BusinessDay
Nigeria's leading finance and market intelligence news report.

Single digit inflation rate will solve Nigeria’s housing crisis – Afrinvest deputy MD

If Nigeria wants to bridge its housing deficit and give affording housing to its 64 million people who are employed yet cannot afford to buy a house, it would have to first achieve a single digit inflation rate, Victor Ndukauba, deputy managing director, Afrinvest has said.

For the deputy MD attaining a single digit inflation rate is important for Nigeria’s housing industry which is trapped with a deficit of more than 20 million units because inflation rate is the key determinant of interest rate and pricing.

“I think to really address Nigeria’s housing deficit and to solve the challenges in the property industry it really comes down to what I like to call the primary objective of the central bank which is price stability,” Ndukauba told Businessday with the assurance that “If we are have single digit inflation rate we’ll bridge the housing deficit.”

The rate at which the prices of good and service increase in Nigeria (inflation) jumped to 11- month high in December 2019 fueled mainly by food prices which is as a result of border closure.

Figures by the National Bureau of Statistics (NBS) put Nigeria’s inflation rate (All items year on change) at 11.98 percent as at December 2019, the highest rate since January of last year. With the current inflation rate, the Central bank may be far from achieving its target of 6-9 percent.

The fear of a further spike in inflation regime forced the Central Bank to undertake a moderate tightening stance at the first monetary policy of 2020, leading to the raising of Banks’ cash reserve ratio (CRR) by 500 basis point, from 22.5 per cent to a new level of 27.5 percent.

The move by the Central Bank is to mop up what the apex bank described as liquidity surfeit in the Nigerian economy, responsible for driving the inflation since August of 2019.

“Today inflation is at 12 percent and this translates to low yields on investments; all yield from short term instrument to one year and even up to the 30 year bond is priced at 10 percent, so we are all losing value in our pension fund,” Ndukauba said.

According to industry analysts, the high cost of funds for real estate development is one of the reasons why the products in the market are too expensive for a lot of Nigerians to afford.

“With a high inflation rate comes high lending rate which automatically means the developers would have to factor in that cost when they are selling the properties to the end users,” an industry source who ask not be identified said.

Another factor cited by industry experts on why Nigeria’s housing deficit has continued to expand in the last decade is the low earning capacity of the country’s citizens, a reflection of the country’s slow economic growth.

Recent data shows that only 5 million of the 69.54million Nigerians reported by NBS to have been gainfully employed as at third quarter of 2018, earn a salary of N3 million and above per year,

According to the data by Graeme Blaque Group, a Lagos-based advisory firm the data put employed Nigerians who can buy affordable housing at only 7.19 percent, meaning as much as 64.54 million people who earn less than N3 million cannot afford to own their own home except of course there is an increase in their income level.

Whereas homeownership level is 84 percent in Indonesia, 75 percent in Kenya and 56 percent in South Africa, it is only 25 percent in Nigeria whose population is estimated at 200 million. Going by United Nations projection, the country’s population will be as high as 400 million in 2050.

According to the Association of Housing Corporation of Nigeria (AHCN), the underdevelopment of Nigeria mortgage sector in driving homeownership is worrisome as more than 90 percent of new homes utilise funds from personal savings for incremental construction.

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

A typical mortgage rate in Nigeria ranges between 7-10 percent for Federal Mortgage Bank of Nigeria (FMBN) and between 15-25 percent for commercial mortgage institutions, making it one of the highest in the world.

Aside from the interest payable, the potential buyer must also have a certain percentage of the total amount needed for the purchase readily available; this amount is known as equity and should range between 30-70 percent of the total cost of the home.

Citing Morocco as an example of a country where low inflation rate has impacted on the property market, Ndukauba said inflation rate in the country is between 1.8 to 2 percent.

“You can get a mortgage at 4-6 percent in Morroco, immediately you graduate from university and get a good job you can get access to a mortgage,” Ndukauba said.

Going forward, Ndukauba recommended pension fund as a sector where Nigerian real estate developers can access long term capital to provide the affordable properties needed by a lot of Nigerians.

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