With the huge deficit in Nigeria housing sector, amid high demand for home ownership in the country it is widely believed that financially strengthened mortgage outfits that could provide a robust facility will bridge the housing deficit gap.
Although mortgage financing has been in Nigeria for quite a while with the Federal Mortgage Bank of Nigeria (FMBN) established in 1956, known then as the Nigerian Building Society (NBS), a joint venture of the Commonwealth Development Corporation and the Federal and Eastern Governments of Nigeria its impact has not been felt in the sector compared to what obtains in advanced jurisdictions.
The industry all these years was state dominated until the arrival of the Federal government reform programmes of the early 2000s which liberalised national policy on housing and urban development in the country.
This development jerked the number to over 90 registered primary mortgage institutions (PMIs) in country ranging from the little known one-branch names to the more household multi-branch names.
The government in its move to restore confidence in the sector and make it more economically viable also mulled recapitalization of the Primary Mortgage Institutions (PMIs).
Whatever might have happened to that policy, mortgage financing all over the world is a multi-billion dollar industry and experts are of the views that Nigeria cannot play politics with this fact for too long.
Available statistics showed that Wells Fargo, a US based mortgage bank and the biggest home-loan servicer, posted $2.9 billion in mortgage-banking income in the first quarter of 2012, while Lloyds Banking Group, the leading mortgaging financing institution in the UK, provided £26.2 billion of gross new mortgage lending in 2012 to its retail customers in UK.
These facts in concrete terms translated into supporting over 55,000 customers in buying their first home, equivalent to one in every four first time buyers in the countries.
In Nigeria before the regulators again went into slumber they had implored all primary mortgage institutions (PMIs) to re-capitalise to the stipulated N5 billion minimum capital base.
Precisely, the Central Bank of Nigeria’s (CBN) operational guidelines for the PMIs stipulated N2.5 billion as the new minimum capital base for PMIs operating at state level, and N5 billion for those wishing to operate at national level.
Despite the affirmations that the mortgage sector is the future of the nation’s economy and that recapitalization of the PMIs is expected to deepen the sector sentiments that it will take some firms out of business were grossly expressed.
According to the president of the Mortgage Banking Association of Nigeria (MBAN), Femi Johnson at the end of the process half of the operators would remain in business.
He said, “When I say half of them, it doesn’t mean that others will not be in business. It is just that the number will shrink by way of business combination. A lot of people are talking to one another; you find situations where three or more banks are talking of merger while some others are talking about acquisition and so, at the end of the day, the number will reduce which does not mean that some of the operators will fizzle out of business.”
Johnson said a lot of the operators have decided to operate at state level while a few others are ready to operate at the national level, adding that those who cannot make it to the national level for now can operate at the state and upgrade to the national level later.
If well implemented Walter Akpani, MD/CEO, United Mortgages Limited is convinced that the revised guidelines will bring a positive turnaround in the mortgage industry, hoping that it will, in the first instance, provide a level playing field for all operators, and engender confidence in PMIs.
He points out that the revised guideline is an opportunity for the PMI’s to be more creative, envisaging that growth will be witnessed among those PMIs that are able to add value to their customers in terms of product offering and cost of doing business.
Lawrence Ovuehor , an Economist noted that the move will restore confidence in the sector saying the operators in the mortgage sector have been given enough time to know what to do.
He said, “They could mergers to meet up with the requirement with those who have scaled through. Some could decide to stay as a state mortgage bank which is at N2.5 billion. So I strongly believe that they need to be well capitalised to move the sector forward.”
Other operators who bared their minds on the issue are quite excited about the ongoing re-capitalisation effort because of its immediate and long-term benefit and expected positive impact on housing.
Thus, most of the operators are strategising and/or negotiating business combinations in terms of mergers and acquisitions to raise the required capital, while only a few appears to have sorted out their capital raising business.
As issues of liquidity challenges cannot be ruled out, the PMIs have the options of raising capital through rights issue, private placement, public offer, business combination, mergers and acquisition, take-over or downscaling.
Until this is resolved experts feel no meaningful impact will be made in the housing sector as finance must be available to till the soil.
According to Akin Olawore , a frontline Realtor ,”What we have right now is a situation whereby the developer has to do infrastructure, he has to put things on the ground; if he goes to the bank; the bank will say bring collateral and bring committed off takers, so that the bank can be sure they will get their money back.
“Interest rates at a very high rate, the problem of access to long term fund for housing must be addressed. Right now you have people who are working, earning salary and paying rents; paying rents that if we structure mortgage properly, not 18% mortgage, their rent is higher than mortgage.
“If you structure 20-25 years mortgage at 7-8% – which is even still higher anyway. The rent Nigerians are paying right now is more than enough of what they need to service their mortgage and own the house. There is also the problem of building materials and all that which should be tackled.
The Managing Director of Realty Point Limited, a real estate giant Mr. Debo Adejana said “ Access to mortgage provisions helps affordability a great deal especially when the cost and tenure of finance are very competitive.
“The interest rate/charges payable on a mortgage and the tenure of the loan are critical elements of affordability, the lower the rate and the longer the tenure, the more affordable the house type because it means more people will be able to take and repay such loans based on their current earning since constitutionally, individuals are not allowed to spend more than about 30% of their earnings on housing”.
With issue of recapitalization resolved two important pieces of legislative instruments that stakeholder want resolved include the Foreclosure Bill, and Mortgage Finance Corporation.
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