Wednesday, July 23, 2008
Shape Of Real Estate in Post-Capitalization Era
Source
ThisDayOnline
By the end the deadline set by the Central Bank Of Nigeria (CBN) for all commercial banks to capitalize to the tune of N25 billion, would have expired. While many have already done it, some banks are scurrying to the public issuing houses, and some are still waiting on the wings to do so. Some have gone a step further to consolidate through mergers with other banks to evolve into one mega banking empire. The big healthy ones are seeking to acquire some smaller not-so-healthy ones. UBA and Standard Trust Bank Plc have taken the merger craze to an unprecedented height, evolving into the biggest bank on the West Africa Coast, and knowing Mr. Tony Elumelu, for the stuff he is made of, the consolidation will not end there, until he is sure that he is presiding over the largest bank in Africa.
To play down the importance of a nationís banking system is to belittle the countryís economic well being. It is to ignore that countryís economic growth and development. The Banks are the engine room of a countryís economic activities. What they do or what they do not do will impact heavily on the countryís economic well being. They can stimulate growth and development or retard them if not well directed. The activities of banks touch on every aspect of human endeavor in a countryís economy whether manufacturing, real estate, export and import and the whole gamut of economic activities that determine a countryís status in the country of nations. For example, for those countries that make up the G8, their banking system has fully developed while for Nigeria and other developing countries, the system is still in process of transition. All said and done, the consolidation in the sector will be the best and most revolutionary economic step ever taken in our country and has the capacity to jump-start our long awaited march to the promise land of development.
Where does it leave real estate? Like other sectors that make up the countryís economy, real estate will be largely affected and by the end of the day, things will not be the same anymore Opinions are sharply divided as far as the North and South poles, even among the best informed and a knowledgeable minds in real estate. That is to say that real estate gurus do not exactly agree with another as to the shape real estate will assume in the post-capitalization era. Some posit that real estate will remain the same because banks are not likely to commit more of their shored up ñ funds in the area of real estate development. Another school of thought holds rather a cautious opinion that there would be a change but it would not be significant because there are other issues outside finance (the Land Use Act for example) that determine the pendulum of real estate development. But a more radical group exuding a somewhat visionary disposition are hell- bent on the postulation that there will be revolution in the real estate sector anchored on the premise of the change in the banking sector.
Each of this opinions is right in its own way, at least it is better than sitting on the fence of indecision. Some movement has to be made somehow. What is significant to note is that real estate has always fared best in a dispensation of high tempo activities. It abhors depression. It is tempting for this writer to take side with the third opinion that the bank capitalization will impinge heavily on real estate. Therefore, whether directly or indirectly, real estate is not likely to be the same again. Directly in the sense that the banks now put their funds into real estate and indirectly in the sense that the sector would be positively affected by the growth in the other sectors.
For real estate to thrive, there has to be supply and commensurate demand of properties. Real estate suffocated in the late eighties up to the early nineties because the two indices were starkly absent. There was severe depression in the economy with scarcity of funds attracting very high interest rates and purchasing power whittled down considerably. No real estate developer could survive in this dispensation, and hence the lull in real estate.
The resurgence in real estate by the mid nineties before the present civilian dispensation owed largely to the profiliferation in the banking sector. There was some growth in that sector even though there was so much ìwindow dressingî as was well evident in the mass distress that set in soon after. It was one real estate era of reckless spending that had many realtors smiling to the banks. As a young estate surveyor in a thriving estate firm, this writer managed a portfolio of luxury apartments with rents stacked to high heavens then, as much as N1.5-2 million per 3 bedroom flat per annum payable for several years. Most of the tenants in the apartments then were bankers, because apart from oil company workers and a few other categories of workers, they had the financial capacity to pay for such expensive apartments.
Following the return of civilian rule in 1999, up to the present, there has been an upsurge in real estate activities. These ventures were demand-driven because with the country shredding itís ìpariahî status, many foreigners came into the country to work in communication sector, oil industry as well as banking. With the influx, the smart realtors initiated many projects to service the needs of the immigrants.
However the major problem of this era has been that of demand not meeting the supply. Construction costs remain very high and the developer who thought he could quickly recover as soon as he is able to complete this array of houses had a shock waiting for him: he could not sell his high priced houses because of the purchasing power of his perceived target market. The result is that there has been a glut of premium property in the market, against a background of large unmet demand for the low-income category in many city centers.
These are the changes the writer looks forward to in the post-capitalization era. With more funds, the bank should promote and stimulate more economic activities in the various sector of the economy. When this happens, prosperity is on the rise or as the Pentecostal pastor would succinctly put it ìThe people are blessedî. There will be many financial breakthroughs that the purchasing power for real estate commodity (as much as for others) will be heavily shored up. More people will build or change rented accommodation. This will create demand for the surplus supply in the real estate market of today. Secondly, with more funds many banks are going to be better disposed to giving mortgage facility-an issue that has been on the front burner for so long, especially now that the Federal Mortgage Bank of Nigeria (FMBN) is beginning to put its acts together. Interest rate are going to drop definitely because we are going to witness an era when banks will be chasing would-be entrepreneurs to present proposals for them to fund. Loans will be readily available for real estates initiatives and many banks will enlarge their real estate portfolios while some others may just give it a try. Anyhow, it is an era when many would have their housing dreams come true.
ThisDayOnline
By the end the deadline set by the Central Bank Of Nigeria (CBN) for all commercial banks to capitalize to the tune of N25 billion, would have expired. While many have already done it, some banks are scurrying to the public issuing houses, and some are still waiting on the wings to do so. Some have gone a step further to consolidate through mergers with other banks to evolve into one mega banking empire. The big healthy ones are seeking to acquire some smaller not-so-healthy ones. UBA and Standard Trust Bank Plc have taken the merger craze to an unprecedented height, evolving into the biggest bank on the West Africa Coast, and knowing Mr. Tony Elumelu, for the stuff he is made of, the consolidation will not end there, until he is sure that he is presiding over the largest bank in Africa.
To play down the importance of a nationís banking system is to belittle the countryís economic well being. It is to ignore that countryís economic growth and development. The Banks are the engine room of a countryís economic activities. What they do or what they do not do will impact heavily on the countryís economic well being. They can stimulate growth and development or retard them if not well directed. The activities of banks touch on every aspect of human endeavor in a countryís economy whether manufacturing, real estate, export and import and the whole gamut of economic activities that determine a countryís status in the country of nations. For example, for those countries that make up the G8, their banking system has fully developed while for Nigeria and other developing countries, the system is still in process of transition. All said and done, the consolidation in the sector will be the best and most revolutionary economic step ever taken in our country and has the capacity to jump-start our long awaited march to the promise land of development.
Where does it leave real estate? Like other sectors that make up the countryís economy, real estate will be largely affected and by the end of the day, things will not be the same anymore Opinions are sharply divided as far as the North and South poles, even among the best informed and a knowledgeable minds in real estate. That is to say that real estate gurus do not exactly agree with another as to the shape real estate will assume in the post-capitalization era. Some posit that real estate will remain the same because banks are not likely to commit more of their shored up ñ funds in the area of real estate development. Another school of thought holds rather a cautious opinion that there would be a change but it would not be significant because there are other issues outside finance (the Land Use Act for example) that determine the pendulum of real estate development. But a more radical group exuding a somewhat visionary disposition are hell- bent on the postulation that there will be revolution in the real estate sector anchored on the premise of the change in the banking sector.
Each of this opinions is right in its own way, at least it is better than sitting on the fence of indecision. Some movement has to be made somehow. What is significant to note is that real estate has always fared best in a dispensation of high tempo activities. It abhors depression. It is tempting for this writer to take side with the third opinion that the bank capitalization will impinge heavily on real estate. Therefore, whether directly or indirectly, real estate is not likely to be the same again. Directly in the sense that the banks now put their funds into real estate and indirectly in the sense that the sector would be positively affected by the growth in the other sectors.
For real estate to thrive, there has to be supply and commensurate demand of properties. Real estate suffocated in the late eighties up to the early nineties because the two indices were starkly absent. There was severe depression in the economy with scarcity of funds attracting very high interest rates and purchasing power whittled down considerably. No real estate developer could survive in this dispensation, and hence the lull in real estate.
The resurgence in real estate by the mid nineties before the present civilian dispensation owed largely to the profiliferation in the banking sector. There was some growth in that sector even though there was so much ìwindow dressingî as was well evident in the mass distress that set in soon after. It was one real estate era of reckless spending that had many realtors smiling to the banks. As a young estate surveyor in a thriving estate firm, this writer managed a portfolio of luxury apartments with rents stacked to high heavens then, as much as N1.5-2 million per 3 bedroom flat per annum payable for several years. Most of the tenants in the apartments then were bankers, because apart from oil company workers and a few other categories of workers, they had the financial capacity to pay for such expensive apartments.
Following the return of civilian rule in 1999, up to the present, there has been an upsurge in real estate activities. These ventures were demand-driven because with the country shredding itís ìpariahî status, many foreigners came into the country to work in communication sector, oil industry as well as banking. With the influx, the smart realtors initiated many projects to service the needs of the immigrants.
However the major problem of this era has been that of demand not meeting the supply. Construction costs remain very high and the developer who thought he could quickly recover as soon as he is able to complete this array of houses had a shock waiting for him: he could not sell his high priced houses because of the purchasing power of his perceived target market. The result is that there has been a glut of premium property in the market, against a background of large unmet demand for the low-income category in many city centers.
These are the changes the writer looks forward to in the post-capitalization era. With more funds, the bank should promote and stimulate more economic activities in the various sector of the economy. When this happens, prosperity is on the rise or as the Pentecostal pastor would succinctly put it ìThe people are blessedî. There will be many financial breakthroughs that the purchasing power for real estate commodity (as much as for others) will be heavily shored up. More people will build or change rented accommodation. This will create demand for the surplus supply in the real estate market of today. Secondly, with more funds many banks are going to be better disposed to giving mortgage facility-an issue that has been on the front burner for so long, especially now that the Federal Mortgage Bank of Nigeria (FMBN) is beginning to put its acts together. Interest rate are going to drop definitely because we are going to witness an era when banks will be chasing would-be entrepreneurs to present proposals for them to fund. Loans will be readily available for real estates initiatives and many banks will enlarge their real estate portfolios while some others may just give it a try. Anyhow, it is an era when many would have their housing dreams come true.
# posted by Omion Emmanuel @ 6:49 PM 
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