TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
TO THE STUDY
1.2
STATEMENT OF THE PROBLEM
1.3 JUSTIFICATION
OF THE STUDY
1.4 AIM
AND OBJECTIVES
1.5 RESEARCH QUESTIONS
1.6 SCOPE
OF THE STUDY
1.7 SIGNIFICANCE
OF THE STUDY
1.8 LIMITATION OF THE STUDY
1.9
THE STUDY AREA
1.9.1
GEOGRAPHICAL DESCRIPTION OF THE AREA
1.9.2 HISTORICAL
DEVELOPMENT OF THE STUDY AREA
1.9.3
ADMINISTRATIVE STRUCTURE
1.9.4
ECONOMIC BASE OF ABUJA
1.9.5
LOCATIONAL CHARACTERISTIC
CHAPTER TWO
LITERATURE
REVIEW
2.1 INTRODUCTION
2.2 BANK LENDING PRACTICES AND THE REAL ESTATE SECTOR IN THE UNITED
KINGDOM
2.3 THE
RISK OF REAL ESTATE LENDING FROM THE UNITED STATE OF AMERICAS’ PERSPECTIVE
2.4 DETERMINANTS OF COMMERCIAL BANKS LENDING BEHAVIOR IN NIGERIA.
2.5
BANKS LENDING POLICIES
2.6 BANKS
APPROVAL TECHNIQUES
2.7 MORTGAGE
LOAN REQUIREMENTS FROM COMMERCIAL BANKS
2.7.1 LEGAL REQUIREMENT OF OBTAINING MORTGAGE LOAN
FROM THE FEDERAL MORTGAGE BANK OF NIGERIA.
2.8.
THE NIGERIAN FINANCIAL SYSTEM
2.9 REAL
ESTATE FINANCE
2.9.1 SOURCES
OF FINANCE FOR REAL ESTATE DEVELOPMENT AND INVESTMENTS
2.10 REAL ESTATE INVESTMENTS THROUGH THE CAPITAL MARKET
2.10.1 Methods of Investing in Real Estate
through the Capital Market
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION
3.1 POPULATION THE STUDY
3.2 SAMPLING TECHNIQUE
3.3 SAMPLE SIZE
3.4 METHODS OF DATA COLLECTION
3.5
SOURCES OF DATA
3.5.1 Primary sources:
3.5.2 SECONDARY SOURCES:
3.6 DATA ANALYSIS TECHNIQUES
CHAPTER FOUR
DATA
PRESENTATION, ANALYSIS AND DISCUSSION OF RESULTS
4.1 DATA FOR THE STUDY
4.1.1 Questionnaire administered and retrieved
4.2
ANALYSIS
OF DATA
4.2.1
Lending Requirements of financial institutions
4.2.2.
Difficulties in Meeting the Lending
Requirements
4.2.3 Problems Associated with Assessing loan
4.2.5 Types
of Financial Institution used to Secure Loan
4.2.6 Interest Rate given by the
financial institutions
4.2.7 Number
of investors who encounter problem
4.3 RESULTS
AND DISCUSSIONS
4.3.1 Ascertaining the lending requirements
of financial institutions
4.3.2 The
difficulties of real estate investors in meeting the lending requirements of
financial institutions
4.3.3 The problems being encountered by real estate investors’ when
securing loan from financial institutions
CHAPTER FIVE
5.1 SUMMARY OF FINDINGS
5.2
CONCLUSION
5.3 RECOMMENDATION
REFERENCES
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
An investment in real estate
development requires a huge sum of money, most at times exceeding six (6)
figures as such only a hand full of individuals could venture into this form of
investment.
This financial insufficiency
naturally turns investors to financial institution for possible credit
advancement. Mbanefo (2002) observed that the importance of banks in our
economy lies in their monopoly of the resources to provide loans for industrial
and commercial developments. The provision of this loan however, carries the
risk of default in repayment hence the need to take adequate, reliable and
appropriate security for the purpose of insulating default risk associated with
credit transactions in banks. According to CBN (1995) out of every N1.00 loan
granted by Nigerian Banks only 57 kobo were capable of being realized
representing 57%.
Lending which may be on short, medium
or long-term basis is one of the services that commercial banks do render to
their customers. In other words, banks do grant loans and advances to
individuals, business organizations as well as government in order to enable
them embark on investment and development activities as a mean of aiding their
growth in particular or contributing toward the economic development of a
country in general. Commercial banks are the most important savings,
mobilization and financial resource allocation institutions.
Consequently, these roles make them
an important phenomenon in economic growth and development. In performing this
role, it must be realized that banks have the potential, scope and prospects
for mobilizing financial resources and allocating them to productive
investments. Therefore, no matter the sources of the generation of income or
the economic Policies of the country, commercial banks would be interested in
giving out loans and advances to their numerous customers bearing in mind, the
three principles guiding their operations which are, profitability, liquidity
and solvency. However, commercial banks decisions to lend out loans are
influenced by a lot of factors such as the prevailing interest rate, the volume
of deposits, the level of their domestic and foreign investment, banks
liquidity ratio, prestige and public recognition to mention a few.
Chodechai(2004) while investigating
factors that affect interest rates, degree of lending volume and collateral
setting in the loan decision of banks, says:“Banks have to be careful with their pricing decisions as regards to
lending as banks cannot charge loan rates that are too low because the revenue
from the interest income will not be enough to cover the cost of deposits, general
expenses and the loss of revenue from some borrowers that do not pay. Moreover,
charging too high loan rates may also create an adverse selection situation and
moral hazard problems for the borrowers.”
Therefore it is not an
easy task for real estate investors’ to secure loan from either commercial bank
or mortgage institution to finance their development, according to Agbola(1986)
the procurement of necessary finance is sine-qua-non to the acquisition of
adequate housing and the most probable source open to investor is through
mortgage financing.
This research work is set
to appraise the perception of real estate investors’ on the lending requirement
of commercial banks and mortgage institutions in Abuja metropolis
1.2 STATEMENT OF THE PROBLEM
The huge capital that is been require
to kick start most real estate development and the high interest rate which is
being use by commercial banks as lending criteria tends to leave most real
estate investors’ flat footed.
Chodechai(2004) asserted that “banks’
lending decisions are also influenced by the past relationship with the
borrowers”. Past relationship according to him can help banks to obtain more
private information, leading to a more accurate understanding of the borrower’s
business and financial situation. Load demanded by financial institution in
recent times is another major source of constraints in real estate development
where the rate of inflation has a direct impact on interest rate.
However, with respect to
this research work, they are various challenges which are been faced by both
parties involve, that is the financial institutions involve in real estate
financing and the real estate investors, as the real estate investors depends
on the financial institution for funds and most of them find it difficult to
meet the requirement which is use by this financial institutions.
1.3 JUSTIFICATION OF THE STUDY
With regards to this research work
which would appraise the perceptions of real estate investors towards the
lending requirements use by commercial banks and mortgage institutions, this
research would analyze particularly the several lending requirements use by the
above mentioned financial institutions and determine how they affect real
estate investors. As the use of financial leverage by real estate investors can
significantly increase the rate of return investors earn on their invested
equity.
This expected magnification of return
often induces investors to partially debt finance even if they have the
accumulated wealth to pay all cash for the property.
1.4 AIM AND
OBJECTIVES
The aim of this study is to APPRAISAL
OF THE PERCEPTION OF REAL ESTATE INVESTORS’ ON THE LENDING REQUIREMENTS OF
FINANCIAL INSTITUTIONS IN ABUJA, NIGERIA.
OBJECTIVES
- To ascertain the lending
requirements of financial institutions.
- To examine the views of real
estate investors on meeting-up with the lending requirements of financial
institutions.
- To identify the problems being
encountered by real estate investors’ when securing loan from financial institutions
and recommend probable solutions.
1.5 RESEARCH QUESTIONS
- What are the lending
requirementsof financial institutions?
- What are the views of real
estate investors in meeting the lending requirements of financial
institutions?
3.
What are the problems being encountered by real estate investors’ when
securing loan from financial institutions?
1.6 SCOPE OF THE STUDY
The scope of this work would be within the
purview of Abuja metropolis and it
would focus on the real estate investors’ within the following areas; Garki
District, Wuse District and Central Area. This areas where selected due to the
high concentration of commercial activities and the location banks within this
areas.
Attention will be on the lending
requirement being used by commercial banks and mortgage institutions and the
perception of real estate investors’ on such lending requirements. This
research work would cover the period (2007-2011).
1.7 SIGNIFICANCE OF THE STUDY
This study will be of importance to
both the financial institutions which are involve in real estate financing and
real estate developers’ since it analyses the lending requirement use by
commercial banks and mortgage institution.
This study will also help real estate
investors’ in ascertaining the most appropriate option to source for fund in
financing their real estate investment as well as the financial institution in
monitoring their lending activities.
1.8 LIMITATION OF THE STUDY
During the course of the study, some difficulties were encountered,
they include the following
1. Inadequate data from the selected
financial institutions
2. Difficulties in accessing the real
estate investors financed by the selected financial institutions
1.9 THE STUDY AREA
Abuja is the capital city of Nigeria.
It is located in the Centre of Nigeria, within the Federal Capital Territory
(FCT). Abuja is a planned city, and was built mainly in the 1980s. It
officially became Nigeria's capital on 12 December 1991, replacing Lagos, which
is still the country's most populous city. At the 2006 census, the city of
Abuja had a population of 776,298, making it one of the top ten most populous
cities in Nigeria. However, Abuja has witnessed a huge influx of people into
the city which has led to 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 towards, the unofficial metropolitan area
of Abuja is well over three million.
According to Dermographia, the
population Abuja's Urban Area as at 2012 is 2,245,000 making it the fourth largest urban area in
Nigeria only surpassed by Lagos, Kano and Ibadan while PortHarcourt's urban
area which is projected to be almost 2,000,000 is the fifth most populous urban
area in Nigeria.
1.9.1 GEOGRAPHICAL
DESCRIPTION OF THE AREA
Abuja is located in the Centre of
Nigeria and has a land area of 8,000 square Kilometers. It is bounded on the
north by Kaduna state, on the west by Niger state, on the east and south-east
by Nasarawa state and on the south-west by Kogi state. It falls within latitude
7 45' and 7 39'.
One beautiful feature about Abuja
which it derives from its central location is that it shares the savannah grass
with the north. And the overall effect of this is that Abuja has rich soil for
Agriculture and enjoys an equable climate that is neither too hot nor too cold
all year round.
The FCT experiences two weather
conditions in the year. These are the rainy season which begins around March
and runs through October, the dry season (usually characterized by bright
sunshine) which begins from October and ends in March.
Within these periods, there is a
brief period of harmattan occasioned by the north east trade wind, with a
resultant dusty haze and intense coldness and dryness. Nevertheless, the high
altitude and undulating terrain of the FCT act as a modulating influence which
makes the weather always clement.
1.9.2 HISTORICAL DEVELOPMENT OF THE STUDY AREA
The present Suleja was formally known
as Abuja, a sparsely populated town with a population of about 500,000 people;
it was completely rural with little or no infrastructure until the enactment of
Decree No. 6 of 1976.
Before the 1976 Decree, a committee
('The Aguda Panel')was commissioned to go round the country in search of a
suitable location for the New Federal Capital with two major points of
reference; a region that is sparsely populated and that is centrally located.
And the region now known as Abuja met these requirements and hence became the
recommended location for the New Federal Capital.
The acceptance of the recommendation
of the committee, led to the enactment of Decree No. 6, of 1976, the Federal
Capital Territory Act, and this became the blueprint for the re-location of the
new Federal Capital from Lagos to Abuja. The town originally known as Abuja was
later renamed Suleja, while the name “Abuja” was reserved for the
capital-to-be. In order to realize the objective of developing Abuja, the new
Capital City, into a masterpiece on the African continent, the Federal
Government established the Federal Capital Development Authority (FCDA) as the
sole agency vested with the responsibility of planning, designing and
developing the city.
1.9.3 ADMINISTRATIVE STRUCTURE
Administratively, the Federal Capital is structured into six area council
namely, Abuja municipal, kuje, kwali, bwari, Abaji and gwagwalada. Each of the
area council is administered as a local government under the general
supervision of the FCT minister. The infrastructural planning and development
of Abuja is handled by Federal Capital Development Authority (FCDA) with among
others control the various development and maintenance units from 1992, when
the federal government officially moved to Abuja from Lagos. The development
has been so rapid and had to increase its manpower to meet the demand of
housing, offices and infrastructural development required in the civil services
workforce. During the precolonial period, the various ethnic groups in the area
which now forms the FCT were administered as autonomous kingdom in their
various locations. Such kingdom had some diverse interethnic, political and
economic relations. Such external influences as slave trade, the jihad and
colonial administration changed the pattern and structure of this indigenous
administration. With the coming of the colonial administration, administrative
heads were created for the various units. Under this set up, commonly referred
to as the Native Authority (NA) system, emirates were established with emirs
and chiefs as heads of the various administration units that were designated as
emirates. These units were later broken into districts, Headed by districts
heads.
1.9.4 ECONOMIC BASE OF ABUJA
Abuja has a GDP of $
5.01 billion and GDP per capital of $ 3,649 of the 2007 (estimate), it has one
of the highest standards of living as compared to other cities in Nigeria.
However, today the federal capital city economy is a public sector driven
dominated economy which is driven by government patronage and the federal
capital territory has attract serious business ranging from international firms
to individual service provider.
1.9.5 LOCATIONAL CHARACTERISTIC
Abuja is located just
north of the confluence of Niger and Benue rivers. It is bordered by the state
of Niger to the west and north, Kaduna to the northeast, Nassarawa to the east
and south and Kogi to the southwest. Lying between latitude 8.25 and 9.20 north
of the equator and longitude 6.25 and 7.35 east of Greenwich meridian, Abuja is
geographically located in the Centre of the country. It is situated within the
savannah region with moderate climatic condition.
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