EXAMINING AND APPRAISING THE BOTTLENECKS FACING REAL ESTATE PUBLIC INFRASTRUCTURE FINANCING IN NIGERIA

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Abstract

Real estate and utilities constitute an integral part of a modern city.in Nigeria it is vain saying that real estate sector has been underutilized over the year notwithstanding the chunk of money that the federal, state and organization have sunk in in the sector This research examines and appraise the bottleneck facing real estate public infrastructure in Nigeria. The availability of public infrastructure does not only add value to the estate settlement but it also increases the economic activity within the settlement there contributing to the economic development of the state. Generally, infrastructural utilities include such goods and services as the provision of potable water, electricity, sewage, telephone, gas and roads. The provision of these utilities is not without cost and this cost is usually included in or forms part of the cost of housing. Many developing countries, particularly in Nigeria, accord relatively low priority to housing in their overall scheme of national development, and the volume of construction generally falls short of housing demands. The approach to housing policy in Nigeria has tended to oscillate between the welfare mixed economy and the free market model.

CHAPTER ONE

 INTRODUCTION

1.1 Background of the study

The major issue in real estate development and investment is finance. There is no iota of doubt that funding is an important factor in real estate development and investment. The complexity and to a large extent, its capital intensive nature demands proper and adequate funding to make it realizable. The terms and availability of the needed funds determine the trend of estate operation. Availability and easy accessibility of estate finance in sufficient quantity will definitely accelerate all forms of property development. Estate financing is concerned with the production of finance for building houses and office complexes which are basic necessities in a growing economy like Nigeria. Real estate and activities of private developers (REDAN) are essentials elements of economic development, economic growth and capital formation. Real estate has several bottlenecks that inhibit the growth of the sector ranging from finance, government policies, public private partnership and involvement of organizations, individuals and non-governmental organizations (NGOs) in the development of real estate which encompasses housing, parks, bridges road and other recreational facilities  financing is all-important to successful property investment and development. Various forms of finance on varying terms from diverse investing agencies are available to the property market. The principal field where various forms of investment finance are employed is that of development where every loan has to be specially tailored for an individual scheme and the particular stages within the scheme. Since property development in particular involves huge capital expenditure, finance is therefore an essential input, the nature of which is to provide capital to enable the enterprise operate commercially. The cost and availability of finance for real estate development can influence the viability of such project. in spite of the importance of development finance in property development, there is dearth of information on the amount of funding that takes place, by whom, or the method used. Though this is not unexpected given the general characteristics of development funding: there is no central agency or institution to co-ordinate the business of property funding. The availability of adequate housing infrastructure on ground will dissuade the developers‟ pressures to the constraint in housing development. Thus, it is assertive that there is inadequacy in housing to cope with the ever-increasing population in Nigeria (Arayela, 2003). The causes of this dearth in housing are numerous. High construction cost is found to be present in all countries, albeit in varying degrees of significance (Adedeji, 2007). In Nigeria, the problems of the previous government-provider policies were lack of political will, institutionalized policy and continuity, politicization of the programs, political corruption, poor funding and inadequacy of mortgage institutions, poor socio-economic structures, among others have contributed immensely to the failures (Aribigbola, 2008; Awotona, 200; Ikejiofor, 2009; Ndubueze, 2009). The failure of provider approach prompted the government to adopt a change in its NHP beginning from the NHP 1991, 1997 and 2012. The current policies embrace the private sector as the vehicle to address the severe shortages of houses in the country. While the government position itself as enabler and facilitator in the housing delivery in the country. The limited success achieved so far in housing the Nigerian people through these methods is reflected in a 2005 socioeconomic household survey. The survey (Nubi 2008) showed that 31% of Nigerians are owner occupiers and 19.2% are squatters. It also showed that 24.1% pay subsidized rent and therefore 43.3% cannot afford a home. Only 26% can afford to pay rent for their homes. This failure has led to the introduction of the private sector as an alternative route for the provision of housing for all categories of people. Implicit in this approach is the government’s assumption that the private sector is willing and ready to provide such funds and that mortgage finance is the most suitable route of housing finance for all income classes. The pooled effect of high population upsurge and urbanization in a declining economy has thrown Nigeria into serious housing problems. Ironically, the low-income groups who constitute the majority in the Nigerian society are the most affected by the finance menace. The problems of housing shortage grow worse by the day in many developing nations including Nigeria. Conceivably, a major trait of housing crisis notable in urban centers in most developing nations is that of inadequate supply relative to demand (Olotuah, 2000). Despite the housing situation in western states, residents make out ways to survive like in most cities of the world where residents are plagued by inadequate housing. Furthermore, private developers (REDAN) as a compassionate housing providers performance need to be compare whether they are performing to the much expectation of residents in their need of housing supply.  According to Omuojine (2001) the major reasons militating against real estate development and by extension housing the poor in Nigeria are low income capacity, access to credit, land tenure system, high cost of building, low employment capacity of the economy and lack of a National Housing Policy. Badiru (2003) however opined that whereas availability of adequate finance in the private and public sectors of any economy is the hallmark of a meaningful, efficient and productive property development, more often than not it happens that funds for prompt property development are not readily available. He asserts further that factors like limited size of individual incomes especially in the third world countries, banks’ paltry rates of interest on savings, inflation and government fiscal policies which are sometimes unfavourable for easy access to loanable funds from the financial institutions hinders access to finance for real estate development. Bichi ( 1998) was however of the view that “unaffordable levels of interest rates on housing loans and shortage of long term finance as the main constraints to housing delivery and the promotion of home-ownership.” He asserted further that “much of the housing finance problems experienced are an unequivocal expression of cumulative distortions from policy weaknesses in the past. Whilst a plethora of problems have been identified as constraining development of real estate in Nigeria, there seem to be an unequivocal and unanimous acceptance of inability to access credit/inadequate finance as the problem that portends a more profound impact on the development of real estate in Nigeria. In Nigeria, not until early ’90s did studies begin pointing to finance as a more serious constraint than land to housing delivery Koleoso (2000). It is instructive to observe that the National Housing Policy of 1990 identified finance as one of the pillars of housing delivery. Omirin (2007) however assert that “prior to that time researchers had always concluded that once the problem of land is put to rest, houses should be delivered”. The acknowledgement of finance as a critical variable that affects real estate development as enunciated in the National Housing Policy of 1990 led to the promulgation of the National Housing Fund (NHF) Decree. Fortune (2002) however asserts that the National Housing Policy of 1991 is a socialist approach to solving the housing problem in a capitalist economy and cannot work”.

EXAMINING AND APPRAISING THE BOTTLENECKS FACING REAL ESTATE PUBLIC INFRASTRUCTURE FINANCING IN NIGERIA