Reflecting on mortgage sector growth as year ends

The year end is always a period of stock-taking and sober reflection. As the curtain draws on 2019, individuals and institutions are taking stocks and reflecting on issues, especially those that border on the various sectors of the economy including households, and how they have impacted on lives in the past 12 months.

The mortgage system is a critical component of the financial system which, arguably, forms the growth nucleus of many economies. This perhaps explains the concerns about its operations and the interventionist measures so far introduced by supervising authorities with the aim of making it grow and develop.

A major feature of the mortgage system in Nigeria is its slow growth. The frequently cited reason for this is low capital base. The primary mortgage institutions (PMIs) recapitalization and consolidation in 2008 was aimed to address this problem.

From the statutory N100 million capital base, the PMIs were asked to recapitalize to the tune of N2.5 billion and N5 billion for regional and national licenses respectively. This exercise which swept aside many of the operators following mergers, acquisitions and outright transmutation to other financial portfolios, was hailed by many as a sure path to growth.

But with the reduction in the number of operators from over 100 to below 40 at the moment, the narrative has hardly changed. Not even the revised operational guidelines by the Central Bank of Nigeria (CBN) which stripped them of other business concerns and compelled them to face their core business of providing mortgages and housing finance for home ownership and other forms of property acquisition, has helped matters.

There is, therefore, a missing link which necessitates the need to reflect on the slow growth which this sector has suffered over the years. “The problems of mortgage banks revolve around their small capital base and so there isn’t much they can do. For all the money I have, unless I raise additional capital, I don’t think I can do 1,000 mortgages”, says Ayodele Olowookere, the CEO, Omoluabi Mortgage Bank Plc.

But there is more to the slow growth. “I think mortgage banks need to do self-enlightenment and education to grow the industry”, Olowookere notes, explaining that, over time, there has been wrong perception of the mortgage industry which, he thinks, is understandable because a lot of mortgage banks have also done what is not right like collecting money from people and not giving back.

A lot of people say they will never go near mortgage banks because of some unethical conducts like this. Though Rose Okwechime, CEO, Abbey Mortgage Bank Plc, would attribute some people’s apathy to mortgage banks to the “newness” of the mortgage system, Olowookere insists it is as a result of lack of self-education by the operators.

Undoubtedly, the mortgage banks have their challenges. Part of these challenges comes from allied operators in the financial system. For instance, the deposit banks are seen to be usurping their functions. These deposit banks own everything in the property industry from funding development to providing mortgages.

A mortgage bank like Union Homes was a very strong player in the market and was also focused, but there was a bit of a gap. The 2008 restructuring programme in the sector and the need for all the banks to strip themselves of their non-core businesses, led to specialized mortgage banks standing up, but they lack all it takes to do so.

Elsewhere, the mortgage sector is a huge contributor to economic growth. Here it remains a sad story that the sector’s contribution to GDP is less than 1 percent. At a time like this when the government needs all it can get to grow the economy, the mortgage sector is a strong possibility.

If there is a particular way, therefore, government can call all the mortgage banks together, it will be quite beneficial for the economy. “This is one sector that can grow the economy more than any other sector because if people take mortgages to build houses, the multiplier effect is unimaginable. A lot of jobs will be created for professionals, skilled and unskilled labour, artisans, manufacturers, etc”, Olowookere says.

According to him, government needs to sit down with the mortgage banks and discuss because they are the ones that meet property off-takers and so they understand the market more than the government.

Mortgage operators also understand the market more than the federal mortgage bank of Nigeria (FMBN) and that is why the FMBN says anybody who wants to take a mortgage should go through a primary mortgage bank.

Government needs to know that if the mortgage industry is well run and there is a good policy thrust to support its operations, it will diversify the economy with job creation. The focus on other non-oil sectors, especially agriculture is good because Nigerians need to feed themselves, but everybody also needs shelter and this can only be possible if the mortgage sector is made functional.

The operators have been pointing out, since 2005, that there’s need to change the Land Use Act of 1978 to no avail. This is the time for government to give that accelerated action.

There is also need to quicken processes leading to title transfer and building approval. Cost and time of perfecting titles need to change. The FMBN needs to be restructured to meet the demands of today. The national housing fund (NHF) also needs to be restructured for same purpose. There should be special focus on the sector and how the apex bank and National  fund are funded.