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Nigerian Real Estate Development Receives Boost

The quiet Nigerian real estate development sector has received an unexpected lifeline from an even more unexpected source.

With the sector on the back foot from the current global economic crisis, Nigerian banks had made the move into mortgage financing and property development and are now suffering as a result of the global meltdown, severely reducing the cash-flow into real estate.

However, after the Central Bank of Nigeria got tough recently and flexed its financial muscles on five other Nigerian banks, resulting in the dismissal of managing directors and chief executive officers, as well as other executive directors. It is thought this move could breath fresh life into the real estate development market.

The Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi Lamido, attributed the development to excessively high level of non-performing loans, which was attributable to poor corporate governance practices, lax credit administration processes and the banks’ credit risk management practices.

Last week, the Central Bank of Nigeria released the names of debtors – mostly shareholders/directors – who secured loans totaling N747 billion from the five banks, which are Intercontinental Bank Plc, Afribank Plc, Finbank Plc, Oceanic Bank International Plc and Union Bank Plc.

With the Central Bank of Nigeria seeking an immediate debt collection settlement for the outstanding debt, pressure now appears to be on debtor individual and corporate bodies to resolve the debt. Last Wednesday, the debtors were given a seven-day ultimatum to pay up or risk going to jail.

Mr S O Jagun, a Lagos based real estate valuer expressed confidence that the move could make the real estate sector once again.

He said, “If some of these debtors happen to be big-time real estate investors, they may want to offload these assets quickly to pay back. In this process, they may sell cheaply and not wait for the open market. They will reduce the asking price and considerably cut profit.”

“For example, a property worth about N80 million could go for as low as N60 million. Of course, speculators will quickly jump at this, in the hope that when things eventually normalised, the value will rise once again. Therefore, some liveliness in real estate trading is predicted.”

Mr. Jagun noted however that the influence of the crisis on real estate would end there because, according to him, banks’ investment in real estate was limited anyway.

“The impact on the real estate financing side will not be much because banks invest more in the oil and gas, as well as the manufacturing industries; which you can even make out from the list of debtors released by the CBN,” he said.