By Jude Njoku
With a housing shortfall estimated at between 16 -17 million units, Nigeria is believed to have one of the highest number of homeless people in the world. Majority of these people fall within the low-income or vulnerable group. Apart from the non-availability of land as a result of the Land Use Act of 1978, dearth of housing finance has been fingered as the greatest factor inhibiting the provision of shelter for the Nigerian masses.
Not even the National Housing Fund NHF which came into being via Decree No. 3 of 1992, to provide cheap loanable funds to those who want to build or buy their own houses, has made any significant positive impact. Nigeria has a total of 102 Primary Mortgage Institutions PMIs and each of these PMIs has capital base of N100 million.
The argument in many quarters is that the PMIs lack the financial backbone to finance residential housing developments in the country. The near absence of a secondary market and the high rate of interest charged by banks, has made mortgage financing very unattractive. Thus, cash and carry in property sales is the order of the day in Nigeria. Built environment and financial experts posit that this trend will not worsen the housing problems in the country.
A former National Secretary of the Nigerian Institution of Estate Surveyors and Valuers, Mr. Kola Akomolede noted that because of the capital intensive nature of building or owning a property, it is not often that an individual can muster the savings from his legal income to buy or build a house. In the civilized world, he said, “ nobody expects you to pay fully at once to buy a house”.
High interest rates killing mortgage finance
“ But here in Nigeria, it is “cash and carry” even for houses built and are being sold by the government. In other parts of the world, all that is required of you is a proof of employment with steady income and five to 10 percent of the cost of the house and you can secure a mortgage for as long as 30 years repayment and a reasonable interest rate of between four to six percent per annum. But what do we have in Nigeria, an interest rate of about 18 percent and 22 percent where applicable,” Akomolede who is the President, FIABCI Nigeria lamented.
His views were corroborated by a past NIESV president, Mr Joe Idudu. Idudu who is the immediate past president of the Estate Surveyors and Valuers Registration Board of Nigeria, described mortgage finance as crucial in the delivery of houses.
“It is only in Nigeria that you are expected to pay cash and carry a property. Elsewhere, especially in the civilized world, houses are bought through mortgages and the balance is structured in a way that it doesn’t impinge on your income. Here if you are buying a property of N20 million, you will be expected to pay cash,” he lamented.
He stated that the phenomenon of advance rent is not the creation of the estate surveyors but the financiers (banks) who demand repayment of loans in two years at very high interest rates. According to him, the only way to get out of the problem to pass it unto the tenant in form of advance payments. “Mortgage finance is the sinequa non to housing delivery. Although land, materials and labour are costly, you can pay for them and solve a lot of the problems that go with housing if you have money,” he said.
Low contribution to GDP
Deputy Governor, Financial Services Surveillance, Central Bank of Nigeria, CBN Kingsley Moghalu, was quoted as saying that mortgage finance currently contributes less than one percent of the country’s GDP. This is in contrast to other emerging markets, like Malaysia, where it accounts for over 25 percent, 29 percent in South Africa and 85 percent in New Zealand.
Moghalu identified some of the major impediments to housing/mortgage finance in the country as the dearth of long-term funds; absence of mortgage re-finance/liquidity companies or a secondary mortgage market and inadequate branch network of Primary Mortgage Institutions PMIs for easy disbursement of loans from the National Housing Fund. Others include: a poorly designed National Housing Fund; inadequate capital and weak corporate governance of the FMBN; inadequate skilled labour and high cost of building materials.
Poor capital base of PMIs
The president of the Real Estate Developers Association of Nigeria, REDAN, Mr Olabode Afolayan enumerated a plethora of factors affecting the mortgage industry in the country. According to him, the 100 million Naira capital base for primary mortgage institutions PMIs and N5 billion for the Federal Mortgage Bank of Nigeria, FMBN, are inadequate to do effective mortgage banking transactions. The REDAN boss regretted the absence of foreclosures in Nigeria, also faulted the operations of commercial banks who are only interested in giving out hot funds for real estate development.
But the Managing Director of Safetrust Savings and Loans Limited, Mr. Yinka Adeola is more interested in what would be done to make the sector more effective. He listed a number of factors that could help in reforming the mortgage industry.
They include long term funding supported by the availability of secondary refinancing windows and low interest rates, less government regulation and control, amending the Land Use Act and computerising land titling through the use of Geographic Information system GIS to hasten and reduce cost of transactions in land thereby enhancing accessibility for development purposes. Others include the establishment of cooperative housing models and stability of economic factors such as interest rates, inflation and exchange rate.
Requirements for accessing NHF Loans
•To access the National Housing Fund mortgage loans in Nigeria, you must be registered with the NHF and open a National Housing Fund Loan Account. This can be done directly through your employer or through a primary mortgage lender.
•You must own a piece of land with transferable title. Allocation paper is not acceptable.
•You cannot obtain NHF loan to buy land.
•You must be a contributor to NHF for at least the past six months.
•Open a home ownership account and build up 10 percent equity contribution to the funding of the project.
•Have satisfactory evidence of regular flow of income to guarantee the loan
•Have an approved building plan