Real estate developer loans in Nigeria are pivotal in fueling the growth and development of the country’s real estate industry. As the demand for housing continues to rise, developers face the challenge of acquiring the necessary funds to bring their projects to fruition.
This is where real estate developer loans come into play, offering a lifeline of financial support specifically designed for real estate companies and developers. These loans provide developers with the means to acquire land, construct residential housing estates, and develop the essential infrastructure needed within these communities.
By unlocking access to capital, real estate developer loans serve as catalysts for progress, enabling developers to contribute to expanding the housing market and providing affordable housing options.
Real estate is a time-honored and highly profitable sector for investment, with a global market value of approximately $9.6 trillion in 2020. Real estate developer loans are available to investors to facilitate easier access to quality properties.
After thorough research, I will explain everything you need about real estate developer loans in Nigeria in this blog post.
What are Real Estate Developer Loans?
In Nigeria, real estate developer loans are offered to any company. These loans come into play when a property developer identifies a piece of land with significant potential but needs more funds. In such cases, developers can obtain loans to acquire and develop the property.
While established developers find it relatively easy to secure loans due to their track record of successful projects, it can be more challenging for early-stage developers needing more trust from lenders.
Conditions for Obtaining Real Estate Developer Loans in Nigeria
The Mass Housing Scheme (MHS), in partnership with the Federal Mortgage Bank of Nigeria, is the government parastatal responsible for these loans. The loan operates on a double lease system, where developers acquire land and titles from the government, provide necessary infrastructure, and then lease the property to the ultimate beneficiaries, the citizens.
Documents Required for Obtaining Real Estate Developer Loans
To apply for a real estate developer loan, you need to submit the following documents:
List of Board of Directors (Names, Position, and Professions in Table Form):
- In a table format, provide a comprehensive list of the board of directors, including their names, positions, and professions.
Technical Team (if different from management staff):
- Include information about the technical Team involved in the project if it differs from the management staff.
List of Shareholding Profile of the Board of Directors and Others:
- Provide a detailed list showcasing the shareholding profile of the board of directors and any other relevant stakeholders.
Audited Annual Accounts:
- Submit audited annual accounts for the previous three years.
- These accounts should bear the auditors’ signature, seal, and certification stamp.
List of Management Staff:
- Include a comprehensive list of the management staff involved in the project.
- Specify their ranks, designations, professions, qualifications, and years of experience.
Photocopy of Registered Title Document:
- Attach a photocopy of the registered title document for the land intended for the proposed project.
List of Projects Executed:
- Provide a detailed list of the projects previously executed by the developer.
- Include the location, name of the estate, house type, number of housing units, and cost for each project.
Photocopy of Tax Clearance Certificate:
- Submit photocopies of the organization’s tax clearance certificate for the most recent three years.
Approved Building and Layout Plans:
- Include the approved building and layout plans for the proposed project.
Resolution of the Executive Council and State House of Assembly:
- Provide the resolution of the Executive Council, along with the motion of the State House of Assembly, approving the Federal Mortgage Bank (FMB) loan application for the State Housing Agency.
Company’s Board Resolution to Borrow:
- Submit the company’s board resolution, signed by the chairman and company secretary, indicating the decision to borrow.
Paid-Up Share Capital:
- Ensure the company’s paid-up share capital is at least a quarter of the applied loan amount.
- Include a valuation report signed by a registered valuer assessing the proposed project.
Priced Bill of Quantities (BOQ):
- Submit a priced Bill of Quantities (BOQ) signed by a registered quantity surveyor.
- This document should provide a detailed cost estimate for the various housing types/units.
Feasibility and Viability Development Report:
- Include a feasibility and viability development report outlining the project’s long-term viability.
Cash Flow Projection:
- Provide a cash flow projection stating the current interest rate of 10% for the loan and the proposed periodic repayment plan.
Project Work Program/Plan:
- Submit a project work program or plan outlining the timeline and key milestones of the project.
Detailed/Budgeted Cost and Source of Funds:
- Provide a detailed and budgeted cost breakdown, indicating the source of funds for the estate infrastructure and amenity facilities.
Letter of Marketing Commitment:
- Obtain a letter of marketing commitment from a Primary Mortgage Institution (PMI).
- The PMI will be responsible for the disposal of the houses to NHF contributions/allottees.
By submitting these documents in the required format, you can initiate the process of obtaining a real estate developer loan.
Documents to be Submitted to the Bank
When applying for a real estate developer loan, you are required to submit the following documents to the bank:
Certificate of Incorporation:
- Provide the certificate of incorporation, which confirms the legal establishment of your company as an estate developer.
Photocopy of Articles of Memorandum of Association:
- Attach a photocopy of your company’s Articles of Memorandum of Association (estate developer).
- Ensure to include certified true copies of Forms CO2 and C07 as well.
- Evidence of Registration with the National
Housing Fund (NHF):
- Submit proof of registration with the National Housing Fund as an employer.
- Include documentation demonstrating the up-to-date remittance of employees’ contributions to the fund.
Payment of Non-Refundable Application Fee:
- Pay a non-refundable application fee of N20,000.00 (Twenty thousand naira only) if the loan amount is below N50 million.
- The application fee for amounts exceeding N50 million should be a multiple of N20,000.00 for every further N50 million.
Evidence of Membership in the Real Estate Development Association of Nigeria (REDAN):
- Evidence of your membership in the Real Estate Development Association of Nigeria (REDAN).
- Also, include documentation showing your financial contributions to the association.
Viable Facility Management and Sustainability Program:
- Present a viable facility management plan for the proposed estate.
- Include a detailed program outlining the measures and strategies to ensure the estate’s sustainability.
Any Other Relevant Information:
- Include any other relevant information that may facilitate a quick loan consideration.
- This could include additional documentation, reports, or data that supports your loan application and project proposal.
By submitting these documents to the bank, you can complete your real estate development loan application requirements.
Eligibility Requirements for Real Estate Developer Loans in Nigeria
To qualify for real estate developer loans, developers must fulfill specific criteria outlined in the official release. The following minimum requirements must be met for developers to be eligible for any real estate loans:
Loan Purpose and Terms:
- The loan is specifically intended for residential housing estate development.
- The interest rate applicable to the loan is 10% per annum.
- The maximum tenor for the loan is 24 months, subject to potential revision.
Financing of Infrastructural Facilities:
- Private developers can receive up to 70% financing for infrastructural facilities from the bank.
- Housing Corporations and government-owned development projects provide 100% of the required infrastructure.
- Developers must submit a financial plan and budget detailing infrastructure provisions in the housing estate.
Title of the Proposed Estate:
- The proposed estate must have a good title that allows for the sub-leasing of individual allottees or purchasers of the housing units.
Affordability and Target Price Range:
- The housing units within the proposed project must fall within the target price of not exceeding N5.0 million.
- This pricing strategy ensures affordability for National Housing Fund (NHF) contributors and buyers within the low-to-medium-income range.
- The housing units must align with the plans specified by the Federal Mortgage Bank of Nigeria (FMBN).
- Developers are also required to finance units falling outside the target type plans.
Firm Commitment from Buyers/Allottees:
- Developers must secure a firm commitment from buyers/allottees of the housing units.
- A named accredited Primary Mortgage Institution (PMI) must be identified to facilitate the introduction of the project to prospective buyers/allottees.
- The buyers/allottees must contribute to the National Housing Fund (NHF).
- The associated PMI must confirm the relationship and provide a marketing plan for the disposal of the housing units.
Financial Projection and Developer’s Equity Participation:
- Developers are expected to provide a financial projection that aligns with the proposed financial arrangement for the project.
- The financial projection should include the developer’s equity participation at the current 10% per annum rate.
Security for the Loan:
- An acceptable Bank guarantee is required as security for the loan.
By meeting these eligibility requirements, developers can enhance their chances of obtaining real estate developer loans in Nigeria.
Frequently Asked Questions
What are the Factors Affecting Real Estate Development in Nigeria?
The factors affecting real development in Nigeria include depreciation of the naira, poor access to state land for mass housing, high cost of building materials, high cost of finance, a larger population of citizens desiring homeownership, shortage of options for low-income earners, and lack of conducive environment for investors.
What are the Challenges of Real Estate Financing in Nigeria?
The challenges of real estate financing include the low capacity of mortgage and commercial banks, the high-interest rates on mortgage loans, difficulty in approving and obtaining mortgage loans, underutilization of the capital market, and difficulty obtaining property titles.
What are the Sources of Finance for Real Estate Development?
The sources of finance for real estate development are equity or self-financing, commercial banks, merchant banks, insurance companies, and mortgage institutions.
Real estate developer loans provide a crucial avenue for developers to finance their projects and contribute to the growth of the Nigerian real estate sector. These loans come with specific eligibility requirements and documentation that developers must meet and provide.
With the right financial plan, viable facility management, and commitment from buyers/allottees, real estate developer loans can facilitate the development of affordable housing units for low-to medium-income earners in the country.
Developers need to approach these loans cautiously, ensuring they can meet the terms and conditions of the loan and repayments to avoid defaulting on their loans.