• Thursday, March 28, 2024
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BusinessDay

Mortgage in era of economic diversification

Housing

Determined to reduce too much dependence on oil which, at the moment, accounts for about 80 percent of Nigeria’s earning, the federal government has embarked on diversifying the economy with special focus on some sectors of the economy considered to be growth areas.

Agriculture and manufacturing are already receiving government’s attention in terms of making funds available through the Central Bank of Nigeria (CBN). Anchor Borrower’s fund made available to farmers has helped to empower some farmers, create more jobs and increase agricultural productivity.

One growth area which the government seems to be ignoring in this drive is the mortgage system which, for sheer neglect and poor funding, has been in slow growth and so unable to impact the housing sector. In advanced economies, the mortgage industry makes significant contribution to economic development.

In Nigeria, the story is different. Here, mortgage finance as a percentage of Gross Domestic Product (GDP) is as low as 0.5 percent which is several steps behind other emerging markets including Mexico, Malaysia and South Africa where mortgage contributions to GDP are as high 10 percent, 25 percent and 29 percent respectively.

A well developed and funded mortgage industry has all the potential to stimulate a slowing economy like Nigeria’s which, it is argued, is clogged by a number of obstacles to growth that need to be tackled.

Some experts argue that the relative ‘newness’ of the sector; lack of understanding of the dynamics and operational models of the sector by many Nigerians, and poor appreciation of the need and the ultimate benefit of keeping money in a mortgage bank are militating factors.

Ideally, government can benefit a lot from a flourishing mortgage banking sector as it will help in regulating the economy in the desired direction. But government’s attention doesn’t seem to paid in the direction of the mortgage sector.

Government can also leverage this industry in the drive to stimulate the economy by coming up with a policy that will reduce the interest rate on mortgage loan. All things being equal, more people will embrace loan for mortgage to buy houses, leading to increased activities in the construction sector.

Because of the identified obstacles, many primary mortgage banks (PMBs) are going through very difficult times, such that some are still unable to meet up with the kind of capital requirements in the sector.

Mortgage operators are of the view that if government pays a closer attention to the PMBs by removing some of the obstacles that they have such as the Land Use Act of 1978 which vests land ownership on state governors; the right to easily foreclose on delinquent borrowers, ease of creating a legal mortgage and perfecting titles and the ease of falling back on their collateral to recover bad loan etc, this sector will surely improve tremendously.

They insist that until all these issues are resolved in a way that encourages the provider of capital, in this case,the mortgage bank, the sector will not grow as desired. Expectation is that when these obstacles are removed, the supplier of mortgage will allocate more funds towards the provision of home loans while home buyers will better appreciate the implication of prompt interest and capital repayments as well as ensure discipline on the part of the people.

Okika Ekwem, a US-based realtor, affirms that the capital base of the PMBs is inadequate. He however, dismissed the idea of a fixed capital base for mortgage institutions. “Saying that a mortgage institution should have a fixed base of, say N10 billion, is wrong because that amount is too meager; even N100 billion is also meager given the kind of projects they are to finance.

“The federal government needs to come in, look at what is happening in other civilized world and copy. These days, copying is no longer an act of deception but actually something that is done even in the civilized world”, he said.

In the civilized world, according to him, there is secondary market for real estate financing where commercial banks or individual brokerage banks lend money to people and thereafter sell the securitized certificate to the secondary market and comes back again to lend to individuals.

Given Nigeria’s large population and the wide housing demand-supply gap, mortgage sector growth is possible in the country if the Federal Mortgage Bank of Nigeria (FMBN) plays the role of a regulator while the federal government, through the CBN, should empower the PMBs more.

This validates experts’ arguments that the country needs more PMBs established, about 40 in each state of the federation. Meckson Innocent Okoro, an estate manager explains that this is aimed to discourage the concentration of these institutions only in urban centres.

“When this is done, access to housing finance will be increased; the PMBs must be positioned to champion the whole issue of affordable or social housing for the low income earners in the country. Anything the country wants to do without a functional mortgage system that can guarantee homeownership for a good number of people will not succeed”, he posited.

“We are talking about housing which is capital intensive and so must have capable institutions to finance it”, he stressed.

 

Chuka Uroko