Credit to real estate rises to N673bn on confidence in economy

Access to both local and off-shore funds has increased significantly in the country, riding on the back of an improved business environment and growing confidence in the Nigerian economy, which has increased to $510 billion from $270 billion by GDP size, as disclosed by the recent GDP rebasing.

On account of this, it is estimated that credit to the real estate and construction industry has increased (year-to-date) by 2.27 percent to
N673.14 billion, up from N539.76 billion in December 2012, leading to improved contribution to GDP, to the tune of 6.9 percent and 3.7 percent respectively, by the industry.

Similarly, while aggregate credit has risen by 3.18 percent year-to date, which is a significant improvement on the 2.27 percent decline recorded in 2012, average credit to the private sector has risen by 7.42 percent when compared to 2012.

Confirming this at a forum in Lagos recently, Doyin Salami, an economist and teacher at the Lagos Business School, added that as at the third quarter of this year, credit to the private sector rose year-on-year by 10.43 percent.

Obinna Onunkwo, a managing partner at Purple Capital PartnersLimited, also confirmed to BusinessDay that there has been a significant increase in the size of credit to real estate, explaining that in the retail sector alone, there has been over N200 billion worth of investment in the past two years.

Onunkwo attributed the increase in credit to the industry to the great potential of the economy, saying “this economy has great potential; the opportunities are there but you have to have the right products and be able to deliver the right value to be able to earn the confidence of credit providers.

Both real estate and the construction industry have seen considerable growth, and according to Abiola Afolayan, the CEO of Beryl Shelter, a real estate development and marketing firm in Lagos,this growth arose from increased funding in the industry. Afolayan observed that commercial banks are now ready to lend to the sector.

Salami pointed out that despite the growth and increased credit to the industry , accessibility and cost of financing are still major concerns,
observing that “loans to the real estate and construction sector account for less than 8 percent of the total lending portfolio of commercial banks.
According to him, long term funding is still absent , while lending rate is high. He added that liquidity tightening has been responsible for the observed increase in lending rates. “Average maximum lending rate (MLR) by deposit money banks (DMBs) was 25.17 percent as at September 2013 while prime lending rate (PLR) stood at 18.53 percent”, he noted.

Nigeria’s high housing deficit, estimated at 17.5 million units by the World Bank, is always traced to developers’ inability to access credit from deposit money banks, but Salami said there were other factors, especially urbanisation.

“With rapid urbanisation, steady population growth, poor state of infrastructure, restrictive access to land, shortage/high cost of building materials amongst others, the housing deficit over the past five years has grown at an average of 17 percent, while population growth is 2.23 percent”, Salami said.