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Affordable mortgage opportunity beckons as NMRC issues N10bn Bond to boost industry liquidity

…DLM Advisory says issuance was 3 times oversubscribed

Opportunity is beckoning on investors and home seekers as the Nigeria Mortgage Refinance Company (NMRC) completes N10 billion 7.20 percent Series 3 Fixed Rate Bond to boost funding for an affordable mortgage.

The net proceeds of the exercise will be used to refinance eligible mortgage loans originated by the participating mortgage lending banks, the private sector-driven company said during the signing of the bond on Monday.

“We are a secondary mortgage market player, so whatever we get we give to secondary mortgage institutions, what we charge is very small and so I will expect that there would be a substantial decrease in mortgage interest rate going forward from this issuance,” Kehinde Ogundimu, CEO of NMRC said.

According to the CEO, the company expects the Bond Issuance to also translate to some “cost reduction for the real estate developers” who usually borrow short term at a high cost to fund long-term projects.

Unconditionally and irrevocably guaranteed by the Federal Government of Nigeria (FGN), the series 3 Bond was ascribed an “AAA” rating by both Global Credit Rating Co. and Agusto & Co. and was oversubscribed by over 3 times.
“It was 3.28 times oversubscribed, that is the highest for a corporate bond so far,” said Sonnie Ayere, Group CEO of DLM Capital, the issuing house of the series 3 Bond.

The 2020 Bond issuance under its the NMRC N440 billion Medium Term Note Programme is coming on the heels of its 2018 N11 billion 13.80 percent Series 2 Bond and the inaugural N8 billion 14.9 percent Series 1 Bond issue in 2015.

The seven-year Bond which is due to mature in 2027 was issued at 7.20 percent per annum payable quarterly in arrears and is expected to bring some shadow to the sunny industry which has one of the highest mortgage rates in Africa.

According to industry analysts, the key driver of Nigeria’s housing deficit of more 20 million units is the country’s high interest on mortgages.

Typical mortgage interest rates in Nigeria range between 7-10 percent for Federal Mortgage Bank of Nigeria (FMBN) and between 15-25 percent for commercial mortgage institutions, one of the highest in the world. The rate could also go higher without sufficient capacity to derisk investment.

“I expect that in the long run there will be a substantial drop in interest rate, and so we expect mortgage rate to drop further,” Ogundimu said.

While NMRC did not give the exact number of mortgages that will be financed by the bond, as it yet to disburse the fund, the company said it is optimistic it will address some of the housing deficit that Nigeria currently has.

Meanwhile, Ogundimu acknowledged that the key challenge of the mortgage industry in Nigeria is affordability.

“The biggest impediment to people being able to afford a mortgage was the interest rate,” Ogundimu said.

He, therefore, assured that the company is doing its best to ensure mortgage interest is brought down.

“Other things like cost of the housing themselves, will also go down now because in the past developers had to borrow money for the short term of 2-3 years at 30 percent interest rate,” he said.

Apart from the issue of interest rate and high cost of developing property, the CEO said lenders were also faced with the issue of liquidity.

“Lenders were also reluctant to go to the market because there no way out for them in terms of if you are unable to pay what will I do with the asset. But with the mortgage and foreclosure law that have been signed by six states, he said the issue will become a thing of the past,” he said.

He explained that “if a lender knows he has the option to foreclose, he won’t charge premium”.

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