Bank loans to real estate soar but housing deficit lingers
Mortgage and commercial banks’ lending to the real estate sector has continued a steady growth in the last three years despite the downturn in the economy, a sectorial breakdown of banks’ credit to the private sector has shown.
Banking credit to private sector data sourced from the National Bureau of Statistics (NBS) and a survey of developers showed that the banks seem to have turned on the tap for private developers, state housing corporations and housing cooperatives over the past three years despite a perceived slowdown in demand for real estate products and services in the country.
A year-on-year analysis of the NBS data showed that in 2015, banks’ exposure to the property market stood at N2.49 trillion, rising to N2.93 trillion in 2016. The availability of credit to real estate took an immediate upturn post 2016 hitting an all-time high of N3.12 trillion in 2017.
Between 2015 and 2017, a total of N8.6 trillion was loaned to the real estate sector, a figure which is more than the credit given to both the agriculture and education sectors put together (N6.87 trillion).
Daily Trust reports that the rise in banks’ credit to the real estate market may not be unconnected with the upsurge in inflation rate and subsequent recession that hit the country’s economy between the third quarter of 2016 and second quarter 2017.
The fall in the value of the Naira meant higher import cost and corresponding increase in local prices of building and construction materials which are mostly imported.
A slowdown in new constructions was expected, likewise reduction in the demand and supply of properties as well as a rise in mortgage rates to reflect the prevailing interest rates but the data showed that developers’ appetite for loans did not slump.
The property market in Nigeria relies heavily on most times mortgage and commercial banks’ debt to fund estate development including land acquisition and infrastructures.
The data showed that although the banks’ lending to the real estate sector in the last three years is nowhere compared to their yearly exposure to the oil and gas, manufacturing or T r a d e/ G e n e r a l Commerce sectors, the preference for credit to the real estate sector over agriculture and education put together is an indication that banks are no longer shying away from lending to an untapped real estate sector.
But it seems the huge credit facilities to the sector are having minimal impact as the mind-boggling housing shortfall in the country continues to widen.
There are still increasing number of uncompleted estate projects across the major cities of Abuja, Lagos and Portharcourt. Those which manage to get completed remain unoccupied by individuals.
A property developer who preferred anonymity said some developers have mastered the art of accumulating huge debt with mortgage banks, such that after obtaining loan facilities from banks to build estates, they instead divert the funds into other non-productive and non-regenerative activities.
According to him, some developers complete the estates, sell the housing units and decline to remit the sales proceeds to the bank.
The Chief Executive Officer of Jedo Group of Companies Alhaji Aliyu Wamakko said these were part of reasons why the Federal Mortgage Bank of Nigeria (FMBN) suspended giving estate development loans (EDLs) to estate developers about three years ago.
The EDL is a facility granted by the FMBN to private developers, state housing corporations and housing cooperatives to bridge the housing deficit through mass production of houses for ownership.
The FMBN within the week said it has achieved the recovery of N621 million from both non-performing construction finance and mortgage loan portfolios.
“Due to the pressure placed on debtor-customers, nine developers have so far submitted loan repayment plans as exit strategies for EDLs granted to them,” the bank said.
According to Wamako, “The issue is that it is a product of politics. There were some developers who were able to get estate development loans but on political ground. They are not developers and for that reason they don’t perform,”
“Someone would come as a senator, use his office and get a loan and therefore paying back is now a problem,” he added
Nigeria reportedly has housing deficit of about 17 million but Wamakko believes the deficit is far above that figure.
“It is even more than 20 million, the 17 million is inaccurate. Are you only talking about the houses in Abuja and don’t care about Lokoja or Kano. Housing deficit is more than 17 million,” he said.
According to him, government can bridge the gap by providing intervention fund for housing development just like it has done for the health and agriculture sectors.