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How Weak Mortgage System Promotes Homelessness

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In this report, CHIKA OKEKE writes on the need for government to enforce flexible interest rate so as to increase home ownership.

According to the Bureau of Public Service Reform (BPSR), over 108 million Nigerians are homeless out of the over 180 million population. This represents over 50 percent of the population who either live in shanties, sleep under the bridges, motor parks or other unpleasant places in search of greener pastures.

With over 80 per cent of the workforce within the low income cadre, the 100, 000 housing units proposed annually by the federal government cannot address the homeless state of Nigerians. At a time Nigeria is battling to contend with over 17 million housing deficit, the weak mortgage system that is prevalent among the Primary Mortgage Banks (PMBs) might ruin the struggle.

Findings by our correspondent reveal that Federal Mortgage Bank of Nigeria (FMBN) being the secondary mortgage institution in the country, provide loans to accredited PMB’s at four per cent interest rate for on-lending at six per cent rate to National Housing Fund (NHF) contributors over a maximum tenor of 30 years.

The NHF which is managed by FMBN is a social savings scheme designed to mobilise long-term funds from workers, banks, insurance companies and the federal government to advance concessionary loans to contributors.

However, the PMB’s lending rate to both NHF contributors and estate developers are usually higher and in most cases rising to double digit interest rate of 28 percent, thereby widening the doors for homelessness among Nigerians.  A peep at fixed home loan interest rate for private properties in Singapore revealed that it ranges from 1.85 per cent to 2.51 percent, with a monthly mortgage repayment sum of about $2,020 to $2,150 for a 25-year home loan of $500,000.

While the housing sector in the United States contributes 36 per cent to their Gross Domestic Product (GDP), South Africa had 30 per cent but in Nigeria, it is 0.5 per cent. Given the dicey situation, stakeholders have called on government to lower the interest rate to single digit, without which the provision of affordable housing would remain a mirage.

Reacting to absence of viable mortgage system in Nigeria, the president of Mortgage Bankers Association of Nigeria (MBAN), Mr. Adeniyi Akinlusi said that the room for improvement is the biggest room in any endeavour. He noted that just like other sectors of the economy, that there is work in progress in the mortgage sector, adding that experts have been brainstorming to fix grey areas militating against growth in the sector.

The key mortgage players have been collaborating to fix the weak system. Akinlusi asserted that working with stakeholders like FMBN, Nigeria Mortgage Refinance Company (NMRC), Nigeria Deposit Insurance Corporation (NDIC) yielded result as the Central Bank of Nigeria (CBN) unveiled the Uniformed Mortgage Underwriting Standards (UMUS) for the informal sector and self-employed months back.

Added to this is the validation of Uniformed Mortgage Underwriting Standards (UMUS) for non- interest housing finance so that Nigerians that were sidelined could key into housing. The president emphasised that the association is also brainstorming on problems associated with titling, which he believed would affect housing supply and demand.

He disclosed that less houses would be built if the cost of titling is cumbersome, stressing that it takes between six months to two years and 14 procedures to perfect titles all over the country. Akinlusi pointed out that MBAN is in talks with all the stakeholders including the state governments to ease obstacles associated with titling, adding that it is the major reason for promoting formula 1-3-1 since the cost of titling is between 22 to 50 per cent.

He said, “We are proposing that it should be one per cent, then it should not take more than three days and in one desk”. The president stated that if state governments could lessen the cost of titling, that it is the easiest way to raise Internally Generated Revenue (IGR), noting that many property owners are unable to obtain titles due to outrageous cost.

Akinlusi pointed out that issuance of mortgage would increase visibility in other areas, adding that by giving mortgages to Nigerians at the informal sector that they would insure their houses. This, he said would translate to increase in insurance penetration as they would be motivated to open a voluntary pension account that would increase pension penetration in the country.

He said, “You can also use the tool to increase IGR by making it a requirement for them to show their tax card because if they need a mortgage, they will register with the government and be enrolled in the tax net”. Akinlusi was optimistic that with increased IGR that states would have more money to execute capital projects if the mortgage sector takes centre stage in the economy.

In his contribution, a real estate developer, Arc Adewunmi Towolawi Okupe lamented that Nigerians cannot buy houses due to poor mortgage system. He said that the ratio of housing cost to monthly salaries is high, which made it impossible for workers to own homes.

Okupe maintained that housing loans are offered at a very high interest rate, which is why most mortgagors are unable to repay. He appealed to federal government to introduce stringent measures aimed at boosting mortgages by lowering the interest rate to single digit.

Okupe also sought the introduction of local building materials and technology that could reduce the cost of houses as well as making repayment easier. He advocated a home design for every level of income earners in the country adding that Nigerians should cut their choice of homes according to their earning. The expert was optimistic that the establishment of mortgage institute could address the challenges.

On ways of enhancing visibility in the sector, he said, “If government can give out loans practically on time for people to build homes that are less than N6.5 million and make sure that the people who access the funds are the real people that need it and not retailers, then some of the problems in the sector can be addressed”.

In the same vein, the president of Real Estate Development Association (REDAN), Rev Ugochukwu Chime decried over 53 per cent unemployment among the youths especially the school leavers. He noted that a sustainable housing sector would be created by organized private sector while the government provided an enabling environment for the investment to grow.

Chime pointed out that land issues were the exclusive reserves of the states government as the custodian of the land. He listed barriers to mortgage operations as lack of long term funds and land administration policy. Chime asserted that since land is on the concurrent list of legislation, that it provided opportunity for states to define their own land administration policy. 

This policy, he believed have empowered states to see land as oil, a situation that increased transaction cost and time adding that accessing land documents takes between 3 months to one year. He added, “We have discovered that if you build a house of N10 million that the cost of perfecting the house can be as much as N30 million”.

Worried by the inability of workers to own homes, the Federal Mortgage Bank of Nigeria (FMBN) has commenced the implementation of the new approved conditions for accessing loans from the NHF. This includes zero equity contribution for loans of N5 million and 10 percent contribution for loans ranging from N5 to N15 million by contributors to the NHF

The revised conditions which was recently approved by the board of FMBN, represent a 100 percent reduction in equity payment for housing loans.

Managing director/chief executive officer of FMBN, Ahmed Dangiwa insisted that the downward review represented a key milestone in the management’s drive to enable workers afford decent and quality housing. According to him, “I am delighted that we have been able to achieve this groundbreaking feat which is a huge win for the workers and particularly those contributing to NHF”.

This he believed would reduce the financial burden that have marred home ownership for the past three decades even as he enjoined existing contributors to take advantage of the new conditions to secure loans to purchase or build their homes. He encouraged workers yet to enroll for NHF to register through FMBN offices located in states nationwide.



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