An Assessment of the Mortgage Situation in the Nigerian Real Estate Market
The United Nations Habitat, a UN agency, with a mission to promote socially and environmentally sustainable cities and communities defines housing as the process of providing safe, comfortable, attractive, functional, affordable and identifiable shelter in a proper setting within a neighborhood, supported by continuous maintenance of the built environment for the daily living activities of individuals and families within the community.
Housing has been universally accepted as the second most important Human need and would rank as one of the highest expenses in any household. It is a basic need in the hierarchy of needs of man which fulfills the physiological needs of man for survival. The United Nations Habitat therefore opined the provision of adequate housing as a fundamental human right of man in any society.
It is estimated that 3 billion people, about 40 per cent of the world’s population, will need access to adequate housing by 2030 according to the World Economic Forum. The housing deficit in Nigeria presently stands at 28 million units according to the Central Bank of Nigeria (CBN). Available data from CBN indicates that trillions of Naira will be needed to rectify the situation.
Furthermore, any responsible government’s duty is to provide an enabling environment and efficient policies for the development of affordable housing programmes. A good housing policy will enhance and advance a higher quality of life of the citizens of the nation.
Universal standards upheld by the United Nations Organization have been acknowledged by successive Nigerian Governments as evident from the series of initiatives and programmes in mass housing development projects over the years. Among such initiatives is the Federal Housing Authority (FHA), which was established “vide Decree 40” of 1973, and now cited as “Act CAP F-14 Laws of the Federation of Nigeria 2004”. Others like the National Housing Fund (NHF) “Act 3” of 1992, the Federal Mortgage Bank “Act 82” of 1993, and many more. However, the housing gaps still persist.
Subsequently, the Federal Mortgage Bank of Nigeria Act of 1993 was the legislation that was established to provide long-term credit facilities to mortgage institutions to encourage and promote the development and growth of mortgage institutions at various levels across Nigerian communities. One of the major functions of FMBN, as stated in Section 5 (a) of the Act, is to “provide long-term credit facilities to mortgage institutions in Nigeria at such rates and terms as may be determined by the Board in accordance with the policy directed by the Federal Government.”
The creation of FMBN was a major move by the Nigerian government to develop the mortgage industry and support housing development funding. In spite of this, and many other policies like licensing and encouraging the establishment of Primary Mortgage Institutions (PMIs), the impact of funding on housing delivery, particularly in the context of mortgage institutions in Nigeria, is still a far cry. Funding is still a major challenge confronting the housing industry in Nigeria. Funding housing delivery in Nigeria through mortgages should significantly impact the industry, but the reverse is the case.
Fast forward to a few years later, the recently launched Renewed Hope Housing Cities and Estates Scheme is to deliver 100,000 homes, especially for families on low to middle income across Nigeria. The initiative is a key component of the Renewed Hope Agenda of the Federal Government under the leadership of President Bola Ahmed Tinubu. This initiative is good but is slowly and inadequately addressing the housing shortages Nigeria is confronting. There must be a deliberate functionality in the steps taken towards funding of housing in Nigeria. The FMBN has not fully impacted the delivery of affordable houses along with essential funding, therefore rejigging must be necessary.
Source: tribuneonline.ng
Housing has been universally accepted as the second most important Human need and would rank as one of the highest expenses in any household. It is a basic need in the hierarchy of needs of man which fulfills the physiological needs of man for survival. The United Nations Habitat therefore opined the provision of adequate housing as a fundamental human right of man in any society.
It is estimated that 3 billion people, about 40 per cent of the world’s population, will need access to adequate housing by 2030 according to the World Economic Forum. The housing deficit in Nigeria presently stands at 28 million units according to the Central Bank of Nigeria (CBN). Available data from CBN indicates that trillions of Naira will be needed to rectify the situation.
Furthermore, any responsible government’s duty is to provide an enabling environment and efficient policies for the development of affordable housing programmes. A good housing policy will enhance and advance a higher quality of life of the citizens of the nation.
Universal standards upheld by the United Nations Organization have been acknowledged by successive Nigerian Governments as evident from the series of initiatives and programmes in mass housing development projects over the years. Among such initiatives is the Federal Housing Authority (FHA), which was established “vide Decree 40” of 1973, and now cited as “Act CAP F-14 Laws of the Federation of Nigeria 2004”. Others like the National Housing Fund (NHF) “Act 3” of 1992, the Federal Mortgage Bank “Act 82” of 1993, and many more. However, the housing gaps still persist.
Subsequently, the Federal Mortgage Bank of Nigeria Act of 1993 was the legislation that was established to provide long-term credit facilities to mortgage institutions to encourage and promote the development and growth of mortgage institutions at various levels across Nigerian communities. One of the major functions of FMBN, as stated in Section 5 (a) of the Act, is to “provide long-term credit facilities to mortgage institutions in Nigeria at such rates and terms as may be determined by the Board in accordance with the policy directed by the Federal Government.”
The creation of FMBN was a major move by the Nigerian government to develop the mortgage industry and support housing development funding. In spite of this, and many other policies like licensing and encouraging the establishment of Primary Mortgage Institutions (PMIs), the impact of funding on housing delivery, particularly in the context of mortgage institutions in Nigeria, is still a far cry. Funding is still a major challenge confronting the housing industry in Nigeria. Funding housing delivery in Nigeria through mortgages should significantly impact the industry, but the reverse is the case.
Fast forward to a few years later, the recently launched Renewed Hope Housing Cities and Estates Scheme is to deliver 100,000 homes, especially for families on low to middle income across Nigeria. The initiative is a key component of the Renewed Hope Agenda of the Federal Government under the leadership of President Bola Ahmed Tinubu. This initiative is good but is slowly and inadequately addressing the housing shortages Nigeria is confronting. There must be a deliberate functionality in the steps taken towards funding of housing in Nigeria. The FMBN has not fully impacted the delivery of affordable houses along with essential funding, therefore rejigging must be necessary.
Accessibility to Mortgage Options
Mortgagors, or individuals seeking a mortgage loan for the purchase of a home, face several challenges when trying to access loan options. Some common difficulties they encounter include the lack of information, financial literacy, as well as strict requirements from mortgage banks. Below are some of the common obstacles:Creditworthiness
Lenders typically consider a borrower’s credit score and credit history when determining eligibility for a mortgage loan. A low credit score makes it difficult to qualify for a loan or may result in higher interest rates.Income and Employment Status
Lenders require borrowers to have a stable income and employment history to ensure they can make their mortgage payments. Self-employed individuals or those with irregular income, due to the high rate of unemployment, may find it harder to secure a loan.Down Payment
Lenders often require a down payment on a mortgage loan, typically ranging from 10 per cent to 30 per cent of the home’s purchase price. Saving up for this equity contribution can be a significant challenge for many potential borrowers.Documentation Requirements
Lenders require borrowers to provide extensive documentation, including proof of income, assets, employment, and other financial information. Gathering all the necessary documents can be time-consuming and challenging for some borrowers. Overall, navigating the mortgage loan process can be complex, cumbersome, and very challenging. The government must make sure that all these requirements are public knowledge and simplified to improve accessibility to mortgage.Interest Rates
Interest rates offered by mortgage institutions play a crucial role in determining the affordability of housing loans. Lower interest rates can make mortgages more accessible to a larger population. Loans with high interest rates discourage potential homeowners. Mortgage interest rates in Nigeria at present range between 22-24 per cent — one of the highest in Africa. By contrast:- South Africa: 11.8 per cent
- United Kingdom: 3–6 per cent
- United States: 5–7 per cent
Policy and Regulatory Environment
The Minister of Housing and Urban Development in Nigeria should convene a stakeholders’ meeting with mortgage experts and lawmakers where some of the policies and regulatory frameworks governing mortgage institutions in Nigeria are evaluated. There is an urgent need to assess the significant impact of these policies on housing delivery. Mortgage policies need to be re-assessed and restructured to encourage better mortgage lending practices. The result will promote the growth of the housing sector.Alternative Funding Options
Property development is capital-intensive. It is therefore essential to ensure a steady flow of funds before embarking on housing projects. It is time to think outside of the box — it shouldn't be only the government providing solutions. There are alternative sources of funding like Crowd Funding that can serve as a viable solution. Crowdfunding is the practice of funding a project or venture by raising money from a large number of people or organizations. For example, in 2015, over $34 billion was raised worldwide through crowdfunding for various types of real estate projects. As a suggestion, FMBN could create a platform and bring the concept as a package that PMIs could buy into. Nigeria’s housing deficit, which currently stands above 28 million units, cannot be reduced without adequate financing. With proper funding:- Real estate activities will revive many abandoned housing projects across the country.
- Job creation will increase.
- Tax revenue generation will improve.
- Poverty levels will drop.
- Living standards will rise.
Conclusion
The inefficiencies in the mortgage industry, which are due to poor policy implementation, instability of government policies, inconsistent economic policy, and corruption, must be tackled head-on — starting with the New Hope Housing Agenda of the current administration. Funding plays a critical role in facilitating housing delivery through mortgage institutions. The American and UK governments have successfully used affordable housing delivery as a tool to reduce poverty. This is achievable through:- Formulating policies that improve access to affordable housing,
- Enhancing financial literacy and public awareness,
- Reducing the cost of borrowing, and
- Creating a conducive environment for the real estate market to thrive.
Source: tribuneonline.ng
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