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How to create robust mortgage industry




Provision of decent and affordable housing in Nigeria has become a daunting task for both governments and private sector. This is because even when government admitted its lack of capacity to provide housing and introduced what it termed Public Private Partnership (PPP) in the sector to shelter the teeming population, it has remained an Herculean task with no solutions in sight. Although this challenge is not exclusive to Nigeria, other countries world over have devised means of curtailing their own problem while Nigeria still lives in the euphoria of being the largest economy in Africa and one of the fastest growing in the world.

But experts have argued that the establishment of vibrant mortgage industry would help those who do not have the resources to finance their own housing. This means that people can borrow money from any mortgage facility or seek the services of builders or developers in the country. Mortgage could therefore be explained to mean a loan given to an individual or a couple to purchase/own a home without paying for the property upfront, while using the same property as collateral for the loan. The mortgagor who is the loan receiver is usually required to make an equity contribution of about 20 per cent, which is called down payment.

The primacy of the housing question had spurred the United Nations to promote the programme of housing for all by the year 2000 even though UN failed at the initial stage to study the challenges facing housing deficits in various countries. This is why good quality housing, as a basic need, is lacking for a sizeable number of Nigerians. It is such that the medium and low income segments of the population, most of whom live in urban centres, suffer severe housing crisis.

The World Bank, in a recent publication, estimated that the cost of bridging Nigeria’s 23 million housing deficit is N65.5 trillion, underlining the vast and untapped investment potential of the country’s real estate sector.

This housing problem has lived with us since time immemorial that in November 2013, the then President, Goodluck Jonathan, admitted that Nigeria had housing deficit and that the country needed a minimum of N56 trillion to bridge the country’s 17 million housing deficit postulated by the World Bank then. This figure is, however, not too far from the estimates of the Federal Mortgage Bank of Nigeria (FMBN), which stated then that it would take about N56 trillion to adequately meet the housing needs of Nigerians with the figure based on a conservative cost of construction at N3.5 million per unit.

It is an obvious fact that fundamentally, the nation needs more than 20 million housing units to bridge the housing deficits in the country, and providing these houses will cost more than N56 trillion at a conservative cost of N3.5 million per unit. This, however, is a colossal amount which cannot be funded only through the National Housing Fund (NHF) but requires urgent injection of funds from both the government and the private sector.

However, experts have identified that the Land Use Act, which resides ownership of land in state governors, and a cumbersome property registration process are major barriers to housing development and home-ownership leading to the country’s huge housing deficit. The experts believe that until the Act is reviewed or amended, improved housing development would continue to remain a pipe-dream. Real estate and financial experts who agree with the World Bank’s submission also explained that the real estate sector remains a viable option for investors seeking guaranteed returns on investments, saying that several opportunities exist in the sector.

In all these, a lot of challenges have bedevilled the system bringing it to a non-workability status. The appropriate quarter in charge of the mortgage facility has not done enough to create awareness to the public that such facilities exist. The high rates charged by domestic financial institutions always discourage would-be participants. Again, the lack of capacity by mortgage institutions and mortgagors try to pull down the facility resulting in difficulty in obtaining, perfecting and transferring title documents. The Land Use Act has also remained a stump in the process with mortgagors not being sure of the next action of the mortgage.

There is also the legal charges that are not streamlined coupled with the dearth of long-term commercial mortgage facilities. The mortgagors also see the low interest rate on NHF investment with limited sources of fund supply as discouraging factors. In this regard, whether you are going to access mortgage via home purchase mortgage, refinanced mortgage, equity release mortgage, buy-to-let bases or land purchase mortgage, the most challenging factors are the way and manner the public sees it. For the public to change their already entrenched perception of mortgage facility, a series of campaign and promotion is expected to create the necessary awareness.

In the estimation of the World Bank, some of the numerous opportunities available in the sector include private equity players who are capable of making big investments; financial institutions that can float real estate funds and pension regulators who can build a robust framework for real estate funds investment. Other opportunities enumerated by the World Bank are the adaptive re-use of properties by banks in the form of converting properties and taking stakes in new deals. Opportunities for hotels, events and recreational centres, shopping malls, estates, among others, are also available.

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