By Yinka Kolawole
The virtually non-existent mortgage market in the face of a worsening housing situation in Nigeria, currently estimated to be in deficit of 17 million housing units, have jolted sstakeholders into seeking alternative financing for housing development in the country.

A mortgage is a long-term loan used to finance the purchase of property, and a major financial instrument that facilitates easy accessibility to affordable housing. Out of the estimated 11 million existing housing units in the country, 98 percent are self-built with formal mortgage financing scarce and inaccessible

In Nigeria today, the major source of mortgage lending for average earners comes mainly from the National Housing Fund (NHF). It 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),who provides long-term housing loans to individuals through wholesale lending to primary mortgage institutions.

PMIs are to mobilize savings from the public and grant housing loans to individuals, while FBMN mobilizes capital funds for the PMIs. It is therefore possible for an individual to walk up to an authorized PMI to help him with the necessary application procedure for a mortgage facility.

A mandatory contribution from Nigerian workers in both the public and private sectors is required, it is added on a monthly basis of 2.5 percent to the housing fund. Mortgage loans are granted at a 4 percent interest to accredited PMIs by FMBN, for on-lending at 6 percent to NHF contributors over a maximum tenor of 30 years.

To qualify for the NHF loan, a person must be a contributor to the fund for not less than 6 months, and must also have satisfactory evidence of a regular income flow to guarantee loan payment.

There are, however, 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.

Nigeria was recently classified by the World Bank, in its “Doing Business 2010 Report”, as the worst place to do property business in Africa, ranking the country last among the 46 countries surveyed in the continent on the ease of registering property, and 178 out of 183 countries in the world. The report noted that, on the average, it requires 13 procedures, takes 82 days, and costs 20.9 percent of property value to register a property in Nigeria.

The Mortgage Banking Association of Nigeria (MBAN), umbrella body of primary mortgage institutions (PMIs) in Nigeria, recently called for the creation of, what it called, 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.

Mr. Fortune Ebie, respected real estate consultant, also made a case for government subsidy in housing development in an interview with Vanguard. According to him, 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.

On his part, Mr. Sylvester Akele, Director, Research and Planning of SEC, believes that Mortgage-Backed Securities (MBS) and mortgage bonds are the needed instruments to tackle  the perennial housing problems. He noted that the successful issuance by the Federal Mortgage Bank of Nigeria (FMBN) of a N100 billion Residential Mortgage Backed Bonds in 2007 attests to this.

For Mr. Yacoob Abiodun, an urban planner and former secretary, Housing Policy Council, adopting a policy of social housing is the way out. According to him, most governments, both in developed and developing countries, adopt a system of affordable housing such that the segments of the income strata classified as low-income groups are protected from the vagaries of the housing market, which often preclude these individuals to have decent housing in wholesome environment due to insufficient finance.

“From a vibrant social housing activity, Nigeria would be able to increase her housing stock through annual housing construction. A sustainable mortgage finance system (which hitherto has not been well-developed due to low patronage) would be made possible because there would be quick turnover for private developers as a result of ready and adequately financed consumers,” he stated.