PERCEPTION OF REAL ESTATE INVESTORS’ ON THE LENDING REQUIREMENTS OF FINANCIAL INSTITUTIONS
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PERCEPTION OF REAL ESTATE INVESTORS’ ON THE LENDING REQUIREMENTS OF FINANCIAL INSTITUTIONS
CHAPITRE ONE
INTRODUCTION
1.2 BACKGROUND OF THE STUDY
An investment in real estate development necessitates a large sum of money, often reaching six (6) figures; as a result, only a small number of people can make this type of investment.
This financial inadequacy naturally drives investors to financial institutions in search of feasible credit advances. According to Mbanefo (2002), the importance of banks in our economy stems from their monopoly on resources for providing loans for industrial and commercial development.
The supply of this loan, however, includes the danger of repayment default, necessitating the use of substantial, dependable, and appropriate security to insulate the default risk connected with credit operations in banks. According to the CBN (1995), only 57 kobo (57%) of every N1.00 loan provided by Nigerian banks could be realised.
Lending on a short, medium, or long-term basis is one of the services provided by commercial banks to its customers. In other words, banks make loans and advances to individuals, businesses, and governments in order to enable them to engage in investment
and development activities that will aid their growth in particular or contribute to the overall economic development of a country. Commercial banks are the most essential entities for saving, mobilising, and allocating financial resources.
As a result of these responsibilities, they are a key phenomenon in economic growth and development. In order to fulfil this duty, banks must recognise their own capacity, scope, and prospects for mobilising financial resources and allocating them to productive initiatives.
As a result, regardless of the sources of income or the country’s economic policies, commercial banks would be interested in making loans and advances to their numerous customers while keeping in mind the three principles guiding their operations,
which are profitability, liquidity, and solvency. However, commercial banks’ lending decisions are influenced by a variety of factors, including the current interest rate, the amount of deposits, the degree of domestic and foreign investment, the banks’ liquidity ratio, prestige, and public recognition, to name a few.
While researching factors that affect interest rates, lending volume, and collateral setting in bank loan decisions, Chodechai (2004) states: “Banks must be cautious with their lending pricing decisions because the revenue from interest income will not be enough to cover the cost of deposits,
general expenses, and the loss of revenue from some borrowers who do not pay.” Furthermore, charging excessively high loan rates may result in an adverse selection situation and moral hazard issues for borrowers.”
As a result, it is difficult for real estate investors to obtain a loan from a commercial bank or a mortgage institution to finance their development. According to Agbola (1986), the acquisition of necessary finance is a sine qua non to the acquisition of adequate housing, and the most likely source available to investors is mortgage financing.
This study aims to assess real estate investors’ perceptions of commercial banks and mortgage institutions’ lending requirements in Abuja.
1.2 STATEMENT OF THE PROBLEM
The large cash required to kickstart most real estate development, combined with the high interest rates used by commercial banks as lending criteria, tends to catch most real estate investors off guard.
According to Chodechai (2004), “banks’ lending decisions are also influenced by the past relationship with the borrowers.” According to him, past relationships can assist banks in obtaining more private information, resulting in a more accurate picture of the borrower’s business and financial status.
In recent times, the load needed by financial institutions has been a major source of restraints in real estate development, since the rate of inflation has a direct impact on interest rates.
However, there are various challenges that have been faced by both parties involved in this research work, that is, the financial institutions involved in real estate financing and the real estate investors
as the real estate investors rely on the financial institutions for funds and most of them find it difficult to meet the requirements that are used by this financial institutions.
1.5 JUSTIFICATION OF THE STUDY
Regarding this research work, which would assess real estate investors’ perceptions of lending requirements used by commercial banks and mortgage institutions,
this research would specifically analyse the various lending requirements used by the aforementioned financial institutions and determine how they affect real estate investors. Real estate investors can considerably boost the rate of return on their invested equity by using financial leverage.
This predicted return magnifies the incentive for investors to borrow money even if they have enough money to pay cash for the property.
1.6 PURPOSE AND OBJECTIVES
The purpose of this study is to APPRAISE REAL ESTATE INVESTORS’ PERCEPTION OF FINANCIAL INSTITUTIONS’ LENDING REQUIREMENTS IN ABUJA, NIGERIA.
OBJECTIVES
To ascertain financial organisations’ lending requirements.
To investigate real estate investors’ perspectives on meeting financial institutions’ lending standards.
Identify and offer potential solutions to challenges encountered by real estate investors when obtaining loans from banking institutions.
1.5 RESEARCH QUESTIONS
What are financial organisations’ lending requirements?
What are the perspectives of real estate investors on meeting financial institutions’ lending requirements?
3.What are the difficulties that real estate investors face when obtaining loans from financial institutions?
1.7 SCOPE OF THE STUDY
The scope of this activity would be limited to the Abuja metropolitan area, with a concentration on real estate investors in the Garki District, Wuse District, and Central Area. These areas were chosen due to the significant concentration of business activities and the presence of banks in these areas.
The lending requirements utilised by commercial banks and mortgage institutions, as well as the perception of real estate investors, will be the focus of attention. This study would span the years 2007 to 2011.
1.7 SIGNIFICANCE OF THE STUDY
Because it examines the lending requirements used by commercial banks and mortgage institutions, this study will be useful to both financial institutions involved in real estate finance and real estate developers.
This research will also assist real estate investors in determining the best source of funds for funding their real estate investments, as well as financial institutions in monitoring their lending activities.
1.8 LIMITATIONS OF THE STUDY
Some obstacles were faced during the study, which include the following.
1. Insufficient data from the specified financial institutions
2. Difficulties in gaining access to real estate investors financed by the chosen banking institutions
1.9 THE STUDY SPACE
Nigeria’s capital city is Abuja. It is located in the Federal Capital Territory (FCT) of Nigeria, in the centre of the country. Abuja is a planned metropolis that was primarily constructed in the 1980s. It was designated as Nigeria’s capital on December 12, 1991, displacing Lagos, the country’s most populated metropolis.
According to the 2006 census, the city of Abuja has a population of 776,298 people, making it one of Nigeria’s top ten most populous cities. However, Abuja has seen a massive influx of people, resulting in the emergence of satellite towns such as Karu Urban Area,
Suleja Urban Area, Gwagwalada, Lugbe, Kuje, and smaller settlements to which the planned city is sprawling. The unofficial metropolitan area of Abuja now numbers well over three million people.
According to Dermographia, the population of Abuja’s urban area in 2012 was 2,245,000, making it the fourth largest in Nigeria, trailing only Lagos, Kano, and Ibadan, while PortHarcourt’s urban area, which is expected to be nearly 2,000,000, is the fifth most populous in Nigeria.
1.9.1 AREA GEOGRAPHICAL DESCRIPTION
Abuja has a land size of 8,000 square kilometres and is located in the centre of Nigeria. It is bordered by Kaduna state on the north, Niger state on the west, Nasarawa state on the east and south-east, and Kogi state on the south-west. It is located between latitudes 7 45′ and 7 39′.
Abuja has a lovely feature that stems from its centre location: it shares the savannah grass with the north. As a result, Abuja has rich agricultural land and enjoys an equable temperature that is neither too hot nor too cold all year round.
Throughout the year, the FCT is subjected to two types of weather. These are the rainy season, which begins in March and lasts until October, and the dry season, which begins in October and lasts until March.
There is a brief period of harmattan caused by the north east trade wind, with a dusty haze and acute chill and dryness as a result. Nonetheless, the FCT’s high altitude and undulating terrain function as a moderating impact, ensuring that the weather is usually pleasant.
1.9.2 THE STUDY AREA’S HISTORICAL DEVELOPMENT
The current Suleja was formerly known as Abuja, a thinly populated town with a population of approximately 500,000 people; it was essentially rural with little or no infrastructure until the passage of Decree No. 6 in 1976.
Prior to the 1976 Decree, a committee (dubbed “The Aguda Panel”) was tasked with touring the country in search of a suitable location for the New Federal Capital, having two primary criteria in mind:
a sparsely populated region that is centrally placed. And because the territory now known as Abuja satisfied these criteria, it was chosen as the preferred location for the New Federal Capital.
Acceptance of the committee’s report resulted in the enactment of Decree No. 6, 1976, the Federal Capital Territory Act, which served as the plan for the relocation of the new Federal Capital from Lagos to Abuja. The town formerly known as Abuja was renamed Suleja, while the name “Abuja” was saved for the future capital.
To achieve the goal of transforming Abuja, the new Capital City, into a work of art on the African continent, the Federal Government established the Federal Capital Development Authority (FCDA) as the sole agency tasked with planning, designing, and developing the city.
1.9.3 MANAGEMENT STRUCTURE
Administratively, Abuja municipal, kuje, kwali, bwari, Abaji, and gwagwalada are the six area councils of the Federal Capital Territory. Each area council is run as a local government, under the general supervision of the FCT minister.
Since 1992, when the federal government formally relocated to Abuja from Lagos, the Federal Capital Development Authority (FCDA) has been in charge of Abuja’s infrastructure planning and development.
It controls, among other things, the numerous development and maintenance units. The development has been so rapid that the civil services personnel has had to increase its manpower to satisfy the demand for homes,
offices, and infrastructural development. The numerous ethnic groups in the territory that is now the FCT were administered as autonomous kingdoms in their respective places during the precolonial period.
This kingdom had a wide range of interethnic, political, and economic ties. External influences like as slavery, jihad, and colonial administration altered the form and organisation of indigenous government. With the arrival of the colonial government, administrative chiefs for the various units were established.
Under this system, known colloquially as the Native Authority (NA) system, emirates were founded, with emirs and chiefs serving as heads of the numerous administration divisions designated as emirates. These entities were later subdivided into districts, which were led by district chiefs.
1.9.4 ABUJA’S ECONOMIC BASE
Abuja has a GDP of $ 5.01 billion and a GDP per capita of $ 3,649 in 2007 (estimate), making it one of the most prosperous cities in Nigeria. However, the federal capital city economy is now dominated by the public sector and government patronage, and the federal capital territory has attracted significant companies ranging from worldwide firms to individual service providers.
1.9.5 LOCATIONAL FEATURES
Abuja is located near the confluence of the Niger and Benue rivers. It is bounded on the west and north by Niger, on the northeast by Kaduna, on the east and south by Nassarawa, and on the southwest by Kogi. Abuja is geographically located in the country’s centre,
between latitude 8.25 and 9.20 north of the equator and longitude 6.25 and 7.35 east of the Greenwich meridian. It is located in the savannah region and has a moderate climate.
Figure 1.1: A map of Nigeria depicting FCT.
2012, Federal Capital Development Authority (FCDA).
Figure 1.2: FCT map depicting Abuja
2012, Federal Capital Development Authority (FCDA).
Figure 1.3: Abuja map depicting the research area’s Central Area District, Garki District, and Wuse District.
2012, Federal Capital Development Authority (FCDA).
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