PROPERTY ARTICLES

The somewhat quiet real estate development sector, reeling from the effects of the current global economic crisis, may be given the faintest of lifelines, albeit from an unexpected source.

Though not their most favourite investment avenue (due partly to the rather long gestation period), banks had nonetheless ventured into mortgage financing and property development in order to reap inherent benefits. However, the dawn of the worldwide financial meltdown that severely affected the banking sector signaled a reduction in the flow of funds to real estate.

But the wielding of the big stick a week ago by the Central Bank of Nigeria (CBN) on five banks wherein their managing directors and chief executive officers as well as executive directors were sacked by the apex bank may have presented a fresh lifeline.

CBN Governor, 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 CBN 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 CBN seeking an urgent settlement of the debt burden, pressure now appears to be on debtor individual and corporate bodies to pay. Last Wednesday, the debtors were given a seven-day ultimatum to pay up or risk going to jail.

A Lagos-based estate valuer, Mr. S. O. Jagun, submitted that this scenario could be the turning point to make or mar the stressed real estate sector, chiefly because asset value could fall.

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."

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.

But his professional colleague, Mr. John Adekanbi, held a rather different view, saying that the banking sector "tsunami" would further rock the already unsteady property industry.

His words, "Even before the announcement, all sectors in the real estate market (residential, commercial and industrial) were experiencing a lull in activities. As the real estate market is dependent on the financial cum banking sector through mortgage financing and property development, the emerging debt financing scenario will reduce the flow of funds and stifle the dynamics of the market."

Another valuer, Mr. Sunday Olajide, believes that the banking sector development should have limited negative impact on the real estate sector if the CBN policies and directives on the operation of Primary Mortgage Institutions (PMIs) are abided with and implemented. He said that the most prominent of the directives is that PMIs must be autonomous, adding however that unfolding events have shown that the directive is only implemented on paper.

"Most of these PMIs especially those established by the commercial banks are still being manipulated by their mother institutions. Essentially, there seems to be no clear cut between the PMIs and the original commercial bank that established them," he noted, citing the cases of Union Bank Plc and Union Homes Savings and Loans Plc, as well as Wema Bank Plc and Wema Homes.

"Another area where the current crisis rocking the banking sector might affect the real estate sector relates to a directive by the CBN that a certain percentage of the commercial bank loan must focus on real estate development. A situation where the bank meant to give loan is in debt means that it (the bank) may find it difficult to comply with such directive," Olajide added.

Speaking further on the issue, Chidi Ubosi, an estate valuer of Ubosi Eleh & Company noted that the development would dampen further the already dull real estate market. Banks he added, who had already dried up credit to the sector will even be more averse to anything real estate as long as they are trying to meet up with presenting good books to the CBN .

According to him, the solutions are far beyond the present shenanigans going on.

Ubosi pointed out, that a return of confidence to the system must be engineered by the government, adding that this includes injecting money into the system, full implementation of the budget.

A former Chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Lagos State Branch said that the shake up in the top echelon of the banks would not seriously affect the real estate sector except in sectorial dealings.

According to him since the real estate sector was not one of the major reasons why the bank chiefs were sacked it might have little or no significant effect on the sector.

Olawore pointed out, that with the development however; the tendency for funds meant for the real estate sector to be diverted for other purposes would be minimal or even eliminated because of the searchlight that would be beamed on the banking sector.

He commended the move by the Central Bank of Nigeria (CBN) Governor, Lamido Sanusi for taking the bold initiative, pointing out that the development would further make the banks more viable.

The Chairman of the Nigerian Institute of Building (NIOB) Lagos Sate Chapter, Mr.Kunle Awobodu however submitted, that over the years, developers had been relying on banks to fund most of their projects. He added that the recent development in the banking sector would impact heavily on real estate as most of the developers would not have access to funds to prosecute their projects.

According to him, there is however a ray of hope for the real estate sector if the huge debt being owed the banks was paid back. He added that if these debts were recovered, more funds would be injected into the sector and this would certainly augur well for construction provided the banks are willing to release funds for development.

Awobodu expressed optimism that the sack of the bank chiefs would bring about sanity in the banking industry. He was quick to add, that for now, there could be a drop in construction albeit temporarily but that the sector would certainly bounce back in the not too distant future.