A working relationship between the Pension Commission (PenCom) and the Nigerian Mortgage Refinancing Company (NMRC) towards implementing the provision of section 89 (2) of the Pension Reform Act (PRA) has raised hope for homeownership in Nigeria.
Section 89 subsection 2 of the PRA provides that contributors to the pension fund could actually use part of their pension savings to pay their personal equity towards having a primary home and the authorities of the partnering organisations are saying the implementation of that section will help a great deal in assisting first home buyers.
The implementation of this section of the PRA will be a major intervention in the housing sector coming on the heels of the Mortgage Guarantee programme being championed by the Central Bank of Nigeria (CBN), all aimed at easing access to finance to buy homes by low income earners.
Mortgage Guarantee programme is planned to give mortgage access to persons who ordinarily do not qualify for mortgage loan by reason of their income, but can now access mortgage through a third party who guarantees the loan and offsets the loan in case of default.
This initiative became necessary given the high cost of funds which has made access to mortgage by low income earners pretty hard. Interest rate on mortgage loan ranges from 18 percent to 22 percent with very short repayment tenor.
Pension fund is a large pool of long term fund that could be invested in real estate to supply housing to the market. But that is not happening because, according to Umaru Farouk, Head, Research & Strategy Management Department at PENCOM, “the Commission is committed to ensuring the safety of pension assets and also facilitating and fast tracking payments to retirees when due.”
Chudi Ubosi, Principal Partner at Ubosi Eleh + Co had explained to BusinessDay that Pension Fund could not be invested in real estate because, apart from the risk involved, real estate, unlike other investible assets, is not liquid. “You cannot offload your investment easily whenever you want,” he said.
Farouk, who hinted on the partnership with NMRC, corroborated Ubosi’s views, saying that that contrary to assumptions that PENCOM grants funds directly, the commission only grants funds when there are supporting instruments, either as a fund or a bond as contained in the commission’s existing regulations.
“If you look at the portfolio of the pension funds, there was this evolution, from 2006 when the first contributions were received in May to where we are today, the pension operators and the regulator have undergone a lot of transition.
“We have built capacity and we can add more value. So if you look at our website you could see all the Investment regulations that we issued which shows you the level of evolution and how fast we have been able to go,” he said.
He disclosed that in terms of the existing regulation, they could actually invest 20 in some situations and in some other cases they could actually invest up to 24 percent in infrastructural development, including the housing infrastructure, that is, 15 percent in infrastructure bonds and 5 percent in infrastructure funds.
“We don’t go directly cash. We don’t just give cash and say go and build a road or some housing units. We don’t do that. How do I refund on a bond; however you need to come with the supporting instruments either a fund or a bond then pension fund administrations (PFAs) can buy into the bond or into the fund,” he explained.
This perhaps explains the partnership with the NMRC whose mandate is to provide liquidity in the market market by raising funds from both local and international capital market through bonds.
Farouk disclosed that their partnership with the NMRC was still work in progress, saying, “we haven’t really gone so far in terms of implementing section 89 (2); we are waiting for some feedback from NMRC to be able to review the regulation, make some additions or come up with a working framework.”