REAL ESTATE FINANCE

 

 REAL ESTATE FINANCE

The importance of real estate finance in any economy cannot be over stressed. It drives the provision of housing which is more than shelter, since it involves all the services and utilities that make a community a livable one. Real estate is also one of the best indicators of a person’s standard of living amid his or her status in the society. In spite of the crucial role real estate plays as a basic needs, it has remained inadequate in supply in practical all human societies’ right through history. An active and buoyant real estate sector is an indication of a strong programme of national development. It serves a foundation for and the first step to the future economic growth and social development. The housing sector plays a more critical role in a country’s welfare than is always recognized as it affects not only the wellbeing of the citizens but also the performance of the sectors in the economy.

 

Real estate finance by its very nature is a capital intensive venture which if it is to be financed through personal financial resources will require slow and tedious accumulation of savings. However, since housing provides benefits over many years, long-term credit financing is a more logical option as it will spread the repayment burden. But this requires the availability of long-term funding, and for which must be institutional capacity, structure and mechanism that will allow a convenient and effective linkage between the savers/investors and the consumers of such funds. Without an effective finance system, no housing policy can be effectively implemented. A financing framework which facilitates financial intermediation for real estate finance consists of institutions as well as their relationship and the processes involved. Indeed the framework must effectively reconcile the affordability limitation of real estate sector with viability requirement of financial institutions.

 

In Nigeria, real estate is typically financed through a number of institutional sources: Budgetary appropriations, Commercial/Merchant Banks, Insurance Companies, State Housing Corporations and the Federal Mortgage Bank of Nigeria (FMBN): and now the newly established Mortgage Institutions all these constitute the formal institutions. Informal institutions such as thrift and credit societies, and money lenders who have contributed and are still contributing substantially to the finance of housing construction also persists.

 

The Nigerian banking industry made up essentially of commercial and investment banks remain a veritable source of real estate financing. Although they operate at the short end of the market resulting from their sources of deposits, which are short-tenured, they still foster funds that are accessible through equity participation, venture capital activities and loans and advances.

 

Commercial banks through their intermediation role are meant to provide financial succor to the real estate developers. For the real estate developers to perform their role in the economy, they need adequate funds in terms of short and long term loans (Olachosim, Onwuchekwa & Ifeanyi, 2013). It is pertinent to know that financing strength is the main determinant of real estate sector growth in developing countries. There is no gainsaying that finance would boost the performance of real estate sector if adequately and optimally utilized. The financial systems in every country play a key role in the development and growth of the economy, although the ability to play this role effectively largely depends on the degree of development of the financial system. The traditional commercial banks which are key players in the financial systems of nearly every economy, have the potential to pull financial resources together to meet the credit needs of the real estate financing.