Experts in the built industry have stated that the recent interest rate hike by the Central Bank of Nigeria was detrimental to developers and the country’s mortgage system.
The Monetary Policy Committee of the Central Bank of Nigeria last week increased the benchmark interest rate by 50 basis points to 18.5 per cent.
The MPC blamed high energy costs and challenges around the supply chain, among others, which are beyond the reach of the CBN for the rising inflation in the country.
“The current trend in price development would continue to be monitored by the bank with greater collaboration with fiscal authority to address the drivers of inflation,” it explained.
Meanwhile, stakeholders in the real estate sector said CBN’s decision to raise interest rates would be counterproductive.
The Executive Secretary of the Association of Housing Corporation of Nigeria, Toye Eniola, said higher interest rates on loans would hamper housing development.
He said, “This will obviously increase interest rates on loans which will make it unattractive for housing development. Development loans require patient funds and if you are getting such loans at above 20 per cent, how would such a development be lucrative? It will be suicidal to go for such as houses developed are not going to be sold in one day.
“Before now, the interest rate on commercial bank loans was between 25 per cent and 30 per cent, and with the increase in Monetary Policy Rate, the interest rate will definitely go above 30 per cent. And this will obviously reflect an increase in the high cost of building materials and apparently lead to many abandoned projects. It is not looking good for the housing sector.”
In the same vein, a project engineer at Dutum Company Limited, Michael Akinpelu, said the implication would be very dire.
He said, “To put it in perspective, an 18.5 per cent interest rate means that if I am taking a loan of N100m, I will be paying back N18.5m, as against 11.5 per cent, which was around N11.5m that is about N7m difference. Definitely, the N7m will increase the cost of construction because there is an extra N8m.
“In addition, it can discourage investors because most people might not want to take the loan because of the interest rate.”
According to the Treasure, Nigerian Institute of Building, Philips Ayotunde, the interest rate hike is expected to result in elevated expenses for construction materials.
Ayotunde said this would lead to an increase in the overall cost of constructing buildings and potentially give rise to a surge in the number of abandoned building projects.
He added, “The 18.5 per cent CBN interest rate will increase the interest rates of loans by commercial banks because most developers do not get single interest rate loans. Hence, most developers will be getting a loan of 32 per cent interest rate from commercial banks that are willing to loan them.
Punch