By Yinka Kolawole
In a bid to boost home ownership in Nigeria, stakeholders in the housing sector are seeking ways of boosting accessibility to mortgage finance through a variety of  funding alternatives.

The nation’s housing deficit estimated to be about 17 million units has been attributed mostly to the virtually non-existent and/or ineffective mortgage market in the country. Available statistics show that the contribution of formal mortgage finance to home ownership in Nigeria is negligible, with about 98 percent of the estimated 11 million existing housing units in the country being self-built.

The major source of mortgage lending for average earners in Nigeria today is the National Housing Fund (NHF), which was established by Decree No. 3 of 1992 to facilitate the continuous flow of low-cost funds for long-term investment in housing for the benefit of all Nigerians.

The fund is managed and administered by the Federal Mortgage Bank of Nigeria (FMBN) which provides long-term housing loans to individuals through wholesale lending to primary mortgage institutions (PMIs).

There are a wide range of challenges confronting the mortgage sector in Nigeria. These include low earning capacities relative to mortgages required; non-availability of structured long-term funding creating miss-matches, and no secondary market for refinancing.

Other challenges are complicated and expensive process of registering mortgages and socially irrelevant foreclosure laws; and high default probability with non-fixed income groups.

The apparent lack of interest on the part of government to address these issues has prompted stakeholders to seek possible means of boosting the mortgage sector.

The Mortgage Banking
Association of Nigeria (MBAN), umbrella body of primary mortgage institutions (PMIs) in Nigeria, recently proposed to establish a mortgage liquidity facility institution with the support of the World Bank.

The proposed institution is aimed at providing a lifeline to mortgage operators by engendering a vibrant secondary  mortgage market in the country and thus boost activities in the dipping operations in the primary mortgage market.

Under the proposal, the World Bank pledged support to the proposed institution, which will be in
the form of a special purpose vehicle as a short term strategy in the provision of long term,
optimal interest rate funding for the mortgage/finance sector in Nigeria.

The institution is expected to function as a refinancing company to be jointly owned by stakeholders such as MBAN/Primary Mortgage Institutions (PMIs), African Development Bank, IFC, the CentralBank of Nigeria (CBN) and other interested investors, with an approved management structure and a board of directors, made of investors.

MBAN also recently called for the creation of an ‘Intervention Fund’ to drive long-term mortgage financing, in a memorandum to the Committee on Finance of the Lagos State House of Assembly, on the Lagos mortgage draft bill. It asserted that without such intervention, the mortgage bill will be ineffective.

“The current approach to home-ownership in Nigeria is predominantly on a cash-and-carry, rather than mortgage credit basis. This has stunted the evolution of a mortgage culture in Nigeria and has also hindered the use of mortgage financing as a vehicle for effectively meeting up to government housing development policies and by extension, affected the overall development of the Nation’s economy.

“Owing to the high population growth, Lagos State needs well over 250,000 new housing units per annum for the next 20 years, in order to reduce the current deficit. However, going by the average income of the Lagos State middle-class citizens, this feat cannot be achieved without infusion of Intervention Fund to drive long term mortgage financing,” MBAN stated.

The Real Estate Developers Association of Nigeria (REDAN) has also disclosed plans to float a Special Purpose Vehicle (SPV) to boost development of mass housing in the country.

National President of the association, Chief Olabode Afolayan, said the SPV to be known as REDAN Capital is to help developers in the area of bulk purchase of building materials such as cement, iron rods and roofing materials and as well grant subsidy.

He alleged that some PMIs, especially  those floated by commercial banks, were in the habit of collecting money from the Federal Mortgage Bank of Nigeria (FMBN) on behalf of developers, while  holding on to the money and later diverting it to do their own business or using same to build their own housing estates.

This, according to him, prompted developers to explore the modality of setting up their own Primary Mortgage Institution (PMI) through REDAN Capital for the purpose of financing their operation and to avoid unnecessary delay and competition from banks who are supposed to provide funds for housing development.

Mr. Fortune Ebie, a foremost real estate consultant, on his part, has advocated the introduction of government subsidy in housing development. In a recent interview with Vanguard, he noted that there is no country in the world which is doing well in housing where the interest rate in housing is not subsidized for a particular group.

“You don’t need to ask the capital market to reduce the interest rate, that is not the issue. The prevailing rate of interest in the market, let’s say for borrowing from primary mortgage institutions (PMIs) is 19 percent. What is done elsewhere, and what should be done here is that the state government or the federal government now decides that I want my citizens to have this money at 9 percent.

So, the government pays the difference between 9 percent and 19 percent as subsidy. “If you want your citizens to be housed, you must develop mechanics which will not affect the operations of the capital market and the open market. So you must have gimmicks or methodologies that can enable you subsidize the people,” he stated.