The Head of Real Estate Finance, at Stanbic IBTC West Africa, Mr. Adeniyi Adeleye, has pointed out that high interest rate is the main challenge facing real estate financing in the sub-region.
According to him, interest rates on the domestic currencies among many West African countries has made it impossible for real estate developers to project effectively in the local currencies.
“If your rate of borrowing is in excess of what your rental yield, it would be very difficult to finance your transactions”, he stressed.
Mr. Adeleye, who was speaking at the “West African Property Investment Summit” in Accra explained that developers always rely on hard currency such as the US dollar in the real estate sector to make calculations due to its reliability.
He stated that with the local currency, absorbing the funding cost is very difficult to achieve since the sector is capital intensive but the profit margin is small.
He suggested that West African countries must work at getting the macroeconomic indicators on track to get interest rate to a moderate level in order to help manage the volatility rate.
“The way out is we must all resolve our macro indicators to bring interest rate down…since in our markets working with the local currency will be extremely risky”, he said.
He quickly pointed out that Stanbic has designed dual currency funding structure where people in a certain income bracket are allowed to finance their projects both in dollars and in the local currency.
He maintained that the demand for houses and office space in many West African countries is an indication that the sector is more relevant than ever to propel the sub-region into economic growth.
“The employment generation in the sector is equally huge and will benefit all of us if the right conditions are set in the economy”, he said adding that the capital intensiveness of the sector has made many developers risk averse.
