Bank lending to real estate drops 60% as credit squeeze lingers


FRIDAY, 16 JULY 2010 01:20 CHUKA UROKO  


The real estate sector of the economy has seen a substantial drop in bank lending that hovers between 60 and 70 percent following the credit squeeze in the banking sector. Due more to the on-going banking reform than the global economic recession, the Nigerian banking sector is having serious liquidity challenges. The situation is such that most of the banks appear to have outlawed lending. The few that lend are very selective, lending only to individuals and institutions that they like most, especially those that pose minimal risk.


Reviewing activities in the real estate sector in the first half of the year, an analyst who did not want to be named, told our correspondent that due to the credit crunch in the banking sector, many banks are not interested in real estate, stressing that the level of lending to the sector has really gone down drastically.


“It is a very substantial reduction and as a matter of conjecture, I would say the reduction is in the region of 60-70 percent. There are only few banks that are lending to real estate and here you find banks like IBTC Bank, First Bank and just a few others. What happens is that those that lend are not much into residential real estate. They insist it must be commercial and, even at this, it has to be where they dictate”, the analyst informed. Genga Olaniyan, a property investor, had noted in an interview earlier in the year that bank lending to this sector came down to 90 percent as at January, this year, explaining that if 10 people were getting bank loan in 2009, only one was able to get this year.


The analyst noted that the first half of the year witnessed stability in asset prices and demand even as the market received new supplies. Price stability, he hoped, might run through the second half of the year. He, however, agreed with the views of Bismarck Rewane of Financial Derivatives, who in his quarterly economic news and views, disclosed that the market might see further price drop over high political uncertainty and political office seekers selling their property to fund election campaigns.


“I don’t think prices will go down further the whole of this year. The only thing that will bring about price fall is if people begin to sell their houses to contest elections. This could drag prices down and it will not be a big drop. The second half of the year might be a bit better, but there could be an influence because focus will be on politicking, leading to a slowdown”, the analyst said. He wondered that foreclosed assets by banks were not coming to the market, thinking however that the attitude of the banks could be to hold on to the assets. He reasoned that this could be because we have this culture of foreclosing assets and not selling them off. “The banks may just keep them in their books, hoping that prices would rise in the future.


Otherwise, the market is supposed to be swarming with distressed assets because they are there. But foreclosing an asset is one thing and disposing of them is another. It could even be that the banks are still struggling to survive”, he guessed.


Banks started foreclosing property of their defaulting debtors when at the onset of the ongoing reform they were forced into loan recovery drive. The expectation was that the seized property would find their way into the market. But that remains to be seen, hence the concerns.






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