For Nigeria to have a mature housing market as it obtains in advanced economies like UK and the US, it must have a well developed and functional mortgage system which must be complemented by a good and flexible land administration system.
Almost always, the slow growth in the Nigerian mortgage system, which has become worrisome, is attributed to the country’s land administration system where the anachronistic Land Use Act has been oppressing the housing sector since it was enacted.
The place of this functional mortgage system without a good and flexible land administration system in the housing sector is quite critical and it has been observed that no housing market can be said to be mature as those of UK and the US without them.
In Nigeria, both of these are lacking. The growth of the mortgage system in the country has been greatly hampered by very rigid, non-flexible and primitive land laws encapsulated as the Land Use Act.
Passed by a decree in 1978 and inserted into the 1979 national constitution, the provisions of the Act can only be changed through a constitutional amendment, requiring a two-thirds majority of both the federal and state legislatures. This is not going to happen any time soon.
But developers have to produce houses and mortgage operators have to continue in business. So, “it has become clear that we must create an enabling environment in which a sustainable mortgage market can thrive, and one of the most important drivers of this is a well established land administration process”, says Adedeji Adesemoye, head, Project Administration Team, Nigeria Housing Finance Programme.
Adesemoye, who is also deputy director, Other Financial Institutions Services Department (OFISD) at Central Bank of Nigeria (CBN), highlighted the unintended consequences of the 1978 Land Use Act’ at a forum in Abuja, pointing out that various efforts, including the setting up of the Nigeria Housing Finance Programme (NHFP) and the Model, Mortgage & Foreclosure Law (MMFL) were being put in place to grow the housing and mortgage markets.
NHFP is being implemented by the Federal Government through its relevant ministries, departments and agencies (MDAs) and this is supported by the World Bank International Development Association (IDA). The objective of the programme, Adesemoye explained, was to increase access to housing finance by deepening primary and secondary mortgage markets.
The MMFL is a draft bill designed to make delinquency in mortgage repayment unattractive to mortgagors and reduce losses from mortgage loans. It is expected to create a more attractive and vibrant environment, thereby attracting investors providing long term, low cost and more available capital to the market. Its main strategy is to encourage the use of administrative procedures to address some of the most negative provisions of the Act.
This is a good development for both property developers and investors. But in addition to these, developers also owe it as a duty to themselves to be creative in managing the limited impact of the Land Use Act.
Developers should de-emphasise the traditional way of raising development finance, explaining that they should go to the capital market to raise funds at much cheaper rates and longer tenor.
To also address the problem of mortgage market growth, the CBN has come up with the idea of a guarantee mortgage programme. This is a mortgage given to a borrower by a lender where an identified third party will take responsibility for the loan if the borrower defaults.
Expectation here is that this will push up housing affordability because, with the new programme, once a borrower defaults, the third party receives a claim from the lender, pays the lender off, and assumes responsibility for the mortgage.
A quality mortgage guarantee programme is used to provide credit loss protection to lenders in case of borrower default. The products incentivise lenders to accept loans with lower down-payments, thus increasing affordability. The implication of this is that borrowers who, ordinarily, would not have qualified for mortgage loan by reason of their low income, can now obtain loans which enhances their affordability.
Experts in the housing sector say one of the surest ways of making housing affordable and growing the sector is by industrialising development through emphasis on locally produced building materials.
Industrialising the sector, in their opinion, would not only drag down the cost of construction, material wise, but also create jobs for those involved in the housing value chain, including input manufacturers, professionals and artisans.
But the experts insist that government should provide infrastructure and come up with a policy framework in the financial sector that will make mortgage accessible and affordable through a significant reduction in interest rate.
Normally, the housing market behaves in a particular way. It gravitates where there is effective demand. Government should recognise that the weakest demand comes from the low end market and so should direct regulatory systems towards that end with a policy to address that problem.
Government should also adopt the zoning system through which it would discover areas where housing need is highest and the type of housing that they need just as it should impose heavy tax on houses that are unoccupied to discourage further development there.