by Geoff Iyatse
HOUSING has been a major challenge in Nigeria due to poor mortgage system, unfavourable land policy, high cost of building materials and lack of technical/manpower capacity. Different administrations have adopted different approaches aimed at addressing these multiple challenges while emphasis has been on mortgage.
Managing Director/Chief Executive of the Federal Mortgage Bank of Nigeria (FMBN), Gimba Ya’u Kumo, revealed, last year, that the agency will require a capitalisation of N200 billion to make a meaningful impact in resolving housing deficit currently put at over16 million units. The capitalisation translates to 4000 per cent increase on its current N5 billion. A research by the World Bank indicates that Nigeria needs as much as N59.5 trillion to close the gap. The estimation is arrived at a conservative construction cost of N3.5 million per unit.
President Jonathan reaffirmed the enormity of the challenge when he said it would cost the country a minimum of N56 trillion to fill the gap. The cost, he said, does not include infrastructure. Jonathan noted that mortgage, as a key component, must be addressed.
Issues concerning mortgage have taken the centre stage in efforts to achieve affordable housing dream of the country. In recognition of the importance of housing to national development and considering that banks have access to cheap sources of funds through retail deposits and adequate skills to manage associated risks, the Central Bank of Nigeria (CBN) has always encouraged lenders to support the sector.
In particular, the CBN has, through its credit policies, required banks to allocate a stipulated minimum proportion of their credit portfolio to housing/construction sector. In 1979, for instance, banks were required to set aside five per cent of their total credit for the sector. It was raised to six per cent in 1980 and 13 per cent in 1982.
Where banks failed to meet the target, the shortfalls were deducted at source from the deposits with the apex bank and transmitted to the sector through FMBN. In the spirit of free market rule, the capping was removed in 1993. The liberty exposed the under belly of real estate funding. As statutory privilege enjoyed by the sector in terms of credit was removed, banks’ interest in mortgage began to wane.
Real sector caught the interest of banks after the Chukwuma Soludo reconsolidation. On the account of huge proceeds from public offers and the temporary rise of the middle class, the banks suddenly found huge opportunities in upscale real estate markets such as Lekki, Maitama and Asokoro. Instead of mortgage lending, banks took to direct participation in housing development. Through their Primary Mortgage Institutions (PMIs), they were aggressively involved in execution of primed estate projects, except that the ranges delivered were not in affordable scale.
Former Governor of CBN, Joseph Sanusi, said the long-term funds held by insurance companies also makes the sector “well suited to provide housing finance.” He observed that, unlike banks, insurers have stable liabilities that could be mobilised for mortgage, saying: “Funds from life insurance companies also provide resources for the financing of the housing sector in Nigeria.”
A major competing institution with banks and insurance companies in housing funding is the FMBN. PMIs and building societies have also played active role. Then, there is the National Housing Fund (NHF), a special purpose vehicle (SPV) of the FMBN and the new Nigerian Mortgage Refinance Company (NMRC), which is expected to give life to the struggling secondary market.
The sector has, indeed, wobbled for too long. Historically, commercial banks, which place premium on short-term funding, seem to exercise more dominance than the mortgage sectors. And until recently, leading PMIs were subsidiaries of the money deposit banks (MDB). What this implies is that they could only operate under the broad plan and business model of their parent companies.
FMBN came to existence by virtue of Decree No. 7 of 1977 as a direct federal government intervention to accelerate its housing delivery programme. It is expected to expand and coordinate mortgage lending on a nation-wide basis, using deposits mobilised and equity contributions by the Federal Government, CBN and private individuals at interests that are below the market rates.
By mid-1980s, the FMBN was the only mortgage institution in the country. The promulgation of the Mortgage Institutions Decree of 1989 provided regulatory framework for the establishment and operation of PMIs by private entrepreneurs. The FMBN under the decree became the apex institution, which also regulates PMIs, which were expected to spur private sector participation in real estate funding. The operators have gone through phases of restructuring and development but it is not clear whether they have been able to mobilise sufficient private support for housing credits.
When the NHF was established through Decree No. 3 of 1992 as a mandatory contributory scheme to mobilise cheap and long-term funds for housing credit, it looked like the required breakthrough had arrived. The Fund represented the financial component of the National Housing Policy, which was adopted in 1991.
It is aimed at encouraging a multiplication of housing finance institutions, enhancing mobilisation and growth of long-term funds and making loans affordable to more borrowers. Other objectives of the fund include: ensuring constant supply of loans to Nigerians for the purpose of building, purchasing and improvement of residential houses while providing incentives for the capital market to invest in property development. It encourages the development of specific programmes that would ensure effective financing of housing development and providing long-term loans to mortgage institutions for on-lending to its contributors.
Most importantly, it is expected to insulate the housing finance system from the fluctuation that had characterised past reliance on government intervention. While the PMIs targets investors, NHF targets the labour force, which all workers earning N3,000 per annum or more are to contribute 2.5 per cent of their monthly salaries at an interest rate of four per cent to each savings/contribution made.
Again, the scheme has been trailed by controversies and debates as to whether it has been successful or not. There are cases where employers make deductions that are never remitted to employees’ accounts. A staff of an insurance firm once told The Guardian that not a kobo was remitted into his account after his eight years of service at his former company. He only realised that the money was not paid when he resigned.
Also, a huge percentage of contributors lack appropriate knowledge of how to take advantage of it. Contributors who fulfill the minimum requirements specified by the law are to apply for mortgage loans through their PMIs.
The inability of the enforcers to implement the full provisions of the scheme, which include jail terms in case default, has been a major concern. There are no record cases where companies that fail to remit contributions, for instance, have been penalised.
Also Banks and insurance companies, which are supposed to be major contributors, have failed to fulfill their obligations. It was reported that the two sectors owed about N8.58 trillion between 2006 and 2010.
Experts have made case for its amendment while workers moved for the scrapping of the Fund. Minister of Labour and Productivity, Emeka Wogu, suggested some time that the Federal Government would consider heeding the demand of workers. He, however, said that setting aside the scheme would require the approval of the National Assembly since it is a product of an Act.
Recently the Federal Government added to the list of mortgage bureaucracy that has yielded little or nothing when it established the refinance company. Indeed, experts, including President of Option One Home, ‘Biodun Adeniji, said only a robust secondary market would unlock the huge opportunities in the sector. Some years back, Union Homes Savings and Loans Plc heralded the real estate investment trusts (REITs).
At the listing of the stocks sold at well-publicised public offers, there were lots of talks on how the funds would help the economy realise the full potential in the housing sector. Skye Shelter Fund followed the step of Union Homes, increasing the hype around REITs as the next long-awaited frontier of housing fund and the anchor of the non-existing secondary market. But that option, too, has not added much value.
Sitting on a seed capital of $250 million, NMRC’s direct involvement in the housing sector is expected to turn out 75, 000 new homes yearly. Does this sound like the breakthrough Nigerians have been waiting for?
Steve Ozili, a real estate consultant, said the multiple approaches adopted in the years seem to have loses track with the real problems facing the sector. He noted that ownership structure, the Land Use Act and process of acquiring land are critical issues that call for fresh intervention.
“It is not just about opening a mortgage institution and thinking that the problems are over. We need to pay attention to infrastructure and enabling environment. We should focus on addressing the defects in the economics of loans. You can open 100 mortgage institutions. But what is the guarantee that they will be effective? Why have the existing institutions failed to boost home ownership,” he noted.
While governments talk about public private partnership as useful vehicle in addressing the housing needs of the people, Ozili said the fundamentals for achieving success in the financing model are lacking. He said proper management of the national economy is critical to the success of PPP.
Ozili described NHF as a farce, asking: “What is the earning of an average Nigerian compared to the cots of the smallest unit of house in the market? There is no correlation between the cost of building and the economy of an average worker. A 30-year contribute of an average worker may not be able to finance one-bedroom flat let alone a bungalow. It is a combination of factors. How do people get land? What structure do we put in place to ensure that land is evenly distributed? What encouragement/incentives does government gives to developers?”
He noted that the challenge in housing could not be addressed through a single approach, urging the government to ease the process of land procurement and scale down the cost of land titles.
