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Bank’s Credit to Nigeria’s Real Estate sector hits 5-year low

Nigeria’s real estate sector may suffer yet another setback as the total credit allocated to the sector by banks dipped consecutively for five straight years. 

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Nigeria's Real Estate Sector recorded positive growth after three year low, Real estate: Declining credit reflects underlying weakness 

Nigeria’s real estate sector may suffer yet another setback as the total credit allocated to the sector by banks dipped consecutively for five straight years.

According to the latest data on the banking sector’s credit provision to the private sector released by the National Bureau of Statistics (NBS), banks’ total credit allocation to Nigeria’s real estate sector declined again by N26 billion in the first quarter (Q1) of 2019.

Note that banks’ credit facility to companies in the real estate sector has been on the decline since 2016. As at Q1 2019, a total sum of N593.3 billion was allocated to the sector. This is 4% lower than N615.3 allocated in the first quarter of 2015.

Credit on 5-year low

The real estate sector may be one of the best places to invest in, but low credit provision to the private sector has continued to be a major problem. Data shows that the sector is one of the least-financed by financial institutions. Out of seventeen sectors that received credit facilities from banks in Q1 2019, the real estate sector ranked 10th while the oil and gas sector scooped the highest of entire N15.2 trillion allocated to all the sectors.

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Growth despite low credit

Despite declining credit provision to the real estate sector, the sector recorded positive growth in the first quarter of 2019 after over three-year decline.

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According to the NBS data, the last time Nigeria’s real estate sector recorded a positive growth was the 4th quarter of 2015 (0.13%). Thereafter, growth in the sector has nosedived for several quarters until the 0.93% growth recorded in Q1 2019.

Real estate growth may be back to the red zone

It should be noted that according to The World Bank projection, about 108 million Nigerians are estimated to be homeless. This is said to be due to the governments’ inability to provide the required number of houses.

Get the latest insights on Nigeria’s Real Estate Sector

Despite the Federal Government’s constant claim that efforts are being made to revitalise Nigeria’s real estate sector, the lack of interest by lenders does not seem to corroborate the claims.

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Also, some real estate experts have expressed worry over the low funding for the real estate sector. According to the Chairman of Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON), Sir Nweke Umezuruike;

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“We continue talking about a large pool of funds all over the place, which is just lying idle. Such funds should be put into productive use to fund Mortgage. Until we fully embrace mortgage financing, we cannot solve the housing shortage in the country.

“We give the impression that there is plenty of money standing in certain accounts, notably the pension funds, the housing funds and in insurance companies, and this money is not being applied to housing development, that is quite a problem. “As long as we continue in this way, we cannot have a better housing market.”

For Your consideration

In developed climes, the mortgage sub-sector obviously plays an important role in stimulating the real estate sector. While there have been several mortgage schemes and initiatives in Nigeria, the impact has remained somewhat unfelt.

However, it is pertinent to note that real estate is one of the sectors yet to recover from the recession witnessed in the country. Hence, declining credit facilities may largely dampen growth prospects and drag the sector back to the red zone.

Samuel is an Analyst with over 5 years experience. Connect with him via his twitter handle

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Business

HealthPlus crisis: Alta Semper directors reported to Police for trespassing

HealthPlus has made a formal complaint to the Police following its ensuing battle with Alta Semper.

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HealthPlus crisis: Alta Semper directors reported to Police for trespassing

Nigerian Pharmacy Chain, HealthPlus Ltd which is in a battle for control with private equity firm Alta Semper Capital took a new twist as Health plus reported Alta Semper directors to the police last week, as observed in a document seen by Nairametrics.

In a letter sent to the Assistant Inspector General of Police on the 25th of September, HealthPlus stated, “We had the presence of unknown persons around our head office locations.”

READ: FG apologizes, says Self-Certification directive is not for everyone

The locations stated were 4 HealthPlus branches in Lekki, Lagos.

HealthPlus stated further, “We are aware that there are unauthorized and illegal plans by certain persons to take over our company premises to steal sensitive company property and assets, and ultimately take over operations of the company”

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The 4 persons mentioned by HealthPlus are; Zachary Fond and Ivan Genadiev (both Alta Semper Directors), Ernest Eguasa, CFO of company and an unidentified middle-aged white man.

Explore the Nairametrics Research Website for Economic and Financial Data 

Niarametrics reported last week that HealthPlus Limited appointed Chidi Okoro as Chief Transformation Officer.

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However, the announcement set off a chain of allegations and counter-accusations, including online media mudslinging with both sides trying to court public sympathy for who is in control of the company.

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Economy & Politics

P&ID dispute: UK Court orders $200 million guarantee to FG

Nigeria’s Foreign Exchange Reserves was boosted after a London Court ordered the release of $200Million placed as security in the case against P&ID.

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P&ID dispute: UK Court orders $200 million guarantee to FG, Leaked letter by Poultry Farmers Association triggered CBN emergency approval to import maize, nImplications of CBN's latest devaluation and FX unification, current account deficit, IMF, COVID-19, CBN OMO ban could give stocks a much-needed boost , CBN’s N132.56 billion T-bills auction records oversubscription by 327% , Nigeria pays $1.09 billion to service external debt in 9 months , Implications of the new CBN stance on treasury bill sale to individuals, Digital technology and blockchain altering conventional banking models - Emefiele  , Increasing food prices might erase chances of CBN cutting interest rate   , Customer complaint against excess/unauthorized charges hits 1, 612 - CBN , CBN moves to reduce cassava derivatives import worth $600 million  , Invest in infrastructural development - CBN Governor admonishes investors , Credit to government declines, as Credit to private sector hits N25.8 trillion, CBN sets N10 billion minimum capital for Mortgage firms, CBN sets N10 billion minimum capital for Mortgage firms , Why you should be worried about the latest drop in external reserves, CBN, Alert: CBN issues N847.4 billion treasury bills for Q1 2020 , PMI: Nigeria’s manufacturing sector gains momentum in November, CBN warns high foreign credits could collapse Nigeria’s economy, predicts high poverty, MPC Member, BVN, Fitch, Foreign excchange (Forex), Overnight rates crash after CBN’s N1.4 trillion deduction, Nigeria’s foreign reserves hit $36.57 billion; Emefiele keeps his word on defending the naira, CBN to support maize farmers, projects 12.5 million metric tons in 18 months, BREAKING: CBN Upscales Greenwich Trust Limited, grants it's operational license for merchant banking

A London Commercial Court has ordered the release of a $200 million guarantee as security to be paid to the Nigerian government in the P&ID $10 billion Arbitral Claim.

This was disclosed in a social media statement by the Central Bank of Nigeria on Tuesday.

Nairametrics reported earlier this month that The Federal Government secured a landmark victory in its bid to overturn a $10 billion arbitration judgment award against it in a case against Process and Industrial Developments (P&ID).

READ: Nigeria seeks bank documents of former President, others over $9.6 billion P&ID case

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The Court said that Nigeria has established a strong prima case that the contract was procured by bribes paid to insiders as part of a larger scheme to defraud Nigeria. He said that there is also a strong prima face case that the P&ID’s main witness in the arbitration, Mr Quinn, gave perjured evidence to the tribunal, and that contrary to that evidence, P&ID was not in the position to perform the contract.

In today’s statement, the CBN said, “Nigeria’s Foreign Exchange Reserves was this morning boosted by over $200Million when the London Commercial Court ordered the release of the $200Million guarantee put in place as security in respect of the execution of the much discredited P&ID $10 Billion Arbitral Claim.”

READ; Why the NNPC is being dragged to US courts by Exxon Mobil, Shell

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“The court also awarded a £70,000 cost in favour of Nigeria in addition to an earlier award of £1.5m.”

On January 31, 2017, an arbitration tribunal had ruled that Nigeria should pay P&ID, the sum of $6.6 billion as damages and breach of contract after a 2010 deal for a gas project in the Niger Delta part of Nigeria collapsed. The pre and post judgement accrued interest of 7% has seen the amount standing against Nigeria, rise to almost $10 billion, an amount that will be a serious dent on the country’s external reserve.

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Business

FG to revitalize rice farms in rice producing regions

The Minister stated that rice production is expected to increase as the government continues to revitalize rice farmers.

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The Federal Government has stated that Rice Farms in Anambra State and other regions will be revitalized to boost rice production, create jobs and also improve the living standard of the people in the State and the region.

This was disclosed by the Minister of State, Agriculture and Rural Development, Hon. Mustapha Baba Shehuri, during the assessment of Federal Government Rice Farms/Mills in Omor and Umerum in Anambra State.

Given the importance of rice as a staple in Nigeria, the Minister stated that the Federal Government is taking steps to achieve self-sufficiency in rice production, and this is evident in the policies of the government in achieving food and nutrition security, import substitution and promotion of inclusive economic growth across all sectors of the economy.

READ: CBN says 22 banks to restructure over 35,000 loans due to COVID-19

Government Policy Interventions in Agriculture and Rural Development has helped to develop the rice sector, and these interventions include the provision of farm inputs such as agrochemicals, organic fertilizers, knapsack sprayers, planting & harvesting equipment such as reapers, mini combine harvesters, threshers at a subsidized rate in order to increase productivity.

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The Minister added that these policies have not only increased the quantity of rice produced annually but interventions through the provision of modern rice milling machines to small/medium scale processors, has also helped to improve the quality of Nigeria milled rice to international standard.

READ: New PIB amends royalties by oil firms as Sylva clarifies position on scrapping of NNPC

However, Nigeria’s rice consumption still holds higher than production, but government interventions through myriads of policies have increased rice production from 4.8 million metric tons of milled rice in 2015 to over 6 million metric tons by 2019 with a huge reduction in the nation’s deficit.  Hon. Mustapha Baba Shehuri explained that production is expected to increase as the government continues to revitalize rice farmers.

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Shehuri said that ”the Ministry has established 23 Paddy Aggregation Centers nationwide to aggregate and store paddy. The centres were given to members of the Paddy Dealers Association of Nigeria (PRIDAN) under the public-private partnership arrangement”.

READ: How to register for FG’s N75 billion MSME survival funds

In like manners, there will be the dissemination of modern rice production and processing technologies, through capacity building of farmers and processors directly and also in conjunction with the international donor agencies such as Japan International Cooperation Agency (JICA), Food and Agriculture Organization (FAO), German International Cooperation (GIZ), International Fund for Agricultural Development (IFAD), Competitive Africa Rice Initiative (CARI), AfricaRice.

He reiterated that the Ministry is currently responding to the challenges of food availability posed by the COVID-19 pandemic by supporting smallholder farmers nationwide with various inputs including certified seeds of improved varieties of food crops such as rice, maize, sorghum, wheat, orange-flesh sweet potato, groundnut cowpea, soybean, yam, as well as cash crops like cashew, cocoa, sesame, oil palm, gum Arabic. Others include herbicides, pesticides and agricultural machinery such as rice reapers, transplanters, power tillers motorized sprayers and processing equipment.

These interventions are expected to alleviate the effect of the pandemic on farmers and ensure that they keep producing food for the country.

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