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The effect of the Increase in Monetary Policy Rate on Real Estate

Some operators in the real estate industry on Friday said the increase in Monetary Policy Rate by the Central Bank of Nigeria would have adverse impact on the industry.

They told the News Agency of Nigeria in Lagos that the increment would scare investors away from borrowing money to invest in the real estate business.

NAN recalls that CBN on July 26 announced an increase in MPR by 200 bases point from 12 per cent to 14 per cent.
Olayemi Shonubi, a former Chairman of the Nigerian Institute of Quantity Surveyors, Lagos State Branch, said the increment would pose a lot of burden on developers and mortgage institutions.

Shonubi said: “This is because developers and mortgage institutions source funds from the money market.
“For the mortgage institutions, which source their fund from the money market, it means that the institutions will invariably increase their interest rate on loans to the people.

“And this implies that the nation’s mortgage system, which has not been strong and effective, will get weaker because investors will be completely discouraged from using the scheme.”

Chucks Omeife, the past President of the Nigerian Institute of Building, also said the development would result to breach of loan/mortgage agreement contracts.

Omeife said developers particularly would find it difficult to comply, considering the gestation period of housing and real estate projects.

According to him, the hike will reflect even on previous loan agreements, thereby making repayment difficult.
He reiterated that real estate projects were long term projects, which ought to be financed with long term loan at single digit interest rate.

Omeife added: “But due to ineffectiveness of the mortgage system, developers are falling back on commercial banks to source fund for real estate developments.

“In my opinion, the hike is ill-timed because the economy is technically in recession.
“We expect the government to come up with policies that will control the inflationary trend and kick-start economic activities in rest of 2016.”

Source: The Eagle Online

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