A sizeable number of real estate firms prefer pulling funds through equity to debt to execute projects given the risk-averse attitude and cautious stance of Nigerian deposit money banks to the sector.
Despite the real estate sector getting out of the woods as it broke its 12 consecutive quarters of decline by recording 0.93 percent growth in the first quarter of 2019, banks’ confidence in the sector waned as credit allocation to real estate tumbled to its lowest level at 3.92 percent in four years.
Sectoral credit allocation to real estate shed 0.2 percentage point quarter-on-quarter and 2.49 percentage point year-on-year.
Of the N15.21 trillion combined credit dissipated to 17 sectors by the Nigerian deposit money banks, real estate got N596 billion in the first three months to March 2019, N26 billion or 4 percent lower than N622 billion received in the preceding quarter.
Folorunsho Bankole, Deputy Managing Director at Stable Shelters Development Limited, explained that banks prefer funding projects with a short payback period that allows them recoup their money faster than projects with long gestation period like housing.
“Debt financing is very rare because banks don’t give”, said Bankole. “Requirements attached to loan facility are numerous. At the end of the day, they tell you that the risk assessment of your project is not viable. Funding real estate is not a bank’s thing”,
Bankole maintained that only top players who have a robust relationship with the management team of banks enjoy cheap access to bank credit, a disadvantage to an average developer.
Rotimi Olu-Steven, a broker at International Real Estate Partners, submitted that banks’ unwillingness to provide credit to the real estate sector reflects low confidence in the sector as the 0.93 percent growth recorded is still fragile, and people’s disposable incomes remains stifled.
Analysis of banks’ loans & advances to the sector in full year 2018 upheld the experts’ position of shrinking banks’ support for the sector as regard provision of credit.
Eight Nigerian lenders including Access Bank, UBA, First Bank, Zenith, FCMB and Guaranty Trust Bank jointed gave loans & advances worth N623.3 billion for real estate projects in 2018, N60 billion or 90 basis points lower than N683.3 billion dissipated in the previous year.
Analysts at Lagos-based CSL Stockbrokers Ltd maintained that the high-interest rates for mortgages as well as high cost of housing particularly in highbrow areas would continue to pressure aggregate demand for real estate in the long run. “We struggle to see any sustained growth in the real estate sector in the near to medium term”
Israel Odubola
