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Mortgage sector and challenges of rebased GDP

Posted: May 4, 2015 at 12:01 am   /   by   /   comments (0)

One of the major highlights of rebasing the Nigerian Gross Domestic Product (GDP) was the revelation of the performance of various sectors of the national economy and their impact, or contribution to the overall performance of the economy. Our Correspondent, Bamidele Ogunwusi examines the contributions of the mortgage sector to the nation’s gross domestic products (GDP).

Okonjo-Iweala, Finance Minister  Ya’u Kumo

Okonjo-Iweala, Finance Minister                                      Ya’u Kumo

For more than three decades, the nations’ mortgage sector has been struggling to find its feet and as a result, the sector has gone through phases of both the good and the bad. Governments at various times in the past have made efforts to put the sector of sound footings.

In spite of this, the sector has remained underdeveloped.

However, for the mortgage sector and its operators, it was not cheery news that the sector which, in developed economies of the world, is a major contributor to economic growth and development makes less than one percent contribution to the GDP.

It is against this backdrop that the management of the Federal Mortgage Bank of Nigeria (FMBN) has resolved to put measures in place targeted at growing their contribution to the GDP from less than one (about 0.5 percent) to 15 percent. This, analysts say, is an ambitious target.

“The mortgage industry in Nigeria is just starting. If you look at the size of our contribution to the GDP, you will see that it’s less than one per cent, but my target before I leave here is that we should be able to contribute, at least, 15 per cent. That is why we are putting a lot of issues on ground to be able to drive this process”, Gimba Kumo, the FMBN managing director, assured recently.

Kumo added:  “if you look at the National Housing Fund (NHF) that we are managing, out of the 170 million populations, less than one per cent are the ones contributing. So, we said this is not good and tasked ourselves on how to reach the other segments of the society that are not in formal employment”.

He noted that those in the lowest strata of the society have not benefited from the bank’s loans because they have limited capacity to pay for houses as the income they generate is very small, adding that this led to the introduction of the Cooperative Loan Scheme.

“The scheme was brought about to extend the bank’s services to people who can be termed disadvantaged in the society because their income is low, irregular and difficult to access under the NHF loan window. What the bank has now done is to use corporative societies in the informal sector to reach them”, he informed.

He noted that FMBN became the focal point when the Federal Government at the retreat resolved to revolutionalise the mortgage sector by translating the National Housing Policy and National Urban Development Policy into a road map for housing development.

With a mandate that includes, among other things, encouraging the emergence and promoting the growth of viable primary mortgage institutions to service the need of housing delivery; mobilising both domestic and offshore funds into the housing sector; linking the capital market with the housing industry, establishing and operating a viable secondary mortgage market to support the primary mortgage market and collecting and administering the NHF contribution with the provisions of the NHF Act, the FMBN has no other option than to remain a key player in the transformation agenda.

To surmount the various challenges in the sector, particularly the housing deficit, the FMBN has initiated projects like the delivery of about 53,000 houses through the NHF launching of housing scheme for the informal sector, Estate Development Guarantee (EDG) scheme among others.

Kumo explained that “the Informal Sector Cooperative Society Loan Scheme, as a mortgage product, would enable operators in the informal sector like farmers, traders and artisans etc to benefit from the National Housing Scheme like those in the formal sector”.

According to him, the loan the bank gives enables a cooperative society that has acquired a plot of land to develop houses for allocation to its members, adding: “the parcel of land would have title in the name of the society which would act as facilitator on behalf of its members in the loan transaction and which would facilitate construction of the housing units; the root of the title of the estate land would be subleased to the beneficiaries.”

Contribution to housing finance

Elsewhere, especially in the advanced economies of the world, housing finance is synonymous with mortgage, because in such societies, the only known way of buying and owning a home is by applying for, and accessing a mortgage facility.

In Nigeria, the story is different. This is a country where homeownership is realised almost 100 percent from own savings or through communal and co-operative efforts.

In Lagos, for instance, a city of about 18 million people where over 60 percent of this population lives in rented accommodation; unconfirmed report has it that about 86 percent of the housing stock in the city is funded from household income.

Experts have revealed that housing finance by public authorities in Nigeria is about 10 percent; mortgage banks contribute about 2 percent, while contribution from banks and other institutions is insignificant.

In a comparative analysis of what obtains in Nigeria, Ghana and South Africa, Sonnie Ayere, CEO, Dunn Loren Merrifield, notes that in South Africa, mortgage contributes about 40 percent of housing finance while in Ghana, our much smaller West African neighbour, the contribution is 3 percent.

Ayere, who spoke at an economic forum in Lagos, explains that the low mortgage contribution to housing finance in Nigeria is the cumbersome and unfriendly land administration in the country, pointing out that Nigeria ranks highest in property registration and construction permits.

“Nigeria is ahead of all other African countries in procedures legally required for registering property; it takes about 360 days to register property here as against Ghana’s less than 10 days,” he says, adding that in Lagos, the cost of registering property is about 15 percent of the value of the property.

Ayere points out that there are altogether 16 stages and 60 steps to getting a property registered in Lagos, eight stages and 30 steps for each of the lender and the borrower, stressing that this explains why it is difficult to get mortgage for housing finance.

This, he says, is against what obtains in other economies including Ghana and South Africa. “Ghana before now had a dysfunctional land administration, long and expensive procedures that lasted up to five years and involving six different agencies supervising which resulted in inefficient state land bureaucracy and customary tenure,” he says.

When, however, government instituted reforms, he points out, property registration was cut to 34 days and queues at the lands commission disappeared, making it possible for the mortgage sector to thrive.