Nigeria @61-We need low cost houses, Citizens lament
Today, the average Nigerian is unable to access a mortgage because Nigeria’s unattractive mortgage system has been a key theme in its residential market for decades. With a housing deficit running into tens of millions, a homeownership rate at 25%, and a mortgage financing requirement conservatively estimated between 15-20 trillion naira, there is a great deal of work to be done.
Housing is typically capital intensive in Nigeria due to the high cost of construction, surging land prices, and excessive financing costs. The high capital requirement of housing has made long-term financing critical in driving affordability; particularly for lower and middle-income groups.
Professor Charles Inyangete, Chairman, Innovative Risks and Investment Solutions Ltd says there is inadequate data to track and monitor trading in the housing sector. He adds that there is a massive disparity in the data available to the drivers of the industry, hence, it is difficult to be able to assess the performance of the nation’s mortgage market without data.
“You will need 14 times your income to acquire a property in Nigeria”, he added
The huge difference that exists in the housing finance market is an indicator that the mortgage system in Nigeria needs to be broadened, more low-income houses must be constructed and access to funding of the sector deepened.
Adedeji Adesemoye, Development Finance Economist added that there is no verifiable housing data to understand the happenings of the mortgage sector, hence, the deployment of artificial intelligence to be able to gather more structured data in order to be able to rejig the policy formulation and implementation process.
Interest rates for mortgage products from commercial institutions are typically between 15%-25% per annum for a tenor up to 20 years. A model mortgage transaction would assume an interest rate of 20% on a ₦50million mortgage over 15 years. Using the loan amortization calculator by Aso Savings, the borrower would have made total payments amounting to 3 times the principal at ₦158,066,685.
Paying 3x the principal on a mortgage transaction appears like daylight robbery. However, it is critical to note that the time value of money would play a major role as we expect ₦158 million today to have lost a significant percentage of its value over 15 years.
In the private sector, some mortgage banks including Cooperative Mortgage Bank have gotten creative in reducing their interest rates by taking the burden of building residential properties and placing those properties on mortgages at single-digit interest rates of about 9% per annum. Mortgage banks have also executed partnerships with cooperatives to design a system where their members can make convenient monthly contributions to the mortgage bank to qualify them for affordable and quality homes over time.
In the public sector, the government-owned institution; Federal Mortgage Bank of Nigeria (FMBN) lends mortgages at 6% to National Housing Fund (NHF) contributors over a maximum tenor of 30 years. While mortgages from the government may appear more affordable, NHF contributors can only access up to ₦15million from the fund through an accredited and licensed Primary Mortgage Bank.
The government is also encouraging financial institutions to participate in mortgages through the World Bank-backed institution; Nigerian Mortgage Refinance Company (NMRC). Mustapha Njie of TAF Global, Hakeem Ogunniran of Eximia Realty Company Limited, and Jide Odusolu of Octo5 Holdings Limited say more still needs to be done to cater to Nigeria’s large housing market and the government must create long term financing for the sector.
Njie, Adesemoye, Prof Inyangete, Odusolu, Ogunniran, and other key stakeholders say real Estate is an asset class that would need more reforms to drive mortgage participation aside from the issues in titling and discouraging bureaucracies in land documentation.
Some issues may make Nigeria’s macroeconomy harsh on its mortgage market, but, there are a few positives. It has taken too long for inflation and mortgage rates to function effectively and Africa Housing News cannot agree more with key players in the industry who believe that the public and private sectors need to intervene through the introduction of more specific policies and creative financing facilities to drive accessibility and affordability.
