The woes which define investors’ experiences in the real estate sector of the Nigerian economy have taken a turn for the worse as bank credit facilities to the sector dropped 12.39 percent in the last quarter of 2018 to N622 billion, from N710 billion in the preceding quarter.
For reasons directly linked to the slowdown in the economy, the real estate sector has remained in recession for 11 straight quarters, making it an attractive investment destination for yield-hungry investors and a near dead-end for credit facilities in search of quick returns.
Despite the positives recorded by the wider economy, the sector remained in negative growth territory.
Bolaji Edu, CEO, Broll Nigeria, noted in the company’s fourth quarter (Q4) 2018 real estate market viewpoint that GDP growth in 2018 was positive, averaging 1.93 percent for the overall year.
“The highest growth rate was evident in the last quarter of the year at 2.38 percent. Even though this growth was low, it was an improvement in comparison to quarterly figures recorded in 2017, as well as in comparison to the 2017 overall rate of 0.82 percent,” Edu said.
The N622 billion credit to the real estate sector for the last quarter of 2018 represents 4.12 percent of the N15.13 trillion credit to the entire private sector within the quarter, figures from the National Bureau of Statistics (NBS) show.
Experts note that the drop in credit to the sector was not surprising because banks had been shy of lending to real estate, describing it as a high risk sector coupled with its long gestation period as an investment asset class. Real estate is about real investment. Huge capital outlay is needed and the stake is very high.
Femi Akintunde, GMD, Alpha Mead Group, explained in an interview that banks slowed down lending to real estate, just as even people taking corporate bonds were being careful in Q4 2018, because of the uncertainties that surrounded the just-concluded general elections.
This is quite evident from bank lending to the sector in the preceding quarters of the year. According to NBS, the sector got credit of N784 billion and N744 billion in the first and second quarters of the 2018, respectively.
The N784 billion given out in Q1 2018 reflected an increase in lending to the sector when compared to the N753 billion lent in Q4 2017. But, comparing the lending in the first and last quarters of the year, there was a decline of N162 billion which, experts said, reflected the state of the economy and the uncertainties in the polity at the time.
Since the onset of the 15-month economic recession in the country, real estate investors have been having it tough raising capital for their developments, hence the call for joint ventures and collaboration to lessen the burden on one individual seeking capital for projects.
Analysts say joint venture arrangements are among the viable alternatives to funding real estate projects in Nigeria where cost of funds has made bank credit inaccessible, unaffordable and unattractive. They explained that one of the biggest challenges facing players in Nigeria’s real estate sector is the accessibility and affordability of capital to finance development projects.
Udo Okonjo, CEO/vice chair, Fine & Country, pointed out the need for collaboration in an environment where credit is dry and risk is high, hoping that, through collaborations among stakeholders, the real estate sector could grow.
“The case for collaborating in real estate cannot be stronger than now with a sluggishly recovering economy, where there’s not only massive infrastructure and protracted housing deficit, but also huge amount of under-utilised and idle asset,” Okonjo said at a real estate forum in Lagos.
There are other funding options open to real estate investors. These include equity partnerships, pre-sales, debt financing, public private partnerships and mezzanine structure, according to the analysts. Okonjo mentioned Mixta Nigeria, UPDC and Landmark as local developers that have leveraged on partnerships with foreign firms to finance projects.
“The Maryland Mall is an example of a successful partnership. The Wings Towers is another high profile and very visible office space that is also a product of partnership between Oando and RMB Westport,” she said.
CHUKA UROKO
