February 11, 2013

Mortgage financing: Experts advocate use of idle funds


Some experts in the built environment have called for the pooling of idle funds in the nation’s economy to provide low interest mortgage financing, as a possible way of enhancing home ownership in Nigeria and thus reducing the huge housing deficit in the country.

They posit that such is not a new consent as it is practised globally where idle public funds are used to finance construction of government-subsidised housing. They lamented that mortgage financing is yet to have any significant impact in the country, arguing that the sector is a potential national income earner.

Speaking at the recent inaugural members’ dinner and cocktail night of the International Real Estate Federation (FIABCI), Mr. Joe Idudu, a past president of Nigerian Institution of Estate Surveyors and Valuers (NIESV), noted that currently, mortgage finance contributed less than 1 percent of GDP in Nigeria, which contrasts sharply with what obtains in some emerging markets.

He specifically declared that idle funds such as unclaimed dividends are needed to address the appalling state of mortgage finance in the country. “The major problem of mortgage today is that it is too expensive to manage as interest rates are very high. What we need is seed money such as idle funds like unclaimed dividends to serve as buffers to bring down the rates,” he said.

Idudu remarked that all efforts by government to reform the mortgage sector has been largely unsuccessful because there are not enough funds being injected into the sector to assist in driving it. He recalled that some measures introduced by the Central Bank of Nigeria (CBN) in 2006 in order to galvanise the sector over a period of five years could achieve the desired results because of paucity of funds available to operators in the sector.

In the same vein, mortgage banks operators and estate developers have been courting the federal government to encourage the investment of a chunk of the pension funds running into about N3 trillion in the mortgage sector. Managing Director of Sun Trust Savings and Loans Limited, Mr. Mohammed Jibrin, noted that being a long-term funds, the pension funds is best suited for investment in the mortgage sector which is also long-term in nature.

“The Pension Reform Act, 2004, has made it possible for people to have a contributory pension scheme in place. The pension industry has an estimated N2.4 trillion of pension funds under management. These are mostly long-term funds and are the most qualified to support the mortgage industry in attaining its millennium development goals. But these funds, understandably, are mostly locked up in government treasury bills and bonds.

“These (pension) funds have to be unlocked and made available for the real estate sector. This is because the funds are basically, as I pointed out, long-term and you may not have the problem we experience today in terms of mismatch in the maturity profile of the loans we grant, because mortgage loans are long term as against the deposits we take that are mostly short-tenured.

If you do an actuarial valuation of the pension funds managed by the PFAs (Pension Fund Administrators), the minimum average number of years the money will remain with the PFAs is about 20 years. This is what we call long term money. This is the type of money you expect should go into the housing and mortgage sector,” he stated.

Jibrin asserted that mortgage bank operators have been in constant dialogue with key functionaries in government on the development. “There have been varied meetings and position papers to this effect. Minister of Housing and Urban Development, Ms. Ama Pepple has been holding stakeholder meetings with the sector.

She has set up committees, and the Federal Mortgage Bank has been providing the necessary support to this effect. I am aware that the Minister of Finance and the Coordinator of the Economy, Dr. Ngozi Okonjo-Iweala, is committed to and looking at the housing sector as a catalyst for growth and employment generation.

I know that the Housing and Finance ministers have been working together to ensure that the housing sector is jump-started seriously this year. It is on top of their radar. The idea is to create jobs in the economy. CBN needs to get involved too by providing the necessary funds and credit guarantees to the Federal Mortgage Bank of Nigeria (FMBN) in particular and to the sector in general.

The Nigerian housing sector is one of the most diagnosed sectors of the economy. The issues that are militating against its development are very clear,” he added.