Housing challenges have continued to rampage Nigerians due to high increase in populations seeking comfortable shelter for resting, business and other establishments.
This surge has left Nigeria with a huge deficit in balancing housing demands.
The Economic and Financial bulletin of December 2019 of the Central Bank of Nigeria (CBN) states that “a deficit of at least 17.0 million homes exists in Nigeria.”
The document further reveal that, over 700,000 housing units annually spanning 20 years is what is needed to accommodate the rising population of Nigeria. Although, at $20,863 68%, Nigerians can afford a home costing under N5 million (calculation done with exchange rate $1 to 134.21) according to Housing Finance For Africa, which uses annual income profile for rural and urban households based on the 2019 Purchasing Power Parity (PPP) in its estimation.
The document stressed that, “In 2020, price of cheapest newly built one-bedroom flat was estimated to be N2.8 million (US$8 040) in an urban area.” This means, it will cost just N5 million to deliver a two-bedroom bungalow in Nigeria. But the arising questions are that; Is it possible for Nigeria to construct a total of 700, 000 homes in a single year and how can this be sourced?
If the heralding answer is ‘Yes’, let it occur to many that, since 1972 when the 2nd National Housing Policy (NHP) was launched until 2012, less than 200,000 housing units have been delivered across the country. It is wise to say that, it will take Nigeria a period of 33 Years to have 74,604 housing units, meaning an approximate 2,260 homes a year.
Empirical evidence suggest that, the government of Singapore delivered about 686,894 houses in a period of 33 years which is about 20,814 a year. Interestingly, bulk of these homes are four bedrooms. On the other hand, the Government of South Africa under the ‘Reconstruction and Development Plan (RDP)’ delivered 2.3 million homes in 13 years, roughly 176,923 homes a year. Perhaps Nigeria can shoot for 250,000 homes a year, using a volume cost of N5 million; this will cost about N1.25 trillion.
In Nigeria, the desire of achieving affordable housing can be possible if the Federal, State and Local Governments collaborate to provide affordable housing for Nigerians. The first thing to do is reduce the overall cost of lands and then that of building a house while the following must be put into cognizance:
- Building materials; Cement, plumbing, and electrical materials.
- Land, cost of purchase, clearing, site, and services including drainage, fencing, surveys.
- Regulation and taxes; cost of transfers and taxes.
- Finance; interest cost of a mortgage.
A brief look at the following:
- Building materials
The price of building materials has grown so high. It was reported by The Guardian that, the prices of building materials went up to 300% in September of 2021, with 30% of the cost of a building being attribu
table to building materials and cement alone retailing for N3,500 a bag. This was also affirmed by the Minister of Lands, Housing & Urban Development when he stated that, “the high cost of conventional building materials, especially cement, is one single most important factor responsible for soaring housing costs in Nigeria.”
2. Rural Investment Allowances expansion :
When this is done to accommodate rural areas, it will enable developers to claw back the cost of building materials.
Allowing cooperative societies and organizations to buy bulk cement for staff housing only and claim tax rebates and deductions. These proposals will not cost the government cash to implement; the government is forgoing current revenues today and can claw back from property taxes later.
3. Land
This commodity is expensive in Lagos, Abuja and built-up cities by the simple interplay of demand and supply. It is hard to increase supply, but the government can keep costs low by simply preparing land for development. But if the government focus on acquiring land, clearing that land, performing sites and services like drainage, then auctioning land to affordable housing developers to build estates. This cuts the cost of building for developers and will become cost savings to buyers.
4. Regulation and taxes; cost of transfers, taxes
Nigeria ranks among the worst globally concerning the cost of registering property and the ease of property registration. It costs about 70% more than the average for Sub-Saharan Africa and almost three times the OECD average to register a property in Nigeria. According to the World Bank’s Doing Business 2020 report, Nigeria ranks 183rd out of 190 countries.
The cost of property registration in a state like Lagos costs about 11.1% of the property’s value, with an average of 12 procedures, and can take as long as 105 days to complete.
In Oyo state, there is a creation of digitized Certificate of Occupancy (C of O) issuance platform called the Oyo State Home Owners Charter (OYHOC) scheme. OYHOC makes the processing and collection of C of O faster, easier, and affordable. OYHOC generates C of O’s that ease authenticity of confirmation.
5. Amending the Land Use Act:
This will reduce the delays in securing consent by allowing transfers to be validated by the simple contract of sale and then registered in a central database. In essence, eliminate the need for a Certificate of Occupancy.
6. Finance; interest cost of a mortgage
A Central Bank of Nigeria (2020) presentation, ‘Financial System Strategy’, revealed that, the total housing stock in Nigeria is estimated at 10.7 million, with only about 5% in a traditional mortgage.
ThisDay reports that interest rates for mortgages range from 17% to 25% per annum outside these subsidized rates. Maximum loan repayment tenors are between 10 to 20 years, with lenders demanding between 30 to 50 percent equity contribution.
The Federal Mortgage Bank of Nigeria (FMBN) is the only real affordable housing finance window for most Nigerians, and we need more. The CBN recently announced its plan to inject approximately N500 billion (US$1.3 billion) into the housing sector and is working with Lagos State via the Family Homes Fund (FHF) to manage the execution of a N200 billion to the housing market, again more is needed.
But where will the funding come from?
Housing needs long-term financing. The Pension Commission should allow contributors to deploy pension contributions from their Retirement Savings Account (RSA) to Primary Mortgage Institutions as a down payment. These down payments should form the basis of a Rent to Own scheme where contributors can stay in homes, paying rent, which buys them equity. The RSA funds, primarily the Additional Voluntary Contribution portion, can be directed to the Primary Mortgage Institutions (PMI) but ring-fenced to housing projects, with land, cement, and fiscal incentives.
If this groups contribute 10% of their annual salary to their RSA for a “rent to own” scheme, that translates to N332.26 billion annually. This is a down payment that funds the value chain and activates matching funding. The PFAs then invest in the REIT created by the developers and the contributors in making their monthly pension checks are funding both their homes and retirement.
This flow of funds will be invested in REITS promoted by developers who get the tax and subsidies earlier highlighted.
Other success factors
- Removal of all taxes, fees, and levies by Federal, State, and Local Governments accessed affordable real estate development.
- Empowering the commercial banks and Insurance companies by giving affordable housing REITS the same guarantees and provisions FGN bonds get.
- Empowering the FMBN and Refinance Company by increasing their capital base via implicit FGN guarantees, if necessary, to enable them to support mortgage originators by purchasing their securitized Mortgage-Backed Securities.
- Update foreclosure law.
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