For reasons bordering on inaccessible and unaffordable mortgage coupled with inefficient land administration governed by an outdated Land Use Act, developing housing cheaply and delivering same at affordable prices remain a big problem in Nigeria. This generally limits growth in the housing sector.
Because of this, most times when experts gather, attempts are made to seek ways of ‘driving growth and sustainability in the sector. Despite varied views, the experts, at the end of the day, agree on mortgage finance and Land Use Act being major barriers to growth.
The place of these two factors in the housing sector is quite critical. No housing market can be said to be mature as those of UK and the US without a well developed and functional mortgage system while there can be no functional mortgage system without a good and flexible land administration system.
In Nigeria, both of these are lacking. The growth of the mortgage system in the country has been greatly hampered by very rigid, non-flexible and primitive land laws as encapsulated in the Land Use Act.
Passed by a decree in 1978 and inserted into the 1979 national constitution, the provisions of the Act can only be changed through a constitutional amendment, necessitating a two-third majority of both the federal and state legislatures. Multiple attempts have been made to influence a revisit of the Act, but the process has been too cumbersome to succeed, causing the intending parties to drop their plans in frustration.
But developers have to produce houses and mortgage operators have to continue in business. So, “it has become clear that we must create an enabling environment in which a sustainable mortgage market can thrive, and one of the most important drivers of this is a well established land administration process”, said Adedeji Adesemoye, Head, Project Administration Team, Nigeria Housing Finance Programme (NHFP), and Deputy Director, Other Financial Institutions Supervision Department (OFISD) at CBN.
Adesemoye highlighted efforts being made to grow the housing market, including the setting up the Nigeria Housing Finance Programme and the Model, Mortgage & Foreclosure Law (MMFL).
NHFP is being implemented by the federal government through its relevant ministries, departments and agencies (MDAs) and this is supported by the World Bank International Development Association (IDA). The objective of the programme, Adesemoye explained, was to increase access to housing finance by deepening primary and secondary mortgage markets.
The MMFL is a draft bill designed to make delinquency in mortgage repayment unattractive to mortgagors and reduce losses from mortgage loans. It is expected to create a more attractive and vibrant environment, thereby attracting investors providing long term, low cost and more available capital to the market. Its main strategy is to encourage the use of administrative procedures to address some of the most negative provisions of the Act.
For property investors, this is a good development. But in addition to these efforts, developers also owe it as a duty to themselves to be creative in managing the limiting impact of Land Use Act.
He advised that developers should de-emphasize the traditional way of raising development finance, explaining that they should go to the capital market to raise funds by floating bonds which offer much cheaper rates at longer tenor.
To also address the problem of mortgage market growth, the CBN has come up with an initiative known as mortgage guarantee programme which is mortgage given to a borrower by a lender where an identified third party will take responsibility for the loan if the borrower defaults.
Expectation here is that this will push up housing affordability because, with the new programme, once a borrower defaults, the third party receives a claim from the lender, pays the lender off, and assumes responsibility for the mortgage.
“A quality mortgage guarantee programme is used to provide credit loss protection to lenders in case of borrower default”, explained Tokunbo Martins, Director, Other Financial Institutions Supervision Department (OFISD) at CBN.
“Mortgage guarantee products incentivise lenders to accept loans with lower down-payments, thus increasing affordability”, she added. The implication of this is that borrowers, who, ordinarily, would not have qualified for mortgage loan by reason of their low income, can now obtain loans which enhance their affordability.
From the government angle, Babatunde Fashola, the minister for power, works and housing, was of the opinion that one of the surest ways of making housing affordable and growing the housing sector was by industrialising housing development by laying greater emphasis on locally produced building materials.
Industrialising the sector, in the opinion of the minister, would not only drag down the cost of construction, material wise, but also create jobs for those involved in the housing value chain including input manufacturers, professionals and artisans.
