The decline in the rate at which Nigerian banks allocated credits to the real estate in Q4 2018 may have resulted from their quest to invest in risk-free assets coupled with the political uncertainty during the review period, industry analysts have said.
Figures from the National Bureau of Statistics (NBS) for the last quarter of 2018 reveals that the N622 billion credits to the sector represents a 12.3 percent decline from the N 710 billion it got in Q3 2018.
The credit share the sector got from the country’s commercial banks in the review quarter represents 4.12 percent of the total N15.13 trillion credits to the entire private sector.
Jide Ogunleye, CEO of Denaro Properties Limited, who is also a business and investment strategies expert with emphasis on real estate, explained that the only reason a bank would lend money at any point in time was not for charity purposes.
“It is to make good returns and, on that note, a couple of reasons can be linked to why the banks reduced their lending to the real estate sector”, he said.
The CEO said “it could be that they are finding returns in fixed income market. You can put your money there and go to sleep, as there is no risk involved.”
This was affirmed by Godwin Asuelimen, Head, Core Product at Propertypro.ng as he said: “I don’t think the decline in the bank lending to the sector was about the fact that the sector was less attractive; it was mostly because of the election uncertainty.
Analysis of the banks’ credit to the property industry in the review quarter shows it represents the lowest decline since Q3 2015. Meanwhile, figures from NBS reveal that the all-time highest and lowest credit allocation to the sector were in Q3 2017 and Q2 2015 with credit of N798.39 billion and N548.21 billion respectively.
Yemi Stephen, a partner at Estate Links, a firm of estate surveyors and valuers in Lagos, said despite the decline in bank lending to the sector, it is still one of the most attractive sectors for investment.
“The year was coming to an end and people were uncertain about the recently concluded elections; it was also as a result of the economic performance, as the more the economy grows the more activities that will be reported for the real estate sector, Stephens said.
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, noting 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, looking at bank lending to the sector earlier in the year as reported by NBS. According to the Bureau, N784 billion and N744 billion were lent to the sector in first and second quarters of the 2018 respectively.4
Another factor that may be daunting banks’ lending to the property industry, according to Ogunleye may be risk assessment. “Every bank has a risk assessment unit; if they carry out risk assessment and they see that the real estate sector is not going to do well in a particular year, definitely, they will withhold their funds.”
He said the banks now carry out their due diligence owing to their past experiences with non-performing loans. “You know there are some banks that have not recovered from the loans they gave to oil and gas industry which may have been as a result of the fact that they failed to carry out due diligence.”
Ogunleye noted that the banks have information about the property market, citing instance of when people take loans from the banks and they give them property as collateral, upon their default, the banks put those properties in the market and as such they know the sale velocity of the real estate market.
Unlike other sectors of the economy, real estate in Nigeria plunged further into recession in Q4 2018 fuelled by the political uncertainty from the February general elections.
After showing signs of rebound for two consecutive quarters through to Q3 2018, the property market turned southwards, falling deeper into contraction mode.
The figures released by NBS show that, in real terms, the sector contracted by 3.85 percent in Q4 (year-on-year), which is 2.07 percent points better than the -5.92 percent recorded for the fourth quarter of 2017.
Source: By Endurance Okafor