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 stakeholders 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). The NHF 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 and 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).

The PMIs mobilize savings from the public and grant housing loans to individuals, while FBMN mobilizes capital funds for the PMIs. Mortgage loans are granted at a 4 percent interest to accredited PMIs by the Federal Mortgage Bank of Nigeria, for on-lending at 6 percent to NHF contributors over a maximum tenor of 30 years. The NHF decree made it mandatory Nigerian workers in the public sector to contribute 2.5 percent of their monthly salary to the fund.

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.

In an interview with Vanguard sometime ago, former chief executive of Federal Housing Authority (FHA) and a foremost real estate consultant, Mr. Fortune Ebie, made a case for government subsidy in housing development.
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.

A Director of the Securities and Exchange Commission (SEC) believes that Mortgage-Backed Securities (MBS) and mortgage bonds are the needed instruments to tackle to the perennial housing problems. He cited the successful issuance by the Federal Mortgage Bank of Nigeria (FMBN) of a N100 billion Residential Mortgage Backed Bonds in 2007 as attestation to that.

Mr. Yacoob Abiodun, an urban planner and former secretary, Housing Policy Council, asserted that 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.

The Nigerian mortgage sector presents investment potential of a huge magnitude based on a large market, national population of 150 million people with a substantial portion in the working group; and a demand for housing of over 17 million units.