Why personal savings remain main option for homeownership in Nigeria

For many Nigerians, especially those with low incomes, becoming a homeowner has become all the more a huge project owing to worsening macroeconomic conditions.

Besides galloping inflation and high cost of building materials, the monetary policies of the Central Bank of Nigeria (CBN) aimed to tame inflation and save the local currency have pushed interest rates to levels that have excluded a good number of citizens from bank credit.

In the advanced countries of the world and even in some African countries, owning a home is not necessarily a big deal so long as one has a good job and a regular flow of income, which automatically qualifies one for mortgage or home loan at low interest rate from mortgage institutions.

The experience is different in Nigeria, where some people believe there is no mortgage because it is neither accessible nor affordable. This explains why those who need homes resort to personal savings or borrowing from friends, relations or co-operatives at workplaces.

“This is the worst time to discuss mortgage because the CBN’s lending rate right now is above 24 percent. Let’s not deceive ourselves. No bank will give you money for less than that unless you are a preferred customer, or the bank is kind of helping you,” Gbenga Olaniyan, chairman of Estate Links, said in an interview with BusinessDay.

Continuing, Olaniyan said: “You know the story of the mortgage system in Nigeria. There are 200 million people in Nigeria with about 14 million of them that are mortgageable; how much money do you have for this group of people in pension funds and all that?”

He said that homeownership in Nigeria is hobbled by multi-dimensional problems including double-digit interest rates that do not support mortgage.

“In South Africa, I am not sure what the rates are like now, but when it hit 11 percent, people were weeping because once you hit double digit, it becomes difficult to keep up with repayments,” he said.

As it stands today, owning a home in Nigeria requires the capacity to pay outright, but figures show that only 10 percent of Nigerians who desire to own homes can afford them.

According to Benedict Onunkwo, an ex-investment banker, now into real estate, “this reality is not in any way surprising, especially in the face of the current economic realities where about 63 percent of the population is in poverty, the middle class is fast thinning out, wages are low, purchasing power continues to be eroded on a daily basis as a result of fiscal and monetary challenges.”

Onunkwo noted that the current housing gap of 28 million units has grown progressively from two million units in 2007 to 14 million units in 2010; 20 million units in 2018, and presently 28 million units, advising that since housing constitutes a critical social demand, improving access should be a priority.

Apart from the rising interest rate, low income is also another reason many Nigerians cannot afford a mortgage. With a minimum wage of N30,000, public sector workers cannot afford mortgage loans.

This is because, based on the terms of mortgage structuring, which requires not less than one third or 33.3 percent of this N30,000 per month, the borrower has to deduct approximately N10,000 for loan repayment, and a monthly payment of this sum for 30 years as required by the mortgage law, meaning that the prospective homeowner will contribute the sum of N3.6 million in the 30-year period.

Today, there is no decent house for sale at N5 million in a good location. Again, there is no 30-year mortgage available for loan applicants. Besides, at 33.3 percent of N30,000 for a 30-year period which amounts to N3.6 million, the applicant does not qualify for a mortgage.

According to Adeniyi Akinlusi, former CEO of Trustbond Mortgage Bank, many households cannot own homes through mortgage because due to their low per capita income, they won’t qualify for a mortgage.

Another reason that is standing between Nigerians and homeownership is the low capital base of the mortgage lending institutions, particularly the primary mortgage banks. Though Olaniyan canvasses proper regulation of these banks, he sees a need for government’s intervention that will make them more liquid.

“What is most critical is better regulation because, take this from me, if you go to some mortgage banks today, they’ll give you double-digit interest for your deposit. So, if mortgage banks are taking my money at 12 percent, they will lend at no less than 18-20 because we all know the cost. The sector needs more regulation and more funding,” he said.