Nigeria’s housing debacle continues as banks refuse to lend

Lack of affordable housing is gradually becoming a debacle in a country beset by huge infrastructure deficit.

To further exacerbate the situation, banks have refused to turn on the tap of lending to the sector.

According to data published by the National Bureau of Statistics (NBS) , commercial banks’ credit to the real estate sector dropped by 17 percent year on year (y/y) to N588.7 billion in the third quarter (Q3) of 2019 from N710.2 billion in the corresponding period of 2018.

The data also revealed that the real estate share of banking sector credit fell to 3.62 percent in the third quarter (Q3) 2019 from 4.56 percent in third quarter (Q3) 2018.

The major culprit of poor housing stock is weak consumer purchasing power as over 50 percent of a population of 200 million live on less than $1.98 a day.

Also, the country’s unemployment rate of 23.80 percent, the highest in 8 years, means the demand for accommodation will remain weak unless government formulates transformational policies that will accelerate economic activities.

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The implication of low household income is that real estate developers are put in a tight corner as banks will refuse to extend credit to them, for fear of piling Non Performing Loans (NPLs). Lenders now pay attention to sector they lend money to as they avoid high risk assets.

Analysts at CSL Stock Brokers Limited say high cost of obtaining mortgage financing has been a major deterrent to middle income earners, majority of who now opt for rented apartments.

Looking ahead, we believe commercial banks will continue to limit their exposure to the real estate sector considering the bottlenecks.

“We believe the reduction in the cost of credit triggered by CBN’s regulatory actions may spur significant demand from the upper echelon of the middle class consumers who currently opt for expensive rental payments,” said analysts at CSL Stock Brokers Limited.