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Developers explain why they shun commercial banks’ loans


Central Business District in Lagos

With the global financial crisis tightening its grip on diverse sectors of the international economy, many private developers are refusing to approach commercial banks for estate development loans, leaving the lucrative sector to struggle under low credit funding.

The Guardian gathered that financing real estate, especially residential, office buildings and shopping malls ought to be the duty of banks but issues with accessing credits from these institutions and the reality that many developers have found new funding models have made them to shun banks’ loan facilities.

Moreover, it had been difficult for many developers to break even due to the glut in the property market, which had led to the high rate of default on loans. It was gathered that commercial banks are no longer interested in financing real estate projects, and are not putting their money in the industry for a while.


Banks’ credit facility to companies in the real estate sector has been on the decline since 2016. As at Quarter 1 2019, a total sum of N593.3 billion was allocated to the sector. This is 4 per cent lower than N615.3 allocated in the first quarter of 2015.

Recent statistics from the National Bureau of Statistics (NBS) had shown that the total non-performing loans of real estate and construction firms rose by N33.31bn from N102.74bn at the end of 2018 financial period to N136.05bn as of the end of 2019.

According to the NBS, the total loans for construction sector stood at N723.15bn, while the figure for real estate stood at N604.97 as of the end of 2019.The report also showed that the total non-performing loans in the banking sector stood at N1.05tn out of a total loan of N17.56tn as of the end of 2019.

Property developers argued that the processes of obtaining loans have been cumbersome, while interest rate hovers around 25 to 35 per cent. “The process of obtaining bank loans for housing development is extremely rigorous and the requirements are very much,” according to Mr. Femi Beecroft, Managing Director Tetramanor Limited.

He noted that even when a developer can successfully go through the process, the rates are also way too high for the operators.

Besides, Beecroft observed that most times, developers are not able to obtain the legal documents that would be required by the bank due to issues relating to perfecting the land titles.

According to him, even though it is now easier to obtain loans from banks due to the improved liquidity of the banks, he explained that it seems there are now restrictions that make it difficult to use property as collaterals, stressing that this makes it very difficult for developers who mostly have only land as collateral.

He advised authorities to simplify the process of perfecting land titles in the country as well as double efforts in boosting infrastructure in the country.

The Chief Operating Officer of REFin Homes Limited, Mr. Kazeem Owolabi stated that developers shun bank loans majorly because they have found an alternative to financing their projects. These include off-plan model and partnerships funding with interested parties, which is not as friendly as well, less stringent than bank loans.

Owolabi said developers have seen this as viable against getting loans from banks that come in with ridiculously high rates.

To him, accessing loans has been much easier compared to five years ago. This, he said was due to the new generation of financial houses that now give quick and easy access to loans and this has put banks in a position to either match the opportunities these financial houses are giving or lose this large market.

He said the government should introduce lower rates intervention funds through Central Bank of Nigeria (CBN) directly to mortgage Banks for developers that are fully registered with REDAN. He further said if the developer defaults or does not deliver the said projects as stipulated, they can cancel his/her membership.

The Managing Director, Crystal Tee Property Limited, Mr. Olatunde Oloyede said the apathy on the part of banks to give loan and the reality that banks always find it difficult to give long term loan to developers when their source of fund is the short term has made many of the developers to look elsewhere for executing housing development. According to him, the government needs to develop the right policy framework and legislation that could make loan accessibility easier for developers.

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