THE IMPACT OF INTEREST RATE ON HOUSING FINANCE IN NIGERIA
ABSTRACT
This study examine The Impact of Interest Rate on Housing Finance in Nigeria. The objective of the study is to determine how interest rate has contributed to housing financing in Nigeria. The focus was on deposit money banks in Nigeria. Secondary data were source of data for this study which was collected from the CBN statistical bulletin. The study spanned from 2005 to 2014. The survey research design was adopted for this study and the non- probability sampling technique was used to determine the sample size.
The sample multiple regression analytical technique was used to analysis the data collected. The finding revealed that both deposit money banks interest rate and mortgage banks interest rate have a positive effect on housing finance in Nigeria. Also, the findings revealed that the capital employed of deposit money banks and mortgage banks have a positive effect on housing finance in Nigeria. It was recommended that management of both deposit money banks and mortgage banks should do a proper review of the interest rate structure on loans to encourage financing of housing in Nigeria. Also, it was recommended that monetary authority should ensure appropriate determination of interest rate level that will break the double edge of interest rate on saves and local investors.
CHAPTER ONE
1.0 Introduction
1.1 Overview Of The Study
The central bank of Nigeria, which is the apex of the financial system in the country, started its operation in July 1st 1959. The enabling act charged it with the responsibilities for issuing legal tender currency, maintenance of external reserves in order to safe guard the international value of the currency and sound financial structure.
Like other central banks in foreign countries, the central bank of Nigeria has objectives of promoting economic development. Anyanwoko (1996) in this regard the central Bank has been active in creating the environment and institutional framework conducive for mobilizing and channeling of fund into real estate investment. Interest rate control is usually vested on the apex of the financial system, the central Bank. The reason being that the interest rate is one of the quantitative instruments of monetary policy, used by the central bank to exert significant impact on the level of construction. As a result of this, monetary authorities attach much importance to the level and changes in interest rate.
The Central Bank of Nigeria amendment act of 1962 No.19 has the following provision related to the rates:
The rates of interest were to be linked with the minimum rediscount rate of the central Bank of Nigeria subject to the stated minimum rate of interest.
The interest rate structure of every licensed bank should be subject to the approval of the Central Bank. Deposit Money Bank lending and deposit rates are directly linked to the Central Bank of Nigeria minimum rediscount rate otherwise known as the bank rate.
The Bank rate is the minimum rate at which the central bank offers financial assistance to deposit money banks by rediscounting bills to them. During the early stages of the Central Bank of Nigeria, the minimum rediscount rate was almost fixed. It range between 4 percent and 5 percent.
The housing sector is generally responsible for the physical development or the transformation of the environment which makes the built environment very vital to social Economic development of a Nation. Ajanlekoko (1990) affirms the housing sector to be a prime motivator of any economy, while in Nigeria, it represents 60 percent of the capital investment. Oyefeko (1991) said that housing construction in Nigeria is one of the pillars of the domestic economy. According to national bureau of statistics reported in 2014 that the real estate market contributed 8.02 percent to GDP in 2013 and building & construction industry contributed 3.12 percent for the period. Plessis (2007), views housing as a large sector of the economy responsible for millions of jobs and a significant proportion of GDP in most countries.
This research work deals with the interest rate challenges facing building construction in a depressed economy, challenges of enough fund to pay for the service of building construction Engineers, poor Economy, regulating bodies and government policies and support. These topics are made in other to improve on housing finance in Nigeria.
OkonjoIweala, (2012) said that the interest rate charged by banks is not favourable for the housing finance and there is no way we can strick with this kind of approach. Data from the Financial Market Dealers Association of Nigeria (FMDAN) shows that as at July 9th, 2010, the average lending rate by bank for normal customers was 20% and 18% for prime customers. With this kind of interest charges by bank, government intervention is highly needed, so that building work won’t stop which will automatically lead to a decline in the country development.
1.2 Statement Of The Problem
No Nation can be truly independent in these modern times without a strong Economy. A strong Economy is one that is capable of attracting sufficient funds for its individual, commercial, domestic, and construction subsector.
Evidence show nowadays that a nation wishing to be truly independent must as a matter of course, be economically independent, as to achieve a favourable interest rate in order to affect housing finance positively. On realizing the need to be economically independent, it will be imperative that the real estate sector of the economy of any Nation take one challenge of ensuring that the necessary technology be evolved. Rezgui (2007) housing sector are constantly facing several challenges, the factors are
- Pace of technological innovation
- The globalization of the economy.
This is where the vital role played by the housing sector in focus, the economic growth and development of any nation. Nigeria depends on the activities of housing sector. And the housing sector is fully realize their aim of economic independence vis-à-vis technological emancipation they need finance or funds.
The major problems facing building construction in a depressed economy like Nigeria is poverty, unemployment, poor economy and corruption which led to non-compliance of building codes and building regulations. This has been blamed on several limiting factors, some have blamed it on government policies, which have made it virtually impossible for individuals to source for fund and quality building materials.
From the analysis above, the following are the specific problem of the study:
- The effect of bank lending rates on housing finance in Nigeria.?
- The effect of capital or finance employed on housing finance in Nigeria.
1.3 Objectives Of The Study
The main objective of this study is to examine the impact of interest rate on building construction.
Therefore the specific objectives are stated as follows :
- To evaluate the impact of interest rates on housing finance.
- To examine the impact of capital employed on housing finance in Nigeria.
- To make recommendations which would contribute immensely towards ensuring that the desired economic development and independence is achieved.
1.4 Research Questions
The following research question were formulated to guide this study.
- What is the impact of interest rate on housing finance in Nigeria ?
- What is the impact of capital employed on housing finance in Nigeria ?
- What are the recommendations to achieved desired economic development ?
1.5 Research Hypothesis
Hypothesis 1:
- H01: There is no significant relationship between interest rates and housing finance in Nigeria.
- HA1: There is a significant relationship between interest rates and housing finance.
Hypothesis 2:
- H02: There is no significant relationship between capital employed and housing finance in Nigeria.
- HA2: There is a significant relationship between capital employed and housing finance in Nigeria.
1.6 Scope Of The Study
The scope of the study is impact of interest rate on housing finance is intended to cover the interest rates charged by banks in the Nigeria economy. This study is intended to cover the period fourteen year (2000-2014).
The kind of data to be used is secondary data and all the formation that will be used for this study will be obtained from the Central Bank of Nigeria (CBN) Annual Report and CBN statistical Bulletin.
CHAPTER TWO
2.0 Literature Review
2.1 Introduction
The review of relevant literature is the main topic of this chapter. A literature review covers theoretical and methodological contributions to a certain issue in addition to the state of knowledge at the time of writing. It provides information about the state of the art in relation to the subject you are writing about. It examines the body of work on the chosen subject. The literature evaluation in this study comprises the …
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