Banks shun real estate as lending rates near 36%
Nigerian banks are pulling back from extending credit to the housing sector leading to a gradual rise in landing rates for real estate and construction.
“Local real estate and construction lending rates are hitting new highs of up to 36 percent,” says Munach Okoye, CEO, MCORE, in their third quarter report on the real estate sector.
According to him, these high lending rates speak to the banks’ unwillingness to lend to the sector based on their perception of risk compared to the high yields available from risk-free treasury bills.
“This is also a reflection of the high percentage of non-performing loans (NPLs) within the banking system that have left the banks with considerable quantities of property that were used as collateral to secure a lot of the historical borrowing that took place prior to the recession,” Okoye said.
Okoye says banks are now seeking to off-load these distressed assets which will worsen the situation in a market struggling with falling prices and rising number of empty properties.
In the commercial office space market, the new prime Ikoyi and Victoria Island space commands rent as high as $750 p sqm, but rents for Class B space formerly classified as A space have fallen from a high of up to $900 per square metres a couple of years ago to as low of $450 p sqm in order to remain competitive, representing about 50 percent drop in rental values.
David Mbah, Sales Consultant at Fine and Country, recalls that “in 2015, the asking rent at the big shopping malls was between $900 and $1,200 per square metre; in 2016, it dropped to between $700 and $800 per square metre; now, it is as low as $600-$750 per square metre,” predicting that this may go down further as more spaces may be coming to the market in the short term.
The retail sector is not spared as asking rents have also dropped significantly.
Besides the big malls which have seen upwards of 40 percent vacancy rates, Apapa Mall, Circle Mall and Silverbird Mall have also taken a hit with vacancy rates at 35 percent, 27 percent and 31 percent respectively.
But The Palms has continued its 0 percent vacancy streak with a client-friendly pricing. It has also welcomed global clothiers, Tommy Hilfiger, which has given shoppers more variety.
Okoye noted that demand for prime land did not change in the third quarter of the year, pointing out that prices have remained stable over the last year, showing a growth rate of only one per cent in both Naira and USD terms.
At the moment, prime land average sales prices in Eko Atlantic City is N524,000 / $1,700 per square metre, Banana Island, N385,000 / $1,261 per square metre, Victoria Island, N380,000 / $1,250 per square metre, Ikoyi, N369,000 / $1,210 per square metre, Lekki Phase 1, N195,000/ $640 per square metre, and Oniru, N168,000 / $550 per square metre.
Eko Atlantic remains the most expensive of the locations with a 37 per cent premium above neighbouring Victoria Island.
“Many properties remain unoccupied and vacancy factor has gone up 4.7 percent to 174 in the third quarter of this year, up from 172 in Q2’17,”said Bismarck Rewane, CEO, Financial Derivatives Company in his monthly economic review.
Vacancy factor index (VFIX) is an indicator of the state of the real estate markets in the upper class neighbourhoods such as Lekki, Victoria Island and Ikoyi in Lagos which are close to the central business districts (CBD) or downtown areas of the metropolis. VFIX is used to show the rate of increase in the number of vacant properties based on the housing stock in a given area.
Though Rewane expects demand for prime properties to pick up as inflation gradually declines, and also expects a significant turnaround in the market at the end of the first quarter of 2018, the developers still have the challenge of declining lending to the construction and real estate sector.
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