THE IMPACT OF INTEREST RATE ON HOUSING FINANCE IN NIGERIA

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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  (1)  pace  of  technological innovation  (2)  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.

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