Director and Chief Executive Officer of the FMBN, Richard Esin, who made the appeal at the time, developers have a huge debt overhang with the bank.
Also, the now defunct Skye Bank Plc, in its earnings guidance on March 23, 2016, notified shareholders and investors of “anticipated material decline in its profits for the full-year ended December 31, 2015 compared with that of 2014.”
According to the bank, the expected decline in performance was attributable to management’s decision to recognise “increased impairment on loans to sectors severely affected by the prevailing economic headwinds, which are yet to abate, especially the lull in oil and gas and real estate sectors”.
In its Gross Domestic Product report for the third quarter of 2018, the NBS says the real estate sector contracted by -2.68 per cent from -3.88 per cent in the second quarter and -9.4 per cent in the first quarter of the year.
At the same period in 2017, the sector contracted by -4.12 per cent in the third quarter from – 3.53 per cent in the second quarter of 2017 and -7.37 per cent in the third quarter of 2016.
The sector’s contribution to nominal GDP in the third quarter of 2018 was 6.88 per cent, lower than the 7.54 per cent reported in the corresponding quarter of 2017 and 7.09 per cent recorded in the preceding quarter.