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Financing real estate developments

The Challenges of Financing Real Estate Developments in Nigeria

Proper financing is all-important to successful property investment and development. In this article we take a critical look at the challenges of financing real estate developments in Nigeria.

The term ‘development’ as defined in section 2(1) of the Nigerian Town and Country Planning ordinance 1948, states that “development in relation to any land includes any building or rebuilding operation and any use of land or any building thereon for a purpose which is different from the purpose for which the land or building was previously being used”.

In his own view, Lichfield (1956) pointed out that among the Architects, Planners, Engineers and Surveyors, the word development generally means “the process of carrying out construction involving a change in the intensity of the use of land or with a re-establishment ranging from the humble addition of a bedroom or a garage to a private house or the ambitious re-development of a city centre”.

Real estate finance on the other hand can be looked at as the fund needed to carry out real estate development and other related operations. It is an essential ingredient in modern day real estate development and most large-scale development would not take their present scale without substantial credit.

The housing finance system in Nigeria is not viable and this makes mobilization of finance and credit for housing development difficult.

Finance constitutes a fundamental centre piece in any real estate development; the ability of a developer to mobilize enough funds for the project determines largely, the success of the project.

Finance is an all-important factor, a sine qua non and very crucial ingredients to projects, no matter their nature. It is basically the fulcrum, which sustains the lever for development projects.

The performance of any housing finance system will depend primarily on the volume and nature of funds within the economy and the proportion of it that can be spread, mobilized or even dedicated for housing.

Real estate finance can be viewed as the borrowing of money to carry out real estate development.

Various forms of finance on varying terms from diverse investing agencies are available to the property market. The principal field where various forms of investment finance are employed is that of development where every loan has to be specially tailored for an individual scheme and the particular stages within the scheme.

Since property development in particular involves huge capital expenditure, finance is therefore an essential input, the nature of which is to provide capital to enable the enterprise operate commercially.

The cost and availability of finance for real estate development can influence the viability of such project. Inspite of the importance of development finance in property development, there is dearth of information on the amount of funding that takes place, by whom, or the method used.

Though this is not unexpected given the general characteristics of development funding,there is no central agency or institution to co-ordinate the business of property funding.


In the hierarchy of man’s needs, housing has been ranked second and as a result of this, housing provision has become a paramount cornerstone of the policies of various governments both at federal and state levels since the country gained independence.

The consequences of the rapid rate of urbanisation are most visible in the rapid deterioration of urban housing resulting in urban housing poverty,especially as there is no proportionate increase in the number of housing stocks.

The house occupies a very unique position in the life of all human beings and stands out as one of the basic necessities of human beings after food as there is the innate desire of every man to own a decent house.

It is the most single non-commercial investment or consumer of income. For most working Nigerians, the earning capacity is generally low and makes it practically impossible for the average Nigerian to save towards owning a house.

In addition, the dwindling economic fortunes in Nigeria dims the capacity of individuals to own a house. The economic boom periods of the 1970s also contributed to the housing problems in Nigeria.

During this period, there was surplus capital, the economic climate then was favourable for the development of real estate and the prospect of gain was over blown and so were the rate of development.

The oil boom brought in an era of urban development, which was beyond all expectations and thus led to a massive surge in property development. Financial houses readily obliged developers’ loans, as they perceived minimum risks.

However, with the crash in oil prices in the early 1980s, the economy was thrown into crisis and recession thus set in which badly affected the real estate sector.

Since real estate development requires huge capital outlay, there is always the need for real estate developers to source for fund.

In a proper society, these funds would be easy to access albeit, our society makes securing funds for real estate development a wild goose chase!

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