Contrary to the belief that lack of long term capital or low capital base is the main challenge of Nigeria’s mortgage industry, stakeholders in the industry and property sector analysts have spilled the beans, revealing that the structure of the industry contributes the most to its set back.
Over 10 industry players and analysts polled in a BusinessDay survey have, therefore, recommended a restructuring, not recapitalization, of the country’s mortgage system.
The industry has, in the last couple of years, seen far-reaching recapitalization and loans refinancing by the Nigerian Mortgage Refinance Company (NMRC), yet it is neither growing nor meeting market expectations, meaning that the problem of the industry goes beyond liquidity issues.
“The structure of the mortgage industry is the problem; there is high interest rate and this is coming on the back of economic condition,” Adeniyi Akinlusi, president of Mortgage Bankers Association of Nigeria (MBAN) and CEO, Trustbond Mortgage, told BusinessDay.
Akinlusi added that recapitalisation is not the main challenge, considering that mortgage banks do not “give loans from shareholders’ but fund from deposits.”
Nigeria has over 17 million housing deficit. According to the Association of Housing Corporation of Nigeria (AHCN), an umbrella organization for all federal and state housing agencies, more than 90 percent of new homes are funded from personal savings for incremental construction.
“The structure is the challenge; there is high default rate in the mortgage industry which is, most likely, because funds are diverted and not returned,” Adekunle Abdul, managing director, Metro & Castles Homes, said.
Kehinde Ogundimu, MD/CEO, Nigerian Mortgage Refinance Company (NMRC), the company “has refinanced mortgage loans totalling N18billion as at December 2018.”
He said it was in line with the company’s mandate to promote affordable home ownership in the country by leveraging funding from the capital market to deepen liquidity in the primary and secondary mortgage markets.
Imade Omogiafo is a single parent and a manager in one the consulting firms in Lagos. According to her, she has been trying to access a mortgage for the past two years without any positive result. “I sincerely cannot even tell what the problem is; I have signed up with more than three mortgage banks, but none has been able to come through with a mortgage,” Omogiafo lamented.
According to Abdulmalik Mahdi, managing partner at Modern Shelter Systems & Services Limited, an Abuja-based real estate firm, the players in the industry particularly financial institutions need to be innovative in approaching fundraising for mortgages.
“There is a lot of scope for financial engineering if the banks are willing to think out of the box,” Mahdi said, adding, “the primary mortgage banks in Nigeria are part of the problem. They are not efficient in their transaction processes; it takes ages to process simple loans and a lot of their staff lack capacity.”
Industry players are of the view that the key culprit for the housing challenges in Nigeria is the mortgage rate. Typically, mortgage interest rate in Nigeria ranges between 7-10 percent for Federal Mortgage Bank of Nigeria (FMBN) and between 15-25 percent for commercial mortgage institutions, making it one of the highest in the world.
In advanced economies, the mortgage industry makes significant contribution to economic development with single digit interest rates. Nigeria’s roaring inflation rate and the attendant high mortgage rate dampen housing demand and blunt developers’ investment appetite.
This is why Nigeria has one of the world’s lowest mortgages to Gross Domestic Product (GDP) rate at about 0.6 percent, which lags Ghana’s 2 percent, South Africa’s 30 percent and crawls after the US and UK rates of 60 percent and 70 percent respectively.
“There are some developed projects that do not have the right documentation, making it hard for such properties to be used for mortgage. This is coupled with the economic challenges; people in the middle class cannot afford a double digit mortgage rate,” Abiodun Akanbi, Head of Strategy at Infinity Trust Mortgage Bank, said.
Ayo Ibaru, COO/Director , Real Estate Advisory at Northcourt, agrees, noting that both recapitalisation and the structure of the mortgage industry need to be improved. “The structure of the mortgage industry and the cost of funds need help; it takes too long to get approval and documentation for real estate projects, the land also costs too much and about 90 percent of the raw materials used by developers are imported,” Ibaru explained.
Despite the real estate sector getting out of the woods as it broke its 12 consecutive quarters of decline by recording 0.93 percent growth in the first quarter of 2019, banks’ confidence in the sector waned as reflected in credit allocation to the sector which tumbled to its lowest level at 3.92 percent in four years.
Sectorial credit allocation to real estate shed 0.2 percentage point quarter-on-quarter and 2.49 percentage point year-on-year.
Of the N15.21 trillion combined credit given to 17 sectors by banks, real estate got N596 billion in the first three months to March 2019, N26 billion or 4 percent lower than N622 billion received in the preceding quarter.
On the way to go in solving the problems in the industry, Ibaru said “there should be a rethink on how the structure of the mortgage industry should function and in doing that; the point of the consumers should be taken into consideration.”
“There is a need for greater regulation of the activities of some primary mortgage banks (PMBs) as they get away with a lot of things such as charges that make transaction costs too high for clients,” Mahdi recommended.
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