One of the significant challenges faced in the construction and real estate sector is the inability to access long-term financing at single-digit interest rates.
This was a submission of Jamila Faniyi, the Managing Director of M&E Kaiser Limited during the Nairametrics Real Estate Industry Outlook Webinar that occurred on March 9, 2024.
Speaking on the challenges faced in real estate and construction, Jamila noted that the main challenge faced was the paucity of infrastructure.
- “The biggest issue we have in construction and real estate is mainly infrastructure. When infrastructure is in place, every other thing seems to fall in line.”
- “If we resolve issues such as roads and rails, we have easy access to materials, easy access to our buyers, the lands are opened up, and we’re able to access other fallow grounds, I can say we’ll have a boom in the real estate industry.”
- “Another challenge we face is long-term financing. We are hardly able to get any long-term financing with single-digit interest rates at all. What we’re able to get are mostly double-digits, and you know that as inflation rises, so does the interest rate.”
- “Construction and real estate hardly get financing, what we’re left with is private financiers that come at a cut-throat rate. And that’s something which affects the boom in the sector.”
Also speaking during the webinar was Obinna Onunkwo, the Deputy CEO of Purple and Kehinde Ogundimu, the Managing Director of the Nigerian Mortgage Refinance Company.
There’s an ideology mismatch between the financiers and the sector
Obinna Onunkwo, the Deputy CEO of Purple noted that one of the challenges in the sector is an ideology mismatch. As most investors tend to approach the sector from a short-term point of view while real estate is a long-term investment.
- He noted, “Real estate, across the world, is where you store wealth. Whatever wealth you create at the retail or institutional level is stored in real estate because it is a long-term asset.”
- “The challenge is that a lot of players are not approaching it from a long-term perspective, they approach it from the short-term point of view, and there’s a mismatch. And that’s part of the problem.”
- “For better context, if you look at the FMDQ data about the amount raised from CPs over the past five years compared to corporate bonds issued within the same period, it tells a story. The banks and financial institutions are more interested in 90 days transactions, 1-year transactions.”
- “In real estate, building a mall alone can take you a minimum of 20 to 24 months, while the bank is giving you money for 90 days. There’s a mismatch.”
What you should know
As per the last CBN report regarding lending rates established by commercial banks, it was found that the prime interest rate for lending to the real estate sector varied between 7% for SunTrust Bank and 28.50% for UBA.
Access Bank, First Bank, Zenith Bank, and GTCO had their prime lending rates at 22.00%, 13.57%, 19.13%, and 20.00% respectively.