By Emeka anaeto
We ended last week’s edition on some key requirements for preparing a bankable security which we gave as follows: VALUATION STANDARD, LEGAL OWNERSHIP, CASHABILITY and DEPRECIATION/ APPRECIATION. In this edition we shall be shifting our focus on forms of security usually common amongst almost all banks in Nigeria.
REAL ESTATE (LANDS and BUILDINGS)
Until recently in Nigeria property in form of real estate and in this instance lands and buildings are the most common and acceptable security for bank lending. Bankers believed it is most reliable and marketable coupled with the fact that the value appreciates over the years. If you check the key requirements for acceptable bankable securities you will see that once the appropriate legal ownership is ascertained this easily fits the best for the purpose of security for loans.
For the purpose of valuation equitable to the value of loan the property for loan security would be determined by its location and state of development. For just land you would consider whatever is attached to it, like buildings and its neighborhood and this would mean classifying if it is developed land/ neighborhood or underdeveloped one. Developed is defined by the Land use Act of 1978(S 51) as “a land where there exist any physical improvement in the nature of road development, services, water, electricity, drainage, building, structure or such improvement that many enhance the value of the land for industrial, agricultural or residential purposes”
‘Undeveloped’ is usually without the above physical improvements. Though bankers prefer developed lands as security for loans some well positioned land with developed surroundings will attract and qualify for bank loans. The value of the land must be well over the amount of the loan being considered for the bank customer. Note that though you may place a value on your property, the bank would still rely on its estate valuer for its own figures inspite market value.
In addition to this the bank would usually discount values on property pledged for loan despite the fact that the property, in most cases, would appreciate in value.