Recently, the mortgage and housing market in Nigeria experienced wide excitement following an announcement by the National Pension Commission (PenCom) that Retirement Savings Account (RSA) holders can now access 25 percent of their savings for residential mortgage.
That euphoria was however to be expected in Nigeria where the mortgage environment is hostile and remains a major disincentive to homeownership in the country.
In other jurisdictions, people don’t buy homes out of their pockets but through mortgage. That is not the story in Nigeria. To buy home here through mortgage, the buyer is required to make equity contribution of 30-40 percent of the value of the property he wants to buy.
This is an impossibility for many mortgage loan seekers, understandably so in a country that is adjudged the poverty capital of the world.
Operators in the housing and mortgage industry, including professional bodies such the Mortgage Bankers Association of Nigeria (MBAN), have commended the government for the new policy. We share their joy and also join in that commendation.
It is our expectation that the new policy will not only revitalize the mortgage and real estate sector, but also boost homeownership among low-income earners and reduce housing deficit
The mortgage sector in Nigeria is suffering from slow growth while the housing industry is burdened by increasing deficit made worse by growing population and urbanisation.
It is our expectation that the new policy will not only revitalize the mortgage and real estate sector, but also boost homeownership among low-income earners and reduce housing deficit.
We also hope that the new policy will enable civil servants who are low-income earners and are in dire need of equity contributions to key into housing projects.
We agree with MBAN that, by this singular action, government will not just be solving the housing problem, but also giving the economy a boost as many mortgage-related sectors such as construction and banking will receive more vigour.
In addition to this, the new policy will improve affordability and eligibility profile of housing off-takers and increase their chances of qualifying for mortgage.
It is expected that this will, in turn, invigorate the property market and reduce housing deficit for medium- and low-income earners.
However, these high expectations come with fears of pitfalls which may arise from the failings of some primary mortgage banking operators.
The mortgage sector has history of some operators collecting equity contribution from loan applicants and not disbursing same till eternity due to near-impossible demands from the contributors.
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Besides low earning level of many home seekers, which may make 25 percent of their RSA insufficient as equity contribution for a desired property, there are also cases where equity contributions are made and the properties are not delivered.
This unfortunate situation, which is rampart, usually places pension contributors at the mercy of mortgage companies and developers.
We therefore urge the government and all relevant stakeholders to ensure that the primary target of giving the approval, including reducing the housing gap and making it easy for beneficiaries to acquire their dream homes, is achieved.
We recommend some safeguards to be put in place to ensure that equity contributions paid to mortgage banks towards purchase of properties are utilised for that purpose.
A good way to achieve this, in our view, is to set up an escrow account where such contributions could be deposited and saved.
Because of rising inflation and other costs, the cost of building materials have been pushed up to unimaginable levels, making house prices high and unaffordable to many home buyers.
In the light of that, we are also calling on the government to give incentives to local companies in the business of manufacturing building materials like tiles, wires, cement, doors and other building accessories.
Again we urge the government to liberalise import duties on building materials, especially finishing materials, which are largely imported, in order to help reduce construction cost for house suppliers.
It is our firm belief that until these necessary steps are taken, including providing critical infrastructure and other enabling environment for developers to deliver housing, the euphoria that greeted this policy may end up as a pipe smoke or a clap in the forest.
We urge President Muhammad Buhari to ensure that this policy succeeds so that it will serve as his government’s commendable and impactful legacy in the housing sector.
