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The Financing Gap in the Real Estate Sector

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By Nicole

Building sites all over the country are experiencing slow pace in construction.

Findings showed that work is moving slowly on building sites around the nation because developers are unable to secure financing for capital projects because of the cashless system and the dysfunctional electronic banking system. In general, the Central Bank of Nigeria’s (CBN) decision to make Naira notes scarce and to impose a redesign policy for the Naira with fewer transactions allowed through mobile banking platforms resulted in a huge economic loss of trillions of Naira in the real estate sector.

The regulation has slowed industry activity, according to analysts, who have also noticed a decline in market transactions, as evidenced by a decline in sales, leasing, and rental activity. New investors have adopted a wait-and-see approach to investing as agents observe how potential buyers and tenants are more concerned with immediate demands of life, such as food and health, as project site activity has plummeted. However, some close market observers suggested that the new policy will turn out to be a positive development or an opportunity for the sector, claiming that there will be a rush for real estate items via investment once the CBN is done cleaning up the old naira notes. They claim this is because deposit banks will have a large amount of money at their disposal to lend to borrowers and potential investors.

Developers have been given deadlines to handover projects.

Mr. Emmanuel Oyelowo, managing director of Roccio Carrillo and REDAN auditor, confirmed this, implying that the financing gap caused by the cash crunch policy had created wide margins and devastating effects on the real estate market, adding that a moratorium had been granted to developers with construction loans. He emphasized that the cash shortage has impacted loans, requiring developers to take extra time to complete projects due to a lack of funds in the system. He further noted that with the present cashless system, developers were given timelines to deliver projects for commissioning. That will slow their delivery rate, which will have far-reaching consequences for property renters.

He contended that the loans taken out by developers for the purpose of construction financing to address the housing deficit were already yielding high interest rates, and that the compounding effects would affect local investors in such a way that they would be unable to recoup their capital investment by milestones. Femi Oyedele, an estate surveyor and valuer, disagrees. He stated that the new naira policy is already having an impact on the volume and rate of sale of building supplies, and that block producers, cement, sand and gravel vendors, and craftsmen all take cash for their sales and labour.

Real estate, is a smooth channel for illicit funds.

Dotun Bamigbola, former chairman of the Nigerian Institute of Estate Surveyors and Valuers (NIESV) Lagos branch, sees little to no concern about the new naira policy and real estate because most transactions these days are done online, but he admits there is a slowdown. Several market observers expected the sector, as a capital-intensive sector and a big store of wealth and value, to provide a safe haven for investors with the old naira notes that the CBN is recalling from those who have them stored in their homes. But, according to analysts and players, the sector is not a choice for investing such old notes that are stored at home because the majority of them are the results of illegal transactions. They mentioned existing rules and regulations that are in conflict with such funds.

Kayode Adeluola, a Senior Advocate of Nigeria, also noted at a real estate event in Lagos that the Act is intended to ensure that illegal monies are not permitted to enter financial institutions or the economy, as it does not encourage criminals to continue to commit crimes wherever they may be. Adeluola stated that one of the simplest ways for illicit funds to enter the system is through real estate, adding that many people who commit crimes such as banditry, kidnapping, and drug trafficking usually do not know how to spend their illicit income, so the easiest way is to buy real estate.

MKO Balogun believes real estate does not channel illicit funds.

According to MKO Balogun, CEO of Global PFI, real estate does not serve as a safe haven for criminal funds. “It will still be traceable; what the CBN is doing is determining who is harming the economy by hoarding money,” he said. This is despite the fact that Gbenga Ismail, vice chairman of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Lagos State branch, stated that while real estate will undoubtedly be one of the investment options for those with such funds, the difficulty will be that any money received must still be processed and banked. Gbenga Olaniyan, CEO of Estate Links Ltd, said that because of the quantity of Naira involved and the difficulty in lodging, it is very difficult to accept cash for huge ticket sales, and he wondered how a seller or agency would lodge such money.

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