Nigerian banks are tightening their lending standards as land and buildings—once considered the most reliable form of loan security—are now being classified as high-risk collateral.
The shift follows widespread demolitions, title revocations, and increased regulatory enforcement across several states, raising concerns about the stability of property-backed lending in the country.
For decades, lenders relied heavily on property documentation such as Certificates of Occupancy (C of O) and approved building plans as solid assurance for loan recovery. But recent events have exposed deep structural and regulatory vulnerabilities in the real estate ecosystem.
Industry analysts warn that the uncertainty surrounding property titles, coupled with stricter enforcement of urban planning laws, has created a level of unpredictability that now undermines the acceptability of real estate as collateral.
Title Problems and Regulatory Risks Fuel Bank Concerns
Experts estimate that nearly 70% of properties in Nigeria carry incomplete, disputed, or unverifiable documentation, making it increasingly difficult for banks to establish clear legal ownership. Without certainty, lenders cannot guarantee the recovery of assets when borrowers default.
Even when titles appear valid, many properties fail to meet building-permit or urban-planning standards. The spate of demolitions—often linked to unauthorized developments—has resulted in sudden loss of collateral value for both borrowers and lenders.
Financial institutions say this instability has raised major red flags about legal and regulatory exposure.
Valuation Gaps Complicate Lending
Banks and estate surveyors also report significant discrepancies between market valuations and the more conservative assessments applied by lenders. These gaps reduce the loan-to-value ratios banks are willing to approve, limiting how much credit borrowers can access.
Real estate liquidity is another challenge. In certain locations, properties take extended periods to sell, making recovery in default situations both slow and uncertain.
Impact on Borrowers and the Real Estate Market
The shift has wide-ranging implications for Nigeria’s credit ecosystem:
Tighter lending conditions: Banks are reducing exposure to property-backed loans and increasingly demanding additional collateral.
Mortgage bottlenecks: Access to home loans may decline, affecting middle-income Nigerians and slowing homeownership growth.
Shift toward alternative collateral: Lenders are exploring income-based lending and movable-asset financing to sustain credit flow.
Developer financing constraints: Real estate developers may face tougher loan approval processes, slowing project delivery.
Experts Call for Urgent Reforms
Stakeholders agree that restoring confidence in real estate as collateral will require sweeping reforms, including:
- comprehensive land registration and documentation,
- unified title verification systems,
- stricter enforcement of planning approvals,
- and improved valuation standards.
They warn that without meaningful reforms, the real estate sector’s potential to support Nigeria’s housing finance system and broader economic development will remain severely constrained.
