‘Restructuring, not recapitalization needed for growth in mortgage industry’

Contrary to popular belief that what the mortgage industry needs to see growth is increased liquidity by way of recapitalization or refinancing, experts have said that the industry’s urgent need is restructuring.

The experts noted that before the recapitalization and consolidation of the primary mortgage banks (PMBs) that saw some of them acquiring national licence with N5 billion capital base and others getting regional licence with N2.5 billion capital base, various reasons were given for the industry’s slow growth.

These reasons ranged from low capital base, the Land Use Act and high poverty level among the populace to “the newness of the industry” which, according one of the operators, was why many Nigerians would not put their money in a mortgage bank.

The refinancing of the PMBs by the Nigerian Mortgage Refinance Bank (NMRC) to the tune of N18 billion, according to Kehinde Ogundimu, the company’s managing director, reinforced the thinking that low capital base was not all the issue the industry was grappling with as there has been no significant results in terms of growth and improved home ownership level.

“The structure of the mortgage industry is the problem; there is high interest rate and this is coming on the back of economic condition,” Adeniyi Akinlusi, former president of Mortgage Bankers Association of Nigeria (MBAN) and also former CEO, Trustbond Mortgage Bank, affirmed.

Akinlusi added that recapitalisation is not the main challenge, considering that mortgage banks do not “give loans from shareholders’ funds but funds from deposits.”

Adekunle Abdul, managing director, Metro & Castles Homes, shares Akinlusi’s view. He stressed that “the structure is the challenge; there is high default rate in the mortgage industry which is, most likely, because funds are diverted and not returned.”

Ogundimu confirmed that in line with the company’s mandate to promote affordable home ownership in the country by leveraging funding from the capital market to deepen liquidity in the primary and secondary mortgage markets, “NMRC has refinanced mortgage loans totalling N18billion as at December 2018.”

Imade Omogiafo is a single parent and a manager in one the consulting firms in Lagos. According to her, she has been trying to access a mortgage for the past two years without any positive result.

“I sincerely cannot even tell what the problem is; I have signed up with more than three mortgage banks, but none has been able to come through with a mortgage,” Omogiafo lamented, buttressing the belief that the problem is not the capital but the structure.

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According to a managing partner at an Abuja-based real estate firm, who did not want to be named, the players in the mortgage industry, particularly financial institutions, need to be innovative in approaching fundraising for mortgages.

“There is a lot of scope for financial engineering if the banks are willing to think out of the box,” the managing partner said, adding, “the primary mortgage banks in Nigeria are part of the problem. They are not efficient in their transaction processes; it takes ages to process simple loans and a lot of their staff lack capacity.”

Industry players are of the view that the key culprit for the housing challenges in Nigeria is the mortgage rate. Typically, mortgage interest rate in Nigeria ranges between 7-10 percent for the Federal Mortgage Bank of Nigeria (FMBN) and between 15-25 percent for commercial mortgage institutions, making it one of the highest in the world.

In advanced economies, the mortgage industry makes significant contribution to economic development with single digit interest rates. Nigeria’s high inflation rate and the attendant high mortgage rate dampen housing demand and blurs developers’ investment appetite.

This is why Nigeria has one of the world’s lowest mortgages to Gross Domestic Product (GDP) rate at about 0.6 percent, which lags Ghana’s 2 percent, South Africa’s 30 percent and crawls after the US and UK rates of 60 percent and 70 percent respectively.

Ayo Ibaru, COO/Director, Real Estate Advisory at Northcourt, says both capital base and the structure of the mortgage industry need to be improved. “The structure of the mortgage industry and the cost of funds need help; it takes too long to get approval and documentation for real estate projects, the land also costs too much and about 90 percent of the raw materials used by developers are imported,” Ibaru explained.

Despite the real estate sector getting out of the woods with incremental growth in the last two quarters of this year, banks’ confidence in the sector is still waning as reflected in credit allocation to the sector which tumbled to its lowest level at 3.92 percent in four years.

Of the N15.21 trillion combined credit given to 17 sectors by banks, real estate got N596 billion in the first three months to March 2019, N26 billion or 4 percent lower than N622 billion received in the preceding quarter.

On the way to go in solving the problems in the industry, Ibaru said “there should be a rethink on how the structure of the mortgage industry should function and in doing that; the point of the consumers should be taken into consideration.”

“There is a need for greater regulation of the activities of some PMBs as they get away with a lot of things such as charges that make transaction costs too high for clients,” he added.