Declining Credit Evidences Lethargy In The Real Estate Sector

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Tuesday, September 24, 2019 / 11:04AM / By CSL Research


According to data from the Central Bank of Nigeria (CBN), Deposit Money Banks' (DMBs) credit to the real estate sector maintained a downward trend in Q2 2019, the 7th consecutive quarterly decline since Q3 2017. Total credit to the real estate sector declined 4.2% q/q and 22.9% y/y to N1.8tn in Q2 2019. The real estate sector performance has remained lacklustre since 2016 and has recorded a positive GDP growth just once in the past 15 quarters.

While several efforts and initiatives have been developed to aid recovery in the sector, a plethora of perennial systemic issues continue to inhibit the sector's recovery. One of such factors is the high mortgage rates in the country. A recent survey carried out by the CBN revealed mortgage rates across 23 banks in the country ranged between 14.0% - 36.5%. Furthermore, consumer pockets remain severely pressured which has seen consumers opt for cheaper housing alternatives with the concept of shared apartments becoming a rising phenomenon. Real estate corporates have also been hit by the doldrums in the sector - for example, UACN Property Development Company (UPDC) reported a decline of 42% in Revenue and made a Pre-tax loss of N9.2bn in FY 2018. 

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We believe the fundamental issue facing the real estate sector is demand which has worsened as a result of declining consumer income amidst high mortgage cost. Hence, we believe the weakness in the sector may not abate until there is a fundamental recovery in aggregate consumer income even as DMBs continue to reduce exposure to the sector. Nevertheless, we believe in the interim, a quick stimulus in the form of sub 10.0% easily accessible mortgage rates could spur significant demand from the upper echelon of the middle class consumers who currently opt for expensive rent payments. 


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