Mortgage financing as a remedy | Independent Newspapers Limited
Newsletter subscribe


Mortgage financing as a remedy

Posted: Apr 14, 2015 at 4:20 am   /   by   /   comments (0)


Nigeria has been grappling with huge housing deficit for the better part of the last century. The turn of the new century, however, has been a story from bad to worst. The country’s housing shortfall has been put between 16 million units and 17 million units. Today, it is ironic that Nigeria with a population of about 170 million people is currently facing a national housing deficit of about 17 million units, and requires a minimum of additional one million housing units per annum to reduce the national deficit in order to avert a housing crisis in the country. In this special report, Sylvester Enoghase, Andrew Airahuobhor, oladunjoye phillip , Emmanuel Okwuke, Abel Orukpe, Bamidele Ogunwusi and Saheed Bakare examines the issues and reactions of Nigerians to the housing deficit.

The Nigerian mortgage industry is just starting to consider the size of its contribution to the country’s GDP, which is less than one per cent. This is seen as one of the major reasons why the housing deficit has over the years been one of Nigeria’s major challenges as a nation.

The Federal Mortgage Bank of Nigeria (FMBN) was established in 1992 by the National Housing Fund Act 3 with a mandate to promote the delivery of affordable and modern houses to Nigerians.

The bank operates as an effective vehicle for increasing the mobilization of long-term funds, lending volume and expansion of mortgage lending services to all segments of the Nigerian population; it does this by mobilizing long-term funds from Nigerian workers, banks, insurance companies and the Federal Government to advance loans at soft interest rates to its contributors.

The bank is rising up to the challenge with the new national policy on housing where the Federal Government in its bid in transforming the housing sector has set a target of delivering 1 million housing units every year.

Through this agency’s intervention, the federal government has released N1.83 billion to finance housing projects in some parts of the Federal Capital Territory (FCT).

Managing Director of FMBN, Gimba Ya’u Kumo, said: “The board of the bank has approved N1.83 billion to finance this project and has disbursed the first tranche. Upon completion, we expect this estate to deliver 272 housing units comprising 70 units of two bedroom semi-detached bungalows, 112 units of three bedroom semidetached and 90 units of three bedrooms fully detached houses. The bank has assured contributors to this national housing project that this project serves as evidence to the relevant contributions of the housing delivery in Nigeria.”

Findings reveal that the bank has since automated both record-keeping and operational processes and facilities by providing necessary IT infrastructure in its Head Office. It has also launched the National Housing Fund e-Collections Platform that was said to have greatly improved the fund’s operations as it executes deduction, remittance and record-keeping functions using the IT infrastructure of commercial banks in the country with ease.

According to a source in the bank, this single act has ensured openness, transparency and accountability as contributors are issued individual NHF e-cards similar to ATM bank cards which serve as identification cards. With the NHF e-Card, a contributor can use any of the hundreds of thousands of bank ATMs nationwide or use the Internet to access real-time, up-to-date record of contributions.

In addition, contributors can receive SMS transaction alerts on their GSM phones. The instant NHF deductions are effected which allows for seamless remittance of NHF deductions to FMBN and provides for historical and up-to-date record of individual contributions. This platform not only eliminates the deficiencies associated with the manual collection method, but also ensures efficiency and accountability in NHF collections.

In the past 30 months, the bank has recorded a total of N58.8 billion which accounts for 53.1 percent of its cumulative collections of N110.79 billion, while monthly average collection has risen by 174% over the same period.

The non-salaried sector is not left out as the bank has in the last 12 months, expanded its market coverage and begun operations to effectively integrate the non-salaried informal sector into the National Housing Fund scheme, using cooperative societies as platform.

The bank has also recently introduced the Informal Sector Co-operative Housing Loan Scheme that would facilitate access to affordable housing by many low-income earners in the informal sector. It was designed by the FMBN to assist people in the sector to own homes in their lifetime through their respective cooperative societies. The scheme was developed in recognition of the immense benefits inherent in the housing sector and the need to unleash its potential towards promoting a virile mortgage market in support of mass housing delivery.

Under the scheme, cooperative societies that have acquired parcels of land to develop houses for their members will be given mortgage loans at 10 per cent interest over a 24- month period with a moratorium of 12 months. After meeting all the requirements, FMBN will then finance the construction of the houses in the estates 100 per cent and fund the development of infrastructure to the tune of 90 per cent.

According to Kumo: “If we can jumpstart the housing sector in Nigeria and attain its GDP contribution target of 15 per cent under the Vision 20:2020 Project, incidences of corruption, widespread poverty and mass unemployment that we are battling with today will reduce significantly.”

To ensure the availability of affordable houses in all the states of the federation, the bank has also gone into partnership with state governments to support the National Housing Fund Scheme. To that effect, the bank has officially commissioned 400 housing units of the Adasolide Estate in Adamawa State while 95 housing units and 240 units are being developed by Alhaji Adamu Duhu and Sons Limited and Isa Gates Industries respectively are at various stages of completion.

The bank has commissioned the Elim Estate in lbagwa Nike, Enugu state, in July last year it commissioned the phase 1 of Yusra Housing Estate, Katsina while the foundation laying ceremony of the phase 2 has been done.

The bank has also gone on advocacy visits to all states of the federation to sensitize the public on the advantages of keying into the Housing scheme.

Nigerians in Diaspora are also not left out as the bank is currently in the process of structuring a means of integrating Nigerians in Diaspora into the National Housing Fund scheme which will give them the opportunity to access NHF mortgage loans and own their own houses in the country.

With a high migration level, a large professional Diaspora in the UK and United States, Nigeria benefits from high rates of formal remittances. In fact, remittances to Nigeria are believed to be the second largest source of foreign income for Nigeria after oil exports. This underpins the financial strength of Nigerians in the Diaspora.

A strategy is currently being worked out whereby Nigerians outside the country could open accounts with any of the Primary Mortgage Institutions in the country and make their monthly contributions to the Scheme. Already, the Nigerians in Diaspora Housing Development Group have paid the MD a courtesy visit and a process is already in the pipeline.

The bank is fully equipped and very capable of bringing to reality the Transformation Agenda in the housing sector. In terms of the human resources, the managing Director is quoted to have said “we have fully put that in place, and on-the-job training is carried out regularly in order to keep staff abreast of recent trends in the industry worldwide.


FG tackling the monster 

In its efforts at facing the monster called homelessness, The Federal Government in a fresh initiative between it and a private firm, BASAP Limited, a firm touted as “a mass housing developer, plans to construct 15,000 houses.

The N300 billion deal is seen as a bold move but some believe it is a mere attempt in the face of the excruciating pains an average Nigerian is experiencing in a bid to have a roof over his head.

Signing the deal, Akon Eyakenyi, the Lands, Housing and Urban Development Minister, hailed the project, which is to be completed within 12 months across all the states of the federation. Indeed, there is nothing new here. And, going by the antecedents of government, it will be a feat for the project to be achieved.

A telling instance is the federal government’s housing estates scheme, which the Shehu Shagari administration (1979-1983) initiated. More than 30 years after, the project is still uncompleted in several parts of the country. So, how is the minister going to pull off this feat, knowing that severe bottlenecks like access to land at the state level and insecurity might conspire to delay the take-off?

Worse, Nigeria is experiencing economic turmoil: real income has declined, the finance industry is showing signs of distress, and high interest rates and inflation are hampering the best of well-intentioned efforts. Policy somersaults have made many international investors to flee our rudimentary housing sector.

According to a research conducted by the African Development Bank (AfDB), 68 per cent of mid-income earners in Nigeria live in rented apartments principally because “of prohibitive mortgages and building costs.” The average mortgage in Nigeria comes with an interest rate of between 22 and 24 per cent.

The Federal Mortgage Bank of Nigeria (FMBN), which was established by the Federal Government in 1956, has a short tenor. This is a gross disincentive to prospective homeowners. Many of them who want to build don’t have access to land, or are usually driven away by intimidating land speculators. Yet, this class is reckoned to be 23 per cent of the population. The National Housing Fund Act needs to be amended to make it a private sector operation regulated by the government, much like the successful pension sector that was transformed by the 2004 reform.

Managing Director of Ellen Properties, Sola Adekunle, said a transparent effort should be made by the two tiers of government to enlist the private sector in the construction of affordable houses for Nigerians.

His words: “The government will play a key part in guaranteeing the loans, as this is critical to bridging the gulf. This is a measured way to drastically reduce the growing prohibitive rates, and make our rates to fall in line with other economies, like the United States, where the government intervenes to help the masses, and tenors can last for up to 15 and 30 years, and as low as 2.5 per cent per annum, sometimes lower.

Nigeria’s real estate sector is estimated by some experts to be worth N6.43 trillion or 8.01 per cent of the rebased economy, but Adekunle said  with affordable mortgages, the value of the sector can climb rapidly to double digits, as obtainable in several economies.

“The current price of building materials is unnerving, probably because most of the items like iron rods, roofing sheets, doors, windows and tiles are imported. The government needs to build capacity of industries to produce building materials locally in order to reduce the cost elements that go into building a house”, he added.


Rejuvenating FHA

The Federal Housing Authority (FHA), which was a veritable vehicle of mass production of cheap house across the country in the 1970s and 1980s, has gone down the pecking order in housing delivery as the body’s profile has diminished.

However, following the commercialisation of the body for better service delivery, there seems to be a ray of hope. The Minister of Lands, Housing and Urban Development, Mrs Akom Etim Eyakenyi, basking in the euphoria of the commercialisation, has called on well meaning individuals, organised private sector and public institutions to invest in the new FHA, saying that its new posture will guarantee handsome dividends on investments over time.

The minister said “banks and even the CBN will have stakes in the newly commercialised FHA,” adding that the administration is set to ensure that FHA achieves the objectives for its establishment.

“FHA was established to ensure that affordable houses are provided for Nigerians, and this is what the commercialisation aims to achieve,” she said, adding that the failure of the FHA was because it did not provide homes at affordable rates. “Before now, the houses provided by FHA was competing with those built by private developers,” she said, adding that the FHA needed to provide homes at lesser rates in order to enable Nigerians to afford homes.

Discussing one of the newly adopted strategies aimed at ensuring provision of affordable homes, the minister said: “FHA has lands that will be used for that purpose which will reduce the cost of housing provision. The cost of homes will be based on the value of building materials, i.e., prices of homes will exclude cost of land on which homes are built, she said.

Defending the adopted strategies, she said: We will get the needed resources from the various class of investors, and the portfolio will be better advised and constructively criticized, observed and managed because the funds in it comes from stakeholders who are interested in how it is invested.

When different stakeholders invest their resources in a business, they will also work hard to ensure the success of that investment, she said adding that if the investment is from government alone, the public is not likely to work as if it has a stake in it.

“FHA is like a government baby that will be jointly nursed by individual investors, organized private sector and public institutions will have shares in its housing investments and they will have a say in the running of the organisation because their money is in it,” she added.