Property developers in Nigeria are grappling with challenges in securing construction finance, despite the potential offered by the capital market.
The collapse of a skyscraper in Ikoyi in 2022 underscored the difficulties developers encounter in recouping investments, particularly when projects are primarily funded through subscriptions from subscribers.
While commercial banks and financial institutions in Nigeria offer construction loans, developers often face hurdles due to high-interest rates and stringent criteria. Crowdfunding has emerged as an alternative, enabling individuals to invest in projects, but success hinges on the credibility of the platform and the illiquidity of investments.
Experts advocate for the capital market as a better option for construction finance, providing developers with more project control.
The market facilitates long-term fund mobilization, crucial for economic growth. However, private sector engagement in the capital market for construction finance remains limited, with the government playing a significant role.
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Government infrastructure bonds have been a major funding source, as seen in projects like the Lagos-Ibadan Expressway and the Abuja Light Rail. Experts propose that developers could issue bonds for construction, utilizing funds from property sales to meet debt obligations. This approach offers less risky investment options and regular returns, attracting investor interest.
Despite its advantages, the potential of the capital market for construction finance is largely untapped by the private sector.
Real estate investment trusts (REITs) and mortgage-backed securities (MBS) are viable options for developers, but their impact in Nigeria has been limited compared to other economies.
Recent initiatives, such as Wemabod’s N50 billion bond issuance programme, illustrate the capital market’s potential for construction finance.
The raised funds will support various development projects, showcasing the benefits of leveraging the capital market for construction finance.
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In conclusion, the capital market provides property developers with affordable funding options and greater project control. With the right approach, developers can overcome financing challenges and contribute to economic growth through infrastructure development.
In 2022,The organisers of Africa international housing show- a very respected international platform issued a statement on the need for Africa housing players to exploit the use of capital market but up till today the industry players have not been exploiting the use of capital market.
With the coming in as Minister of Housing and urban Development, Arc Ahmed Dangiwa have been calling on FHA, FMBN to go to the capital market .