Housing sector analysts are in agreement that the consequences of the obsolete Land Use Act on housing and mortgage, which are largely unintended, can hardly be quantified in many respects.
The Act, which was passed by a decree in 1978 and inserted into the 1979 constitution, has seen multiple attempts aimed to review it and make necessary changes, but the process has been too cumbersome to succeed. The provisions of the Act can only be changed through a constitutional amendment, requiring two-thirds majority of both the federal and state legislatures.
The analysts are of the view that this Act has been the major reason for the low investment in the housing sector; it is also the reason mortgage finance is difficult to access because of its high cost and cumbersome processes it entails.
According to them, housing finance by public authorities in Nigeria is about 10 percent; mortgage banks contribute about 2 percent, while contribution from banks and other institutions is insignificant.
In a comparative analysis of what obtains in Nigeria, Ghana and South Africa, Sonnie Ayere, CEO, Dunn Loren Merrifield, notes that in South Africa, mortgage contributes about 40 percent of housing finance while in Ghana, the contribution is about 3 percent.
Ayere, who spoke at an economic forum in Lagos, explained that the low mortgage contribution to housing finance in Nigeria was due to the cumbersome and unfriendly land administration in the country, pointing out that Nigeria ranks highest in property registration and construction permits.
Before now, there were altogether 16 stages and 60 steps to getting a property registered in Lagos, eight stages and 30 steps for each of the lender and the borrower which explains why it is difficult to get mortgage for housing finance.
To deal with these challenges, the federal government, through its agencies led by the Central Bank of Nigeria (CBN), has come up with some initiatives, believing that an enabling environment in which a sustainable mortgage market can thrive must be created.
One of these initiatives is the Nigeria Housing Finance Programme (NHFP). Another is the Mortgage Foreclosure Law (MMFL) being put in place to grow the housing market.
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 is to increase 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, according to Hakeem Oguniran, CEO, Eximia Reality, 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 address further the problem of mortgage market growth, the CBN has also 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 a CBN official who did not want to be named.
“Mortgage guarantee products incentivize 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 enhances their affordability.
Babatunde Fashola, minister for works and housing, is of the opinion that one of the surest ways of making housing affordable and also growing the housing sector is by industrializing the development by laying greater emphasis on locally produced building materials.
Industrialising the sector, in the opinion of the minister, will 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.
“The housing market behaves in a particular way; it gravitates where there is effective demand. Government should recognise that the weakest demand comes from the low end market and so should direct regulatory system towards that end with policies to address that problem”, says Femi Adewole, CEO, Family Homes Fund.
Adewole says government should adopt the zoning system through which it will discover areas where housing need is highest and the type of housing needed, just as it should impose heavy tax on houses that are unoccupied to discourage further development in that area.
