N226bn real estate bad loans, source of worry to experts
Some experts have lamented the increasing non-performing loans in the real estate and construction industry.
The Nigerian Bureau of Statistics in its latest report on selected banking sectors disclosed that non-performing loans from banks to the real estate and construction sectors were in excess of N226bn.
The report showed that the year-on-year change in non-performing loans in real estate for Q4 of 2019 and Q4 of 2020 went from N49.65bn to N56.03bn, a 12.87 per cent increase.
The construction sector also experienced an upward trend in non-performing loans for the corresponding period, going from N86.4bn to N170.59bn, reflecting a 97 per cent increase.
Reacting to this, Chinedu Onubogu, an analyst at Argentil Capital Partners, an investment advisor active in the real estate sector, said while the overall outlook on non-performing loans in real estate and construction for Q4 2020 was not great, it was best to look at the numbers more broadly.
“The year 2020 was unusual with many sectors affected by the pandemic. If you look at the data for real estate, for example, you will see that compared with the total of N1.2tn for non-performing loans across all sectors, it is just about 4.5 per cent which is quite low as against the oil and gas sector where banks tend to lend more money to.
“The uptick in the real estate’s share of NPLs can be attributed to COVID-19 vis-à-vis the accompanying inflation and devaluation pressures which adversely impacted demand and supply.
“As with other sectors, real estate is underpinned by economic fundamentals and there is need for increased policy efforts aimed at reducing the cost of development while enabling reduced cost of financing as well as access to mortgage for customers.”
He said, “As a result of the pandemic, the industry could not function effectively. This affected output. Note that for returns to be made to enable one service a loan facility, service has to be rendered to generate the income needed to service such facilities.
“The prevailing inflation has played a major role in this challenge as most calculations and projections made as at the time these loans were procured have dipped in relation to current rates.”
He added that contractors were struggling to meet up with costs and deliver on contract terms while facing the ugly reality of zero profit.
The Senate in a recent resolution called on the Federal Government to address the rising cost of building materials by providing industrial and tax incentives and to encourage local investment in cement production in Nigeria