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APPRAISAL OF THE PERCEPTION OF REAL ESTATE INVESTORS’ ON THE LENDING REQUIREMENTS OF FINANCIAL INSTITUTIONS

CHAPTER ONE 

INTRODUCTION

BACKGROUND OF THE STUDY

Only a few people could afford to invest in real estate development since it needs a large sum of money, often reaching six (6) figures. As a result, only a few people could afford to do so.

This financial deficiency naturally leads investors to seek credit from financial institutions. According to Mbanefo (2002), banks’ prominence in our economy stems from their monopoly on the resources needed to make loans for industrial and commercial development. The supply of this loan, however, includes the risk of default in repayment, necessitating the use of adequate, dependable, and acceptable security to mitigate the risk of default connected with bank credit operations. According to the CBN (1995), Nigerian banks grant only 57 kobo for every N1.00 loan.

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.

Furthermore, charging excessively high loan rates may result in adverse selection 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 fund 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.

The purpose of this study is to assess real estate investors’ perceptions of commercial banks and mortgage institutions’ lending requirements in Abuja.

STATEMENT OF THE PROBLEM

Most real estate investors are caught off guard by the large sums of money required to get most projects off the ground, as well as the high interest rates used by commercial banks as lending criteria.

“Banks’ lending decisions are also influenced by the past relationship with the borrowers,” Chodechai (2004) claimed. According to him, previous relationships can assist banks in obtaining more private information, resulting in a better understanding of the borrower’s business and financial status. Another major source of constraints in real estate development is the load demanded by financial institutions in recent years, where the rate of inflation has a direct impact on interest rates.

JUSTIFICATION OF THE STUDY

In terms of this study, which aims to assess real estate investors’ perceptions of lending requirements used by commercial banks and mortgage lenders, this study will examine the various lending requirements used by the aforementioned financial institutions and determine how they affect real estate investors. Because real estate owners can considerably boost the rate of return on their invested equity by using financial leverage.

AIM AND OBJECTIVES

The purpose of this study is to APPRAISE REAL ESTATE INVESTORS’ PERCEPTION OF FINANCIAL INSTITUTIONS’ LENDING REQUIREMENTS IN ABUJA, NIGERIA.

OBJECTIVES

To find out what financial institutions are looking for in terms of loans.
To investigate real estate investors’ perspectives on meeting financial institution lending standards.
To identify the issues that real estate investors face when obtaining a loan from a financial institution and to suggest possible solutions.

RESEARCH QUESTIONS

What are financial organizations’ lending requirements?
What are real estate investors’ perspectives on meeting financial institution lending requirements?

SCOPE OF THE STUDY

The scope of this project will be limited to Abuja metropolitan, with an emphasis on real estate investors in the Garki District, Wuse District, and Central Area. Because of the significant concentration of commercial activities and the presence of banks in these locations, these areas were chosen.

The focus will be on the lending criteria employed by commercial banks and mortgage lenders, as well as real estate investors’ perceptions of such criteria. This study would last for a year and a half (2007-2011).

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 alternative for obtaining funds for their real estate investment, as well as banking institutions in monitoring their lending activities.

LIMITATION OF THE STUDY

Some obstacles arose over the course of the research, including the following:

1. Inadequate data from the financial institutions chosen

2. Difficulties in gaining access to real estate investors who have been financed by the chosen financial institutions

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