1.1 BACKGROUND TO THE STUDY
Commercial banks are important financial intermediaries serving
the general public in any society. In most cases, commercial banks hold
more assets than any other financial institution. In some cases even
more than central bank. Apart from their many functions, commercial
banks facilitate growth and development. Banks lends in many areas or
sectors of the economy. Viewed from the building and construction
sector, they contribute to investment, employment creation, and by
extension, the process of infrastructure and economic growth. However,
the researcher is examining the roles of the commercial banks in
Nigeria in financing building and construction projects in Nigeria
The building and construction industry in both developed and
developing countries may be viewed as that sector of the economy which,
through planning, design, construction, maintenance and repair, and
operation, transforms various resources into constructed facilities.
The types of public and private facilities produced range from
residential and non-residential buildings to heavy construction, and
these physical facilities play a critical and highly visible role in the
process of development (Kheni et al., 2008). The major participants
from the building industry include the architects, engineers,
management consultants, general contractors, heavy construction
contractors, special trade contractors or subcontractors, and
construction workers, along with the owners, operators, and users of the
Olowo-okere (1985), (cited in Eshofonie, 2008)
asserted that most countries put over 55% of their gross domestic
investment into the creation of physical facilities, including
infrastructure that is necessary for development. The building sector
has various levels of manpower ranging from highly skilled
professionals to completely unskilled labourers. In developing
countries, physical construction activities alone provide between 2 and
6% of the employment demands of the nation and the subsidiary
activities provide an additional 2 to 4%, while in the developed
countries the figure rises to between 6 to 10% and 4 to 6 % (Cockburn
and Charles, 1970; Okeola, 2009). Ibironke (2004) and Shittu and Shehu
(2010) stated that the building industry plays a key role in satisfying
a wide range of physical, economic and social needs and contributes
significantly to the fulfillment of various major national goals.
The commercial banks form an important source by
which many investors get funds to finance building and other real
property projects. Commercial banks are money creating financial
institutions that perform three major functions, namely acceptance of
deposits, granting or loans and the operators of the payments and
The major issue in building, real estate development and
investment is finance. There is no iota of doubt that funding is an
important factor in real estate development and building projects. The
complexity and to a large extent, its capital intensive nature demands
proper and adequate funding to make it realizable. The terms and
availability of the needed funds determine the trend of building
operation. Availability and easy accessibility of building finance in
sufficient quantity will definitely accelerate all forms of property
development. Building financing is concerned with the production of
finance for building houses and office complexes which are basic
necessities in a growing economy like Nigeria. The benefits to be
derived from a rise in building financing in Nigeria are many and
1. Increased rural and urban houses for the teaming Nigerian population.
2. The construction of industrial estate for the localization of industries and commerce.
3. An increase in employment for those in the construction industry.
The sourcing of funds for investment in building development
poses a great deal of problem for the developer. This is largely due to
economic instability and stringent measures imposed by most financial
institutions. This is compounded by the fact that the interest rate
structure has had an unfavourable impact on funding the development of
building sector. Since the financing of building development is a long
term project, it has necessitated the high interest rate that is being
charged on the funds provided for such development purposes. Hines
(1995) revealed that six major building financing methods are used
across the world namely; Joint Venture, Equity and Debt Financing,
Sale-lease Back Financing, Advance Payment of key money and Sale of
1.2 STATEMENT OF THE PROBLEM
Over the years, the government had been the major player in the
area of building and housing development in Nigeria, by providing
direct finance to the builders for previous housing schemes. This was
embedded in the housing policy of past administrations but today, the
dwindling nature of revenue accruing to the government, coupled with
gross mismanagement and misappropriation of public funds and revenue has
prohibited the ability of the government to continue to play her role
as before (Nubi, 2000). The mortgage finance institutions are faced
with certain problems of low level of awareness of the services
rendered by the institutions, bureaucracy in the granting and
disbursement of mortgage loans to the borrowers, misunderstanding of
the banking terms by the depositors and the public due to the used of
technical and professional terms which are not understood by a layman
and problem of repayment of loans by the borrowers. Commercial banks
has the key player in the financial sector has contributed to the
development of various sectors of the Nigerian economy by funding.
However, the researcher will analyze the role of commercial banks in
financing building projects in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The general objective of this study is to analyze the role of
commercial banks in financing building projects in Nigeria and the
following are the specific objectives:
- To examine the role of commercial banks in financing building projects in Nigeria.
- To identify the role of other mortgage financial institutions in financing building projects in Nigeria.
- To identify the factors limiting financing of building projects in Nigeria.
1.4 RESEARCH QUESTIONS
- What are the role of commercial banks in financing building projects in Nigeria?
- What are the roles of other mortgage financial institutions in financing building projects in Nigeria?
- What are the factors limiting financing of building projects in Nigeria?
1.6 SIGNIFICANCE OF THE STUDY
This study has the following significance:
- This study will educate the general public, stakeholder in
real estate, government and policy makers on the importance of building
development and housing and the need for adequate financing of the
sector considering the roles of commercial banks and other mortgage
- Findings from this study will be useful for future researches
has it will constitute part of the empirical literature making it a
guide for future researchers.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study on the role of commercial banks in financing building
projects in Nigeria will cover all the financial investment in building
and real estate in Nigeria considering the contributions of the
commercial banks to the sector. It will also cover the activities of
other mortgage financial institution in financing building development
LIMITATION OF STUDY
Financial constraint- Insufficient fund
tends to impede the efficiency of the researcher in sourcing for the
relevant materials, literature or information and in the process of
data collection (internet, questionnaire and interview).
Time constraint- The researcher will
simultaneously engage in this study with other academic work. This
consequently will cut down on the time devoted for the research work.
1.8 DEFINITION OF TERMS
Building: a structure with a roof and walls, such as a house or factory.
Financing: provide funding for (a person or project)
Real estate: property consisting of land or buildings.
Commercial banks: '' A financial institution that provides
services, such as accepting deposits, giving business loans and auto
loans, mortgage lending, and basic investment products like savings
accounts and certificates of deposit.
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