Real Estate: Declining Credit in Nigeria Reflects Underlying Weakness

As per the information available and data published by the National Bureau of Statistics, commercial banks' credit to the real estate sector dropped by 17% y/y to N588.7bn in Q3 2019 from N710.2bn in Q3 2018. The data also revealed that the real estate share of banking sector credit fell to 3.62% in Q3 2019 from 4.56% in Q3 2018.


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We accept as true with the decline in the credit channeled to the real property quarter is reflective of the underlying weakness inside the sector- for the reason that economy witnessed recession in 2016, the performance of the real property region has been uninspiring with the world recording just one tremendous growth (0.93% in Q1 2019) during the last 15 quarters (Q1 2016-Q3 2019).

In our opinion, the leader contributor to the lacklustre performance in the quarter is weak disposable earnings among purchasers which has persisted to undermine the demand for housing. The effect of this is evident inside the growing quantity of unoccupied houses in high-brow locations throughout the country in particular in Lagos and Abuja. Consequently, the attendant discount in apartment income would imply that actual property builders might be unable to recoup their investment, for this reason the relcuctance of banks to extend credit for property development. On the other hand, the high cost of acquiring mortgage financing has also been a main deterrent to center earnings earners, majority of whom now choose rented apartments.


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Looking ahead, we believe industrial banks will preserve to restriction their exposure to the actual property quarter thinking about the bottlenecks hindering the arena's overall performance.


That said, we believe the discount in the cost of credit precipitated by using CBN's regulatory actions may also spur considerable call for from the higher echelon of the middle class purchasers who currently choose highly-priced condo payments.