As the global economic crisis persists, different countries of the
world have devised measures for responding to its impact on real estate.
CHUKA UROKO writes that top of these measures are cuts in interest
rates on mortgage lending and housing loans.
Developed economies like United States, United Kingdom, United Arab
Emirate and even South Africa– countries where property market had
experienced a boom before the crisis-are at the forefront of nations
have adopted friendly measures in the bid to stave off the effect of the
global financial crisis on mortgages and housing loans.
Nigeria has not shown any serious commitment in this direction, though
that is understandable given that the country is yet to develop a
functional mortgage system.
UK banks now provide cheap funds for loan seekers. In October last year,
the country had its lending rate at 4 percent. Right now, it is as low
as 0.5 percent. When it was 4 percent, most banks were lending at 4.75
percent. What this means is that the cost of funds is cheap, making it
attractive for people to borrow to buy or build homes.
An international real estate investor and consultant, Gbenga Olaniyan,
who disclosed this in an interview with Business Day in Lagos, stated
that UK banks were trying to normalize things to enable them give out
these mortgages, adding, “it is expected that by the end of this year,
the effect of this move must be felt; with the cheap loan, what it means
is that more people will be able to afford to buy”.
This move has not only affected the new entrants in the real estate
market. People who have mortgages, especially those who didn’t negotiate
fixed interest rates while taking mortgages, will see their monthly
payments drop, say from 800,000 pounds to 500,000 pounds.
This means that a man whose house would have been repossessed and had
that same house put in the market at a reduced price can now afford to
hold unto his property. The property will no longer go into the market
and cause mayhem, thereby reducing foreclosures because people can now
afford their mortgages and keep their homes.
Olaniyan says that for new buyers, the cost of buying will be done
through mortgage, adding that people who would ordinarily have rented,
would rather buy now.
According to him, “it is expected that the UK market is getting to the
bottom and so, by the end of this year, that market will bounce back and
the effect will be felt”.
South Africa has also cut its lending rate but unlike UK, interest rate
in the country was not cut heavily. It was cut by just one percent from
12 percent to 11 percent. Whatever the case, at the end of the day, you
find that it has made mortgages cheaper and more affordable.
In the US, where the housing situation had been worrisome with the
sub-prime mortgage crisis, the number of empty houses is so staggeringly
high that no one has an accurate count. The managing director of UACN
Property, Abdul Bellow notes that the city estimates that 10,000 houses,
or 1 in 13 are vacant, all owned by lenders who foreclosed on the
properties and also by the wholesalers who are now sweeping in to pick
up houses in bulk as if they were trading in baseball cards.
This situation might soon give way to something cheering as the Barrack
Obama administration has taken some steps aimed to address the problem
of the housing sector. Recently, Obama sent a $500 billion mortgage bill
to the parliament and it is expected that when the bill is passed, it
will turn the mortgage sector around and the economy as a whole will be
the better for it.
The United Arab Emirate (UAE) government has also cut down interest rate
on lending. Though the figures were not disclosed to this reporter, it
was said to have been reduced to a level where people are encouraged to
borrow to do business.
Abdul Rahman Kadiri of Ark-Gold Properties who disclosed this to
Business Day noted however, that banks in the country have made
modalities for lending very stringent.
According to him, “before now, what the banks required from you as a
borrower was just a proof that you are working with your six months pay
slip; a bank statement for six months and a declaration that all is
well. If it is a business loan from a company, all they required from
you was two, three years audited account; your business plan and any
other thing they might consider necessary”.
He said that before you get the loan now, banks have to do a lot of
scrutiny to be doubly sure that you are credit-worthy. “Before this
time, one of the businesses that was booming in Dubai was the property
market where you could just walk in and see a property of your choice
and approach a bank and within two-three working days, you get your
loan”, he said, adding that most banks have stopped giving loans for
property transactions and even where you get an approval, you have to
bring high equity contribution.
He recalled that banks once required a maximum of 10 percent
contribution from you and they would provide the remaining 90-95
percent. “Now, banks demand as high as 30-40 percent equity contribution
from you which has drastically reduced the turn around in property
development and transactions”.
Nigeria is a peculiar case because less than one percent of those who
want properties have any form of mortgage or loans. Unfortunately, those
are the people who need houses. The likely thing is that the man who
does not have a loan is able to hold onto his property.
When, therefore, you compare other countries that enjoyed the
pre-meltdown boom with our own, you find that our own situation is very
peculiar because we have never really had a mortgage system.
Olaniyan says that it is even now that we should endeavour to develop
our mortgage system because it remains the only way we can really arrest
the slump. Unfortunately, if any bank is lending, it is lending at an
interest rate of close to 30 percent. Any property investor who is in
his right senses should not touch this kind of interest rate.
He however, enthused that in spite of the seemingly adverse impact of
the meltdown on the real estate sector, there are still opportunities
for those who have cash to move into the market.
“This is the best time to buy real estate. For example, in the US, a
house that was put up for $300,000 around September last year was sold
only a couple of weeks ago for $100,000. The tenant who is occupying the
house now is paying $20,000 per annum. You can see that in five years,
he will recoup his investment”, he disclosed.
Coming back home, he said, a plot of land that was selling for N80
million as at September last year, recently, someone was offering
another plot of land at the same place for N54 million, adding that some
areas had gone that bad, “but mind you, the high end market has gone
flat. Some parts of Lagos have not gone down that bad such as Ilupeju
and other areas where supply is limited. If you want a plot of land in a
place like Ilupeju, there might be just one for sale. If you want it in
Lekki, you will get 20 plots, VGC-30; Oniru-15 and Ikoyi-10″.
Olaniyan said that at the end of the day, a lot of opportunities are out
there because the market will bounce back, stressing that this is also
the time to buy and not to sell because people who sell now are those
who cannot afford to hold onto their properties.
Kadiri agrees that the meltdown presents a fine opportunity for those
who have cash to move same to Dubai property market because as he put
it, “this is one market that presents almost limitless investment
opportunities courtesy of the impact of the meltdown”.
Before the economic crisis, Dubai property market was one of the most
flourishing in the world, giving fabulous returns on investment within
shortest time possible. All that has changed now and the market is
currently witnessing a downturn in demand, prices and returns on
investment.
Kadiri disclosed that house prices in the UAE city have dropped
considerably to about 30-40 percent, adding that the market is currently
witnessing considerable price correction which has also brought about a
slowdown as experienced in other markets. According to him, there are
some 3-bedroom apartments which about nine months ago went for
$500,000-$600,000 each, but now sell for about $400,000 each while a
one-room apartment which at the same period was sold for $400,000 now
sells for $250,000.
“In each case, you can readily find a tenant who will be paying a rent
of $30,000 per annum. You see that from the rental income, you make
about 10-20 percent annual return on your investment”, he explained.
Because of difficulty in getting easy loans to invest in properties,
speculators have been eased out of the market, he said adding that the
market is maturing and genuine investors are the ones left in there.
Again, he said that rental income can give an investor reasonable return on his investment.
“There is what looks like a fad among Nigerians to send their children
to school in UAE and this is an added reason why such parents should buy
homes there. What stops such people from buying homes in Dubai so that
their children can move from their homes to school even as it is cheaper
that way”.
He noted that “a lot of people now retire to Dubai into their own homes
and for some people, it is an economic pride and status symbol to have a
house outside like in London, America, etc. People should also aspire
to own their homes in Dubai which is today a new world”.
He advised that Nigerians should go there because as at today, Nigerians
are not yet on the top list of property owners in the country. “For
those who have the means, this is the right time to buy because prices
are very low compared to what they were before. This is the right
opportunity to buy”, he stressed.
Globally, the real estate sector, like other sectors of the economy,
is passing through difficult times. What is intriguing however, is that
while other countries are putting measures in place to save the sector
from collapse, Nigeria appears to be an onlooker.
Source 
