• Friday, March 29, 2024
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BusinessDay

The flip side of mortgage industry under-development

affordable housing

Unlike the experience in developed economies of the world where mortgage if fully developed and citizens reap the benefits, the mortgage industry in Nigeria remains in perpetual growth process and, therefore, underdeveloped. Apparently, this is a huge challenge, especially for young Nigerians who want to own their own homes, but do not have enough capital to go the housing market.

But, beyond this challenge, there are opportunities in the industry for investors and developers who understand the Nigerian market. Most times, when experts, analysts and home seekers gather to discuss the mortgage industry, the focus is generally on reasons for the slow growth of the industry and also poor access to housing loans which they blame on high cost of funds, high interest rate, and demand for equity contribution by lenders.

Though this thinking cannot be faulted, there is always a way around these limitations. Many estate developers offer flexible payment plans, and longer payment periods, which is an attraction for potential investors, especially when that offer is tied to their cash-flow. Indeed many projects in Nigeria have routinely been sold through creatively structured payment plans.

 For buyers, even though these real estate investments may be capital intensive at first, there is the potential to save more than the total repayment sum of the mortgages which include the principal amount plus the interest, especially in a high-interest rate environment. Investors also have the opportunity to avoid the fees associated with mortgages by buying directly with developers’ flexible financing.

It is not, however, easy or possible to wish away or overlook the current weaknesses that surround the mortgage infrastructure because high-interest rates have their downsides, especially the overall increased cost it influences. Despite these challenges, it is interesting to note that there are banks that have become creative about Diaspora credit which could be leveraged by Nigerians overseas to buy property back home.

 It should be pointed out, however, that there are some other limitations in this system created by the action or inaction of mortgage operators. These are also contributors to the slow growth among which are the stress which these operators pile on borrowers and the empty  partnerships which some of them deceive home seekers into believing  that they have with estate developers, giving false hope to them that they are just a few steps away from home ownership.

Part of the statutory functions of primary mortgage banks (PMBs) and mortgage institutions generally, is to provide housing finance or loan to those who need same to build, buy or renovate existing houses. But, in more cases than one, those who apply for loans from these lenders hardly get them and where they do, they are often subjected to harrowing experiences through near-impossible requirements that leave the borrowers stressed out and almost frustrated.

Many have been cajoled into subscribing to buying houses through mortgage only to get in and find that the invitation is a mere facade shielding the stress and pain in accessing loans for their dream houses. “My experience with one of these lenders is better imagined than expressed”, says Israel Okafor, a staff of an oil company who applied for mortgage loan from one of the PMBs.

Okafor explained that he was “deceived” by the PMB into believing that it was in partnership with a developer who was building over 500 housing units of various house-types at relatively low prices for mid-low income earners.

 “The PMB told me that it was also financing and marketing the estate and, at the same time, providing mortgage for prospective buyers. My attraction was not as much in the financing and marketing aspect as it was in the comparatively low interest rate of 17 percent and 10-year loan repayment period which the bank dangled to me”, he said.

According to him, the bank demanded just 20 percent equity contribution from him for any of the housing units that he wanted to buy from the estate selling for between N5million and N8 million per unit, adding that as a demonstration of his readiness to take up the mortgage and buy the house, he made an equity contribution in excess of 30 percent of the cost of the house.

 “Over six months down the line, the developer, the mortgage bank and I have been on a Round Robbin, occasionally stopping at the middle of nowhere only to discover that, in all of this, it has been motion without movement. It has been one story after another,” he fumed.

Ayodeji Adediji, is an ex-banker who worked with one of the big names in the industry, but resigned because “I want to do my own thing and see what impact I can make on the economy from this point”.

He also has a similar experience, differing only in the approach adopted by his own lender who, he said, has kept his N5 million which he paid as equity for the house he wants to buy from a developer who is also in another empty partnership with the mortgage bank.

 “As I speak to you, my money has been with the mortgage bank since the past eight months; I am told it is in escrow account in which case it is not yielding any interest for me; the developer is very slippery and insincere with delivery date for the estate. Every day, like a fraudulent referee, he shifts the goal post. By the last count, he has shifted the delivery time three times and still counting”, he lamented.

An ex-banker, who does not like his name mentioned also shared his experience, saying he came close to losing his money to developers over unrealistic delivery dates, lamenting that on each occasion, his money was given back to him after he had nurtured and came close to realising a home ownership dream.

People with these experiences will hardly ever seek mortgage facility, nor will they encourage any of their relations or friends to have same experience and this is a major factor that can slow the growth of the mortgage industry.

 

Chuka Uroko