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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