More than ever before, given the ravaging impact of coronavirus pandemic on global economy, the mortgage industry in Nigeria needs the informal sector of the economic for it to walk out of an imminent downturn that may affect its growth badly.
The mortgage industry needs a thriving market to grow its deposit. The informal sector has the number to provide that market. But that needs the mortgage operators to be creative and innovative in their consumer products offerings.
Clearly, this explains why, like the rejected stone, the informal sector as a component of the economy, has become the head of the corner for economic growth.
Presently, there is an argument on the possibility of including the informal sector, with its estimated N81.048 trillion annual income, in a new housing fund that could be created and added to the existing Pension Commission’s (PenCom) multi-fund structure. The aim is to narrow down housing affordability gap.
This, however, has to happen alongside lowering of mortgage interest rate to single digit of 8- 9 percent, down from the current 18-22 percent commercial rate which operators charge on mortgage loans.
It is assumed that the inclusion of the informal sector operators who constitute 67.54 million of Nigeria’s 81.15 million work-force in the contributory pension scheme will lead to increased housing affordability.
In the same vein, as economic activities continue to shrink leading to loss of jobs, salary cuts and significant drop in personal income, most of the primary mortgage banks (PMBs), which are struggling with hash operating environment and rising non-performing loans (NPL), have the informal sector to turn to for sustaining their operation.
Low capital base coupled with the prevailing economic conditions have so impacted the operations of these banks that a good number of them are unable to meet their contractual and statutory obligations to their clients and regulators respectively.
But the operators are not resting on their oars. They are building blocks and putting measures in place to engender growth of the sector in order to increase access and affordability and, by extension, enlarge the clan of homeowners in the country.
Unbundling of mortgage origination process, further reduction in loan origination period, introduction of computerised land titling registration, land title insurance, introduction of uniform underwriting standards (UUS) for informal sector, enactment of foreclosure law, and wider public awareness for the sector are part of the push by the operators for the growth of the sector.
Mortgage is a sub-sector of the economy and the operators are saying that since the larger economy is not doing well and the mortgage sector is not insulated from what is happening in the larger economy, what is happening to them is not unexpected.
“We know what happened to oil price and the foreign exchange market. These have affected everything in the economy. In the case of oil, both the volume and the price went down. All these affected consumer purchasing power. Don’t forget that the balance sheet of the mortgage banks were not strong ab initio,” Ayodele Olowookere, CEO, Imperial Mortgage Bank, said.
He stressed that the problems of the mortgage banks revolve round their small capital base and so there isn’t much they can do. “For all the money that I have, unless I raise additional capital, I don’t think I can do 1,000 mortgages. To do mortgages, you need long term funds and that is the only way you can do long term mortgages”, he said.
Udo Okonjo, vice chair/CEO, Fine and Country West Africa, agrees, emphasizing that the real core factor responsible for the slow growth in this sector is that the banks and the mortgage institutions don’t have long term funds; all they have are short term deposits.
“The underlying fundamental for mortgage growth is that we have to have saving culture and large financial base because mortgages are long term funds. In an ideal world, you will be talking about 20-25 years mortgages at very low interest rate,” Okonjo added.
Technically speaking, Nigeria has no mortgage system and Okonjo reasons that the country doesn’t really have a real estate sector. “What we are doing is just scratching the surface. If we really want to create wealth through real estate which is one of the major ways the developed world creates wealth, then we have to develop and grow the mortgage sector,” she emphasised.
But the operators are not deterred. “We are here to stay and grow this sector,” Olowookere assures, adding, “We are looking at the best way to do things, especially in credit management and evaluation. We are looking at the informal sector.”
“People in this sector are not collecting salaries, but earn huge and regular income. So, we are finding creative ways of bringing them into the net. We are also looking at new ways to raise capital by bringing in more shareholders,” he assured further.
