Sunday, 17 June 2012

‘N700b real estate sector fund trapped in banks’

Nigerian banks have over N700 billion (USD 5 billion) trapped in the real estate sector following the boom of the last few years, a realtor and don with the Covenant University, Ogun State Dr. Ayotunde Olawande has said.

In an interview with The Nation, at a conference of surveyors in Abuja, he said this figure was based on a research conducted by the university. He did not give details. The universal banking licence, which allowed banks to veer into virtually all the financial sectors of the economy through their subsidiaries in the wake of the regulatory induced consolidation caused a revolution in the real sector.

Banks through their subsidiaries chanelled lots of funds into the sector thereby creating a glut in the market culminating into a fall in the prices of properties.

Olawande said though real estate is capital intensive, it occupies a unique position in national transformation.

He observed that financing of real estate development has become more problematic with the inter-play of interest rate, stringent repayment requirements, failure of past housing policies, high cost of building materials, inadequate access to finance, and the down turn in major sectors of the economy.

The lecturer enumerated some of the sources of finance in real estate funding as securitisation and real estate investment trust (REIT).

On investment options and classes of investors in the sector, he grouped them into passive and active categories. According to him, the passive investors put money at risk without exerting control over operations, unable to influence events but hope for the best returns, while active investors take essential decisions that significantly influence the investment fortune. He called for greater enlightenment by players in the industry to help investors make informed decisions.

Oni regretted that activities in the sector on both the demand and supply side came to a standstill in 2010 when the overall growth of the sector stood at 10.48 per cent in the second quarter compared to 10.46 per cent in the corresponding quarter of 2009 with marginal growth achieved as a result of activities in the low end of the market, charecterised by small commercial and residential developments.

He pointed out that as a result of limited banking lending to major developers and investors, large scale high-end commercial and residential developments were stalled.


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