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Dearth of legal framework, policies, infrastructure drags real estate sector — Analysts

Real estate and mortgage industry analysts have linked the setback in the industry to lack of functional legal framework, right policies and inadequate infrastructure which are said to be major growth drivers in the real estate sector.

This was disclosed to BusinessDay in a five-analysts-survey aimed at finding solution to the challenging state of the industry in Nigeria, Africa’s largest economy.

Meanwhile, negative and weak growth in construction and real estate sector of the country has continued to drag growth in its economy even as it slowed down in the first quarter of 2018 to 1.95 from 2.11 in the previous quarter owing  to, among other things, reasons cited by the analysts.

The sector has reported nine consecutive quarters of contraction even after the economy of Africa’s largest crude oil producing nation exited recession in the second quarter of 2017.

Abiodun Akanbi, Head of Strategy at Infinity Trust Mortgage Bank, said legal frame work in relation to absence of foreclosure law in Nigeria is one of the biggest problems of the industry.

“If you lend out money, and the borrower refuses to pay, you are at the mercy of the debtor because you cannot foreclose, as there is no foreclosure law in Nigeria; that is a major problem, and because people know that there is no foreclosure law, they just go to court, get an injunction and trail for 6 to 7 years,” Akanbi explained.

According to Association of Housing Corporation of Nigeria (AHCN), inability of the Nigerian mortgage sector in driving home ownership is worrisome as more than 90 percent of new homes utilise funds from personal savings for increamental construction.

Meanwhile, mortgage to GDP ratio in Nigeria is estimated at 0.6 percent, as opposed to 2 percent in Ghana, 31 percent in South Africa, 32 percent in Malaysia, 77 percent in the United States and about 80 percent in the United Kingdom.

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Africa’s most populous nation has a housing deficit of about 17 million units and its mortgage rates ranging between 7-10 percent for the Federal Mortgage Bank of Nigeria (NHF) and between 15-25 percent for commercial mortgage institutions is considered by industry experts as one of the highest around the world.

While with a population of about 55 million, mortgages in South Africa accounts for almost 30 percent of total credit, the largest component of banks’ assets, which amounted to about ZAR5.14 trillion ($382 billion) at the end of January, according to central bank data.

Bank lending to construction and real estate sectors in Nigeria has remained dismal when compared to the likes of South Africa, the continent’s most-industrialized economy.

According the chairman of BHCI, JD Diabira, the first specialist commercial real estate mortgage provider in Francophone West and Central Africa “the lack of capital for the property industry is not the big issue, it is made out to be. It seems to us the real problem is the willingness (or not) of lenders to lend.”

The reason, he says,  is that local lenders have little reason to offer mortgages; which has been attributed to high prevalence of government bonds in the market which banks have collected 6-7 percent.

Hakeem Sadiq, CEO of Zama, a Lagos-based real estate advisory firm said Diabira is right in the sense that funding is not the only challenge Nigeria real estate sector has, as there are ways to raise funding for a lot of projects as is already being seen in the sector.

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“I think aside from just the funding thing, a lot of the issues faced by the sector comes from infrastructure. A large part of being able to develop and redevelop the real estate sector is actively based on the availability of infrastructure, access to good road and electricity. Also adequate data on the sector, which stakeholders can use to plan and make investment decision is another issue,” Hakeem said.

Responding to why lenders may not be willing to give out funds to borrowers, Yemi Stephen from Estate Links, a real estate developing company, said in Nigeria, the reason could be as a result of high rate of mortgage default.

“If lenders have alot of bad debts it will be very difficult for them to lend out again, and also with the double interest rate on the mortgage there will not be faithfulness on the part of the borrowers in repaying their debts,” Stephen said.

“Another issue could also be for the lenders being able to have some security with the developers, investors and borrowers. In that aspect, the real estate market is not that strong yet and a lot of banks are actually investing in them that is why a lot of housing facilities have high interest rate,” Hakeem told BusinessDay.

A lot of lenders do not want to start dishing out credits to developers and refinancing institutions and the projects are executed half way and their funds become stuck; that instability is what makes investment risky.

Meanhwile, Nigeria government has plans to start a mortgage-loan guarantee programme next year in an effort to improve lending to low-income earners and boost home ownership.

This was disclosed by Tokunbo Martins, Director of Banking Supervision at CBN that the  nation’s government through the apex bank is working on a project that will see the start of a firm this year called Nigeria Mortgage Guarantee Company (NMGC) which will be owned by the government and private investors

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As to why Africa’s largest producer of crude oil lags other countries in providing housing for its citizens, the state-owned Federal Mortgage Bank of Nigeria (FMBN) linked it to record high interest rates, poverty and a lack of proper land deeds, as home loans total about 50,000 in an economy which vies with South Africa as the continent’s largest.

On the way to go in bridging the housing deficit in Nigeria, Hakeem said “it is all about the ability of the government to implement policies. For instance, policies that can actually spur growth, like having an ease of acquisition, like in Lagos, acquiring land can be a very huge problem for a lot of people, even though they may want to acquire it but being able to go through those processes are very difficult and also with the corresponding taxes, it  becomes unattractive.”

Another industry expert, who pleaded anonymity said “the more investment the government puts into providing adequate infrastructure, the  easier  the real estate market will develop and there is also need to grow the economy in general as this will rob off on the citizens’ purchasing power and will make them eligible to access mortgage.”

“The spending power of an average Nigeria is another issue; if you ask an average Nigerian how much he can actually put down to invest in property even in a situation where affordable housing could be an option, you will be shocked,” Hakeem concluded.

Endurance Okafor

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