As the global financial crisis tightens its grip on various sectors of the international economy, many private developers are refusing to approach commercial banks for property development loans, leaving the lucrative sector struggling with low credit financing.
The Guardian understood that financing real estate, especially residential, office buildings and shopping centers should be the duty of banks, but the problems of accessing credit from these institutions and the reality that many developers have found new financing models forced them to avoid bank loans. facilities.
Additionally, it had been difficult for many developers to break even due to the glut in the real estate market, which had led to a high rate of loan defaults. It has been found that commercial banks are no longer interested in financing real estate projects and have not put their money into the industry for some time.
Banks’ credit facility to companies in the real estate sector has been declining since 2016. In Q1 2019, a total amount of N593.3 billion was allocated to the sector. This is 4% less than N615.3 allocated in the first quarter of 2015.
Recent statistics from the National Bureau of Statistics (NBS) showed that the total non-performing loans of property and construction companies increased by 33.31 billion naira from 102.74 billion naira at the end of the year. financial year 2018 to N136.05 billion at the end. of 2019.
According to the SNB, total lending for the construction sector stood at N723.15 billion, while the figure for real estate stood at N604.97 at the end of 2019. The report said also showed that total non-performing loans in the banking sector stood at N1.05tn out of a total loan of N17.56tn at the end of 2019.
Property developers have argued that the processes for obtaining loans have been cumbersome, while interest rates hover around 25-35%. “The process of obtaining bank loans for housing development is extremely rigorous and the requirements are very high,” according to Mr Femi Beecroft, Managing Director of Tetramanor Limited.
He noted that even when a developer can get through the process, the tariffs are also far too high for carriers.
Additionally, Beecroft observed that most of the time, developers are unable to obtain the legal documents that would be required by the bank due to problems with perfecting land titles.
According to him, even though it is now easier to get loans from banks due to the improved liquidity of banks, he explained that it seems that there are restrictions now that make it difficult to use of property as collateral, noting that this makes it very difficult for developers who mostly only have land as collateral.
He advised the authorities to simplify the process of perfecting land titles in the country as well as to redouble efforts to strengthen infrastructure in the country.
COO of REFin Homes Limited, Mr Kazeem Owolabi, said developers are avoiding bank loans mainly because they have found an alternative to financing their projects. These include the off-plan model and stakeholder partnership funding, which is not as user-friendly, less stringent than bank lending.
Owolabi said developers see this as viable versus getting loans from banks that offer ridiculously high rates.
For him, access to loans has been much easier than five years ago. This, he said, was due to the new generation of financial houses now offering quick and easy access to loans, which put banks in a position to respond to the opportunities these financial houses offer or lose that big market.
He said the government should introduce cut-rate intervention funds through the Central Bank of Nigeria (CBN) directly to mortgage banks for developers who are fully registered with REDAN. He added that if the developer defaults or fails to deliver said projects as stipulated, he can cancel his membership.
The managing director of Crystal Tee Property Limited, Mr Olatunde Oloyede, said the apathy of banks to provide loans and the reality that banks still find it difficult to provide long-term loans to developers when their source of funding is short term has caused many developers to look elsewhere to execute housing development. According to him, the government needs to develop the right policy framework and legislation that could facilitate access to loans for developers.