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Without functional mortgage, here’s what experts see in Nigeria’s housing crisis

To bridge its housing deficit which requires as much as N200 trillion, Nigeria needs to concentrate on making its mortgage system more efficient and functional, industry experts have advised.

With a housing shortage of more than 20 million units, the industry sources are optimistic that an efficient mortgage system is a catalyst needed to provide homes for the over 64 million Nigerians who are employed yet do not earn enough to buy a house.

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“To address the housing challenges, you need to have a mortgage industry and it has to be at an affordable interest rate,” Funke Okubadejo, Director, real estate, Actis said.

Housing anywhere else in the world is a basic necessity, which in the order of human needs, ranks third after food and clothing but in Nigeria, the country with the most population in Africa, it is a luxury accessible and affordable by only the rich who constitute less than 10 percent of the country’s over 200 million population.

Only 5 million of the 69.54million Nigerians reported by the National Bureau of Statistics (NBS) to have been gainfully employed as at third quarter of 2018 earn a salary of N3 million and above per year, as compiled from data by Graeme Blaque Group, a Lagos-based advisory firm.

This 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 buy a house except of course there is an increase in their income level.

According to the Association of Housing Corporation of Nigeria (AHCN), an umbrella organization for all federal and state housing agencies, 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.

The high mortgage interest rate in Nigeria is considered as one of the key culprits responsible for the country’s housing crisis. The 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.

So, in Nigeria for instance, a Mortgage of N25million at 15 percent per annum interest rate means repayment of N37.9 million in interest-only over the 15 year period, which is even more than the principal itself. The trick here is that at 15 percent interest rate, it takes a lender approximately 7 years to recover the N25million it lent to you. That is about 6 years if the interest rate is 20 percent.

“The biggest problem in the sector is the high cost of the very limited mortgage that is available. If they can develop a policy to ease housing finance, it will be impactful,” Wole Olabanji, the CEO of CoBuildIT, a Lagos-based real estate firm said.

With single-digit interest rates in some other countries, mortgage industry contributes a significant amount to economic growth and development this is however not the case in Nigeria as the roaring inflation rate and the attendant high mortgage rate has not only dampened housing demand but has blunt developers’ investment appetite.

Africa’s largest economy has one of the world’s lowest mortgages to Gross Domestic Product (GDP) rate at 0.6 percent. This lags Ghana’s 2 percent, South Africa’s 30 percent and crawls after the U.S and UK rates of 60 percent and 70 percent respectively.

In the last 41 years of its existence, the Federal Mortgage Bank of Nigeria (FMBN) said it has so far disbursed N193.4 billion to 18,935 Nigerian workers. FMBN is a Federal Government introduced a scheme that mobilizes long-term funds from Nigerian workers, banks, insurance companies and the Federal Government to advance loans at soft interest rates to its contributors.

For Arua Nnamdi, a 28 years old Lagos-based consultant, accessing a mortgage despite having a good credit history is almost an impossible task. “I have been trying to access a mortgage for the past two years as I was told my profile can give me a good rate but it’s not been successful. What the problem is, I don’t know,” Nnamdi told BusinessDay.

According to Kehinde Ogundimu, the Managing Director/Chief Executive Officer of Nigeria Mortgage Refinance Company (NMRC), “NMRC has refinanced mortgage loans to the tune of N18billion as at December 2018.”

The Chief executive said it was in line with the company’s mandate to promote affordable homeownership in the country by leveraging funding from the capital market to deepen liquidity in the primary and secondary mortgage markets. NMRC is a vehicle created to close the gap between the capital market and mortgage lenders by refinancing loans-to assess the depth of mortgage refinancing through the company.

“The structure of Nigeria’s mortgage system is the challenge; there is high default rate in the mortgage industry- which is most likely as a result of the fact that funds are being diverted and they have not been returned,” Adekunle Abdul, Managing Director, Metro & Castles Homes, a real estate development company, said.

To provide affordable housing for Nigeria’s low-income earners and thus, bridge the housing deficit in the country, industry stakeholders have recommended, policy review, restructuring and innovative mortgage products.

According to Ayo Ibaru, COO/Director – Real Estate Advisory Northcourt, both recapitalisation of the mortgage industry and the structure needs 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 lands also cost too much and about 90 percent of the raw materials used by developers are imported,” Ibaru explained.

Abdulmalik Mahdi, Managing Partner, at Modern Shelter Systems & Services Ltd, an Abuja-based real estate firm believes that “the players in the industry particularly financial institutions need to be innovative in approaching fundraising for mortgages.”

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