Mortage and Housing: Nigeria loans for less

By Tolu Ogunlesi in Lagos
Posted on Monday, 3 November 2014 14:24

Enyi, 35, lives in Lagos and has been trying to get a mortgage for a while. Her struggle echoes the challenges facing Nigeria’s housing sector.

The National Housing Fund (NHF), managed by the state-owned Federal Mortgage Bank of Nigeria, is her best bet, because it offers the best interest rates.

I’ve tried to go ahead on my own to start building on the land

But getting financing from the fund, even after fulfilling the requirements for eligibility, takes a while: between 12 and 24 months at least.

“The NHF feels like a hush-hush thing,” she says. “Meanwhile it’s supposed to be available to every Nigerian of working age.”

So, while waiting, she has turned to the next best option: a private mortgage bank.

That should take less time than the NHF, but there’s one intimidating drawback: the “ridiculously high” interest rate, typically a minimum of 18% per annum, compared to the National Housing Fund’s 5%. Still, she has decided to brave it.

Her plan is to arrange a private mortgage for now (because the property she’s set her eyes on won’t wait for the NHF loan to go through), and then switch to the NHF’s funding when it eventually arrives.

Complicated, but better than nothing – if she can get it to work.

The sad reality for her is that even the process of getting the expensive private bank mortgage has stalled.

The developers of the property have had problems convincing the mortgage bank that the title to the land they were developing was genuine.

“The mortgage bank said they couldn’t verify the papers with the state government,” Enyi says.

Experts say the lack of efficiency and transparency around land-titling is one of the most debilitating issues affecting the housing sector in Nigeria.

Ruth Obih, CEO of 3Invest, a real estate consultancy, points out that there are dozens of procedures required to register a piece of land, courtesy of a cumbersome land-use legislation dating back to the late 1970s, which vests ownership of all land in Nigeria’s federal and state governments – and ensures that formalities are tied up in corrupt and tardy bureaucracies.

When she worked as a conveyancing lawyer in the UK, Obih was used to completing land registration procedures in weeks.

In Nigeria, she laments, it takes years. Red tape combines with high interest rates, short repayment schedules (20-year mortgages are rare, making monthly repayments high) and an unfriendly legal system (inadequate fore-closure laws) to compound the problem.

Where are the houses?

But arguably the biggest issue is the availability of houses.

For decades home construction has lagged well behind demand, so that Nigeria’s housing deficit – the number of houses that need to be built to ensure that everyone has access to one – is now estimated at 17m.

It’s hard to talk about a housing finance market without houses, Obih says.

At a housing summit in Abuja earlier this year, finance minister Ngozi Okonjo-Iweala said that Nigeria’s housing finance market constitutes only 1% of GDP, a negligible figure compared to the US and UK (upwards of 75%), Hong Kong (50%) and Malaysia (32%).

Analysts estimate a functioning housing finance market in Nigeria will boost annual economic growth by as much as a tenth.

With the acute shortage of houses, even if industry-wide interest rates were to fall to single digits and legal knots miraculously dissolve, there would still be a problem.

Developers in Lagos are disproportionately targeting the luxury market; the high rental and sale prices – in many cases denominated in dollars – are their only insurance in a very high-risk market.

The financing end of the market has also struggled for years to get it right.

In 2012 the central bank announced plans to reform the sector, in a manner similar to what was done to Nigeria’s commercial banks in 2004.

Survival of the fittest

At the beginning of July the verdict emerged. Only 36 of the hundreds of primary mortgage institutions (PMIs) made it over the new capitalisation hurdles: 10 are licensed to operate nationally; the rest have been given regional mandates.

Those that failed will be delisted, and the fate of depositors is unclear. Enyi says she is currently trying to recover her deposit from one of the PMIs.

“It’s a very unsettled industry right now,” Obih says.

But it’s not all gloomy news. Analysts expect that recapitalised mortgage banks will be in a better position to provide cheaper financing.

And a new entrant to the mortgage market promises to be a game-changer: the Nigeria Mortgage Refinance Company (NMRC), launched by President Goodluck Jonathan in January 2014 to provide cheap financing to the PMIs, enabling them to create more mortgages.

The company has been likened to America’s Fannie Mae and Freddie Mac, which, until they fell into distress following the subprime mortgage crisis, considerably swelled the country’s class of homeowners.

The federal government is not alone in its quest to transform the housing sector in Nigeria. State governments are also rolling out schemes to encourage activity.

In Ogun State, the government last December launched a scheme to fast-track the vital “certificates of occupancy” for people who have already built on their land (typically C of Os don’t come for years; land owners have to make do with temporary certification).

And in Lagos, there is a new state-run mortgage scheme. The Lagos Home Ownership Mortgage Scheme (HOMS) launched in February provides a 10-year mortgage option at 9% interest.

The houses are built by the state through the Lagos Mortgage Board, while the financing is handled by the Lagos Building Investment Company (LBIC).

All of the funding, state governor Babatunde Fashola has said, comes from tax-payers. “We have not borrowed one kobo to fund the scheme,” he says.

Construction work is ongoing at 23 sites across the state, delivering, at the moment, 200 homes monthly.

Because the number of applicants exceeds the number of available houses, a monthly draw is held publicly.”

You don’t need to know anybody [to qualify],” Fashola told the crowd at the July draw, an attempt to dispel the belief common among Nigerians that all allocation schemes are rigged to favour those who have connections.

Fashola acknowledges that the programme is a drop in the ocean, but is optimistic for the future.

“A system that can support some people will ultimately support more people,” he said.

“I’m confident that whether I’m here [as governor] or not, as many people who want to own a home in Lagos, and who are working, will do so.”

He stresses that it’s not only salaried workers who stand to benefit from HOMS, an important clarification to make in a city where the informal businesses – traders, artisans, freelancers – are estimated to account for as much as 80% of the economy.

For Dare Okusanya who, even though he currently works as a banker in Lagos, doesn’t want to live in the city, other options have to be explored. Automobilių dalys daugumai automobilių, autodalys internetu. Audi, BMW, VW, Opel, Toyota ir kitų automobilių auto dalys.

The one he seems set to settle for is the one most common across Nigeria: self-financing of home construction through one’s income and savings.

Going it alone

He owns a plot of land in Oyo State, two hours drive north of Lagos, in south- western Nigeria, where he plans to build his house.

Like Enyi, he once had his eyes on the housing fund, even moving forward to make the necessary down payment.

“I wanted the Federal Mortgage Bank of Nigeria financing because the interest rate is reasonable,” he says.

But after about eight months he gave up and asked for a refund, which he’s since collected.

“I’ve tried to go ahead on my own to start building on the land. With the little I have I’ve been doing it gradually.”

But the prospects for the housing finance sector are great, says Obih, both with the reforms and the NMRC, which should ultimately drive down interest rates and extend loan tenors.

No doubt it will take a while for ordinary Nigerians like Enyi and Okusanya to feel its effects.

Until cheap financing becomes widely available most will have to settle for the long, hard and uncertain slog of self-developing and self-financing.

“[For now] it’s better for you to amass the money and do whatever you want to do with it, than to go for credit,” Okusanya says. ●

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