When recently the Central Bank of Nigeria (CBN) governor, Godwin Emefiele, laid out his five-year policy thrust that included recapitalising the banking industry to enable the banks maintain higher level of capital as well as liquid assets, it triggered apprehension that the policy might cascade to the country’s fledgling mortgage industry.
The subdued yet persisting anxiety, especially among the primary mortgage banks operators, is not misplaced given their recent history and experience with recapitalization. Again, the mortgage industry in the country has disquieting statistics enough to compel conclusion that the problem of the industry goes beyond recapitalization.
At the moment, the capital base of the primary mortgage banks (PMBs) stands at N5 billion for operators with national licence and N2.5billion for those with regional licence. The capital base was raised from N100 million following an earlier recapitalization and consolidation that also reduced the number of PMBs to 34, down from over 80. Ten of the 34 are national while the rest are regional operators
Available records also show that the size of the mortgage market as at 2010 was N284 billion and in 2012, it was N348.1 billion. In 2016, the industry was valued at N518.76 billion. In spite of this, only about 5 percent of the country’s housing stock estimated at 13.7million units is in formal mortgage.
Another worrisome statistics on this industry shows that for the whole period spanning 1960 to 2009, the industry generated only 100,000 transactions, and 181,519 transactions from 2010 to 2016. Worse still, the contribution of mortgage finance to Gross Domestic Product (GDP) in the country is less than one percent.
Like other close watchers of this industry, we are worried about these statistics. We are all the more worried that despite the recapitalization and the recent N18 billion refinancing of some PMBs by the Nigeria mortgage refinance company (NMRC), the industry’s impact on the housing sector remains to be seen.
It is believed that the inability of the industry to impact positively on the housing sector in spite of improved liquidity means there are fundamental problems that need to be tackled before anybody considers another round of recapitalization for the struggling PMBs.
Nigeria has a staggering housing deficit that is over 20 million units. The cause of the gap is traceable to identified problems in the mortgage industry which, in turn, are the causes of the slow growth which the industry has suffered over the years.
Mortgage in the country lacks clarity. It is inaccessible and also unaffordable. When Nigerians who actually need mortgage to buy or build houses approach the PMBs for loans, they are always asked to provide things they don’t have, meaning that mortgage is not accessible for those that actually need it.
Lack of clarity in the mortgage industry means there is no unified system and this, to us, is a major problem. As it is today, there is nowhere the government has published a mortgage rate which the mortgage banks have to use or a mortgage standard or process which the banks have to fit into.
It is not hard to see, therefore, that there is no clarity in the industry and, if there is any such thing, as both regulator and operators are wont to say, it is not yet publicised and so people don’t know and, if people don’t know, it means such a process does not exist.
Affordability which has to do with interest rate on mortgage loan stands tall between the borrower and the loan. Many Nigerians hold the view, which we share, that there is no mortgage in Nigeria because it is difficult, most times, to distinguish between commercial from mortgage loans. Added to this, mortgage loans in Nigeria are usually short term as against long term in other jurisdictions.
This, in our view, is a major problem because housing development, for instance, is a long term project and it is not viable nor does it make economic sense to take a short term loan with double digit interest rate for a long-term project. Similarly, it is not viable to take long term loan, where available, with double digit interest rate on low income which most loan seekers have.
For these and more, we reason that the problem of the mortgage industry in Nigeria today does not consist in another round of recapitalization or increased liquidity as experience and available statistics have shown, but in creating the needed environment that will enable growth of the industry.
The industry has to improve. The operators have to be less opaque while property developers have to be encouraged to build mortgage-viable and ready properties. Interest rate on mortgage loans have to come down to single digit and made available.
Indeed, we want a situation where the whole process of securing mortgage has to be made clearer and more transparent, and mortgage has to be available on the retail high street such that every time a loan seeker goes out looking for it, he sees one.
