Recent statistics have shown that the Nigerian real estate sector has been suffering setbacks. Out of the ₦15 trillion worth of credit facilities (bank loans) that were given to the private sector in Q4 2018, real estate only got ₦622 billion. This represents just 4% of the total loans/credit.
A quick analysis of the 2018 selected banking sector indicators’ report, as released by the National Bureau of Statistics (NBS), revealed that the total bank credit for the real estate sector declined by 12% between Q3 and Q4 2018. During the third quarter, the real estate sector got ₦710 billion, while the corresponding value in Q4 declined to ₦622 billion.
Bank credit falls for the 4th consecutive quarter
Although the sector received ₦622 billion worth of loans in Q4, the amount represented the third consecutive quarter decline in the amount of bank loans allocated to the sector. In 2018, for instance, credit allocated to real estate decreased from ₦784.2 billion in first quarter, to ₦622.7 billion in the last quarter.
5-year low of bank credit to real estate sector
The latest dip in the bank’s credit/loans to the sector is not a new trend. In Q1 2015, credit allocated to the private sector was ₦615 billion, which fell to ₦548.2 billion in Q2 of the same year. By Q4 2015, bank credit to real estate stood at ₦692.2 billion.
Comparing the value of loan in Q4 2015 with that of Q4 2018 shows a 10% decline. In other words, it reveals an all-time low since 2015. This suggests that the cyclical growth movements in the real estate sector can be traced to the decline in banks’ credit available to investors.
Agricultural sector receives much more credit facilities than real estate
The agricultural sector has benefited the most from credit facilities given to private investors. For instance, during the last quarter of 2018, the agricultural sector received the highest bank’s credit of ₦3.5 trillion.
Similarly, the Oil and Gas and Manufacturing sectors are ranked second and third respectively, as their total credits stood at ₦2.2 trillion and ₦1.4 trillion for the period under review. However, the Education and Mining sectors got the lowest credit allocations.
Nigeria’s Real Estate Sector is growing nonetheless
Without a doubt, the real estate sector has continued to be an important sector in the Nigerian economy. Figures have shown that the sector contributed immensely to Nigeria’s gross domestic product (GDP). For instance, in 2018, it contributed ₦1.26 trillion to the country’s national income.
However, the percentage contribution of real estate to GDP declined to 6.41% in 2018 from 6.85% in 2017. Notwithstanding, the real estate sector is engulfed with big potentials.
What analysts say
In developed climes, the mortgage sub-sector plays an important role in stimulating the real estate sector. But while there have been several mortgage schemes and initiatives in Nigeria, the impact has remained somewhat unfelt.
In the meantime, investment analysts have expressed different views on the outlook of the real estate sector. Executive Director and Co-founder of Pertinence Limited, an investment firm, Mr. Sunday Olorunsheyi, said earlier in January:
“It will be difficult to project the fortunes of the Real estate sector, owing to factors such as lack of clear and consistent policies from regulators and a high degree of uncertainty, especially due to the general elections.”
On the other hand, the Chief Executive Officer of Lifepage Group, an investment holding firm, Oladipupo Clement, scored the industry high.
“More landed properties were sold and bought in 2018 than apartments and houses, due to high capital requirement and cost of fund.
Despite uncertainties, such as a decline in oil prices, political instability, inflation and the rising cost of funding, the real estate sector will still thrive.”
Windfall for investors and the growth potentials
If you ask me, I would say the Nigerian real estate sector is what you may want to invest in. Investors in the real estate sector are likely to smile to the banks soon, as they get returns on their investments.
Generally, Nigeria’s real estate sector was sluggish in 2018 because of the lull in the nation’s economy. Real estate experts will likely experience better performance this year because of improvements in the economy, and the anticipated political and economic stability in the country after the just concluded general elections.
There was excess liquidity in the economy during the election period. Recall that the President recently expressed concerns over the huge amount of foreign currency flooding the country, intended to influence the general elections.
As the general elections wound up, the movements of both foreign and domestic currencies for electioneering processes will likely spread and drive patronage in the residential and commercial angles of the real estate sector. Eventually, what this does sometimes is to pressure the price of estate properties to increase, which implies higher revenue for investors.
Similarly, 2019 will spark the beginning of new governments in some states across the federation. These states will have either consolidated or new policies, which may drive economic activities uniquely away from past administrations. Again, contracts and appointment lobbying will also form a block on its own. All these interplays are likely to redistribute income in some ways, and the real estate sector is likely to benefit in no small measure.
How the economy reacts
Growth in the real estate sector in Nigeria will have impact on the economy significantly, from the jobs it creates to revenue generation.
Specifically, the real estate’s multiplier effect in terms of job creation is significant. Also, real estate activity stimulates the economy indirectly through the value-added impacts of the purchase of goods and services that stem from real estate-related businesses and transactions.