Secured Land Tenure: A Critical Determinant for Investor Access to Bank Credit
How Nigeria’s Land Tenure System Limits Investor Access to Bank Loans
The legal framework governing land tenure remains a primary barrier to credit expansion within Nigeria’s real estate sector. In the current financial climate, commercial banks and mortgage institutions treat verifiable land titles as the non negotiable anchor for collateralised lending. Consequently, the inability of investors to perfect land titles effectively excludes a vast portion of real estate assets from the formal credit market.
Industry analysts highlight that while land is a primary store of wealth in Nigeria, the administrative complexities of the Land Use Act of 1978 continue to render much of this wealth "illiquid." Without a valid Certificate of Occupancy (C of O) or the mandatory Governor’s Consent, properties are technically classified as high-risk assets, leading to loan denials or prohibitive interest rates.
The Structural Link Between Titles and Lending Risk
For Nigerian banks, land tenure security is synonymous with risk mitigation. A perfected title provides the legal certainty required to enforce foreclosure in the event of default. According to recent market analysis, over 80% of land in Nigeria remains untitled or unregistered, creating a massive gap in bankable collateral.
The current system’s inefficiencies where title registration can take between six and 24 months create a "valuation lag." During this period, investors are often unable to access the capital needed for construction, leading to project stalls and increased costs of development. Furthermore, transaction costs, including official fees and informal payments, can reach 10% to 20% of the property value, further de-incentivising formal registration.
Economic Consequences of "Dead Capital"
The inability to leverage land for credit has significant macroeconomic implications. Current data suggests that private sector credit to GDP in Nigeria remains below 15%, a figure significantly lower than peer emerging economies. More specifically, mortgage credit to GDP remains below 1%, illustrating a disconnect between property ownership and financial liquidity.
When land remains untitled, it becomes "dead capital" an asset that exists but cannot be used to generate investment or support modern credit markets. This lack of formalisation forces many developers to rely on expensive short-term financing or personal equity, which limits the scale of housing projects and contributes to the national housing deficit.
Institutional Bottlenecks and Reform Imperatives
The centralised nature of land ownership, where the State Governor holds land in trust, introduces an element of political and administrative discretion that complicates mortgage charges. While some states have moved toward Geographic Information Systems (GIS) and digital registries to expedite searches, the underlying legal requirements for Governor's Consent remain a major hurdle.
Experts argue that for Nigeria to transition to a more liquid credit market, several reforms are necessary:
Digital Land Registries: Full automation of land records to prevent multiple allocations and fraud.
Consent Reforms: Simplifying or decentralising the Governor’s Consent process to reduce timelines.
Foreclosure Laws: Strengthening legal frameworks to allow lenders to recover assets more efficiently, thereby encouraging long-term lending.
The security of land tenure is a vital economic engine that dictates the flow of institutional capital into the housing sector. For investors, the priority remains the acquisition of "bankable" titles to ensure project viability. From a policy perspective, bridging the housing gap will require more than just construction; it demands a fundamental shift in land administration that transforms land from an illiquid asset into a dynamic tool for credit generation.
